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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 December 31, 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
COSTA MESA, CALIFORNIA
(Address of principal executive offices)
92626
(Zip Code)
(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 __________ No X
----------
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 February 14, 1997
-------------------------------------- --------------------------------
Common Stock, par value $.01 per share 5,025,383 shares
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SAFETY COMPONENTS INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
INDEX
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets - December 31, 1996 (Unaudited)
and March 31, 1996........................................... 3
Consolidated Statements of Operations - Three months
ended December 31, 1996 (Unaudited) compared to three
months ended December 31, 1995 (Unaudited). Nine months
ended December 31, 1996 (Unaudited) compared to nine months
ended December 31, 1995 (Unaudited).......................... 4
Consolidated Statements of Cash Flows - Nine months
ended December 31, 1996 (Unaudited) compared to nine months
ended December 31, 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............................... 13
SIGNATURE ............................................................... 14
</TABLE>
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SAFETY COMPONENTS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ............ $ 10,060 $ 12,033
Accounts receivable (Note 4) ......... 13,571 16,614
Inventories (Note 4).................. 7,430 5,315
Prepaid and other .................... 1,491 925
-------------- ------------
Total current assets............. 32,552 34,887
Property, plant and equipment............ 28,276 12,192
Goodwill................................. 16,706 -
Other assets............................. 5,381 2,752
-------------- ------------
Total assets..................... $ 82,915 $ 49,831
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................... $ 6,972 $ 8,066
Accrued liabilities .................. 6,612 1,057
Current portion of long-term
obligations ........................ 5,369 697
-------------- ------------
Total current liabilities ........ 18,953 9,820
Long-term obligations .................... 18,665 3,087
Other long-term liabilities .............. 6,767 1,580
-------------- ------------
Total liabilities ................ 44,385 14,487
Stockholders' equity:
Common stock, $.01 par value per
share, authorized 10,000,000
shares, issued and outstanding
5,025,383 shares at December 31,
1996, and 5,048,500 shares
at March 31,1996................... 51 51
Common stock warrants................. 1 1
Additional paid-in capital............ 30,062 30,058
Treasury stock, 113,492 shares at
December 31, 1996, and 90,000
shares at March 31, 1996, at cost.. (1,647) (1,379)
Retained earnings..................... 10,400 6,979
Cumulative translation adjustment..... (337) (366)
-------------- ------------
Total stockholders' equity........ 38,530 35,344
-------------- ------------
Total liabilities and stockholders'
equity ........................... $ 82,915 $ 49,831
============== ============
</TABLE>
See condensed notes to consolidated financial statements.
3
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SAFETY COMPONENTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
ended ended ended ended
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales ............................. $ 24,662 $ 24,447 $ 59,711 $ 73,447
Cost of sales ......................... 19,382 21,047 48,063 63,490
--------------- ------------ ----------- -------------
Gross profit ....................... 5,280 3,400 11,648 9,957
Selling and marketing expense ......... 502 383 1,199 850
General and administrative expense .... 1,396 1,074 3,219 3,650
Amortization of goodwill............... 232 0 386 0
--------------- ------------ ----------- -------------
Operating income ................... 3,150 1,943 6,844 5,457
Other expense (income) ................ 119 (36) 192 (138)
Interest expense (income), net ........ 445 (66) 695 (178)
--------------- ------------ ----------- -------------
Income before income taxes ......... 2,586 2,045 5,957 5,773
Provision for income taxes ............ 1,166 748 2,536 2,086
--------------- ------------ ----------- -------------
Net income .................... $ 1,420 $ 1,297 $ 3,421 $ 3,687
=============== ============ =========== =============
Earnings per common and common
equivalent share................... $ .28 $ .25 $ .68 $ .75
=============== ============ =========== =============
Weighted average common and common
equivalent shares................... 5,052,617 5,240,139 5,056,690 4,931,404
=============== ============ =========== =============
</TABLE>
See condensed notes to consolidated financial statements.
4
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SAFETY COMPONENTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
ended ended
December 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Cash flow from operating activities:
Net income................................ $ 3,421 $ 3,687
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities:
Depreciation.......................... 1,245 775
Amortization.......................... 393 -
Changes in assets and liabilities:
Accounts receivable................. 7,531 (7,937)
Inventories......................... (525) 1,318
Deferred income taxes............... - -
Prepaid and other current assets.... (551) (1,354)
Accounts payable.................... (2,505) 317
Accrued liabilities................. 2,460 520
Other assets and liabilities........ (922) 37
--------- ---------
Net cash provided by (used for)
operating activities............. 10,547 (2,637)
--------- ---------
Cash flow from investing activities:
Additions to property, plant and
equipment................................ (7,951) (3,282)
Acquisition of Phoenix Airbag GmbH........ (25,043) -
--------- ---------
Net cash provided by (used for)
investing activities.................... (32,994) (3,282)
--------- ---------
Cash flow from financing activities:
Net proceeds from exercise and
sale of common stock and options..... 4 16,469
Purchase of treasury stock............ (268) (795)
Repurchase of stock warrants.......... - (94)
Net borrowings (repayments) under
long-term obligations................ 20,087 372
--------- ---------
Net cash provided by
financing activities................. 19,823 15,952
--------- ---------
Effect of exchange rate changes on cash.... (361) (282)
--------- ---------
Change in cash and cash equivalents........ (2,985) 9,751
Cash and cash equivalents, beginning of
period.................................... 13,045 3,846
--------- ---------
Cash and cash equivalents, end of period... $ 10,060 $ 13,597
========= =========
</TABLE>
See condensed notes to consolidated financial statements.
5
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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 and nine months
ended December 31, 1996 and as of and for the three and nine months ended
December 31, 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 December 31,
1996 and the results of its operations and of its cash flows for the three and
nine months ended December 31, 1996 and December 31, 1995, respectively.
2. PUBLIC OFFERING
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 International Corporation 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 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. ACQUISITION OF PHOENIX AIRBAG GMBH
On August 6, 1996 the Company acquired Phoenix Airbag GmbH ("Phoenix
Airbag"), 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 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 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. The annual performance targets for 1996 were
met and one third of the contingent purchase price, approximately $2.5 million,
is included in accrued liabilities at December 31, 1996. If the annual
performance targets for 1997 and 1998 are not met, the Company will acquire the
remaining twenty percent (20%) without any additional consideration beyond the
payment for 1996. Additionally, the Company will, under certain circumstances,
be required to provide a bank guaranty, in August 1997, to secure the payment of
up to approximately $4.0 million of the remaining contingent purchase price.
6
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SAFETY COMPONENTS INTERNATIONAL, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. ACQUISITION OF PHOENIX AIRBAG GMBH (CONTINUED)
The following unaudited pro forma information presents a summary of the
consolidated results of operations of the Company and Phoenix Airbag as if the
acquisition had occurred at the beginning of the fiscal year ended March 31,
1996, with pro forma adjustments to give effect to the amortization of goodwill,
interest on acquisition debt and certain other adjustments, together with the
related income tax effect. The pro forma presentation reflects 100% of the
income of Phoenix Airbag.
March 31,
(In thousands, except per share amounts) 1996
----
Net sales............................... $ 128,118
Net income.............................. $ 5,475
Earnings per share...................... $ 1.10
4. COMPOSITION OF CERTAIN BALANCE SHEET COMPONENTS (IN THOUSANDS)
December 31, March 31,
1996 1996
---- ----
Accounts receivable:
Billed receivables................... $ 8,670 $ 4,779
Unbilled receivables (net of
unliquidated progress
payments of $9,368 and $30,945 at 2,652 8,588
December 31, 1996 2,249 3,247
and March 31, 1996, respectively).. ----------- -----------
Other................................ $ 13,571 $ 16,614
=========== ===========
Inventories:
Raw materials........................ $ 4,228 $ 2,297
Work-in-process...................... 2,021 1,958
Finished goods....................... 1,181 1,060
----------- -----------
$ 7,430 $ 5,315
=========== ===========
5. LONG-TERM OBLIGATIONS
On August 1, 1996, the Company entered into a loan agreement with Bank of
America National Trust and Savings Association. The loan agreement provided the
Company with financing for the acquisition of Phoenix Airbag 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. (The term
loan, revolving credit facility and stand-by letter of credit facility are
collectively referred to as the "Bank of America Facility".) Indebtedness under
the Bank of America Facility is secured by substantially all the assets of the
Company and bears interest at a LIBOR indexed rate plus 2-1/4%. Subsequent to
entering into the Loan Agreement the Company entered into a swap agreement with
Bank of America which fixes the interest rate on a portion of the outstanding
term loan balance at 8.79%. The Bank of America Facility also 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 prohibitions as to the
payment of dividends.
7
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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 (the "U.S. Agreement"), 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. The Company
signed a two-year agreement (the "European Agreement") and commenced
manufacturing of passenger side airbags in Europe for TRW in December 1993 and
also received orders and commenced manufacturing driver side airbags in the U.S.
for TRW in April 1994. The European Agreement has an automatic renewal provision
for successive three month terms until either party provides written notice of
termination no less than three months prior to expiration of the current term.
In December 1996, the Company and TRW renewed the U.S. Agreement (the "Renewed
U.S. Agreement"), effective as of April 1996, to extend through the end of
calendar year 1999. The Renewed U.S. Agreement is also a requirements contract
under which TRW has agreed to purchase airbags from the Company in amounts
sufficient to satisfy TRW's requirements for inclusion in certain automobile
models, provided that the Company's prices, technology, delivery, performance
and quality remain competitive. The Renewed U.S. Agreement does not obligate TRW
to purchase a specific number of driver and passenger side airbags, but instead,
contains quantity estimates of TRW's requirements for driver and passenger side
airbags for specified models in calendar years 1996 through 1999. The terms of
the Renewed U.S. Agreement relating to the Company's requirements to maintain
production capability, price adjustments and termination for cause by TRW are
substantially the same as in the U.S. Agreement. In addition, the Renewed U.S.
Agreement provides TRW with the right to terminate the agreement without cause
upon 90 days prior written notice. Moreover, under the Renewed U.S. Agreement,
the Company is not precluded from manufacturing and selling automotive airbags
to other manufacturers of airbag systems that compete with TRW.
In September 1995, the Company was awarded a purchase order from Delphi Interior
Lighting ("Delphi"), a subsidiary of General Motors Corporation, pursuant to
which Delphi has committed to purchase from the Company approximately 50% of
Delphi's requirements for passenger side airbags for its C/K Truck models for
model year 1997.
The Company acquired Phoenix Airbag GmbH ("Phoenix Airbag") in August 1996, 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 and one in Poland. The Company
expects to replace the functions of these subcontractors with its own facility
currently under construction in the Czech Republic. Construction is scheduled to
be completed in February 1997 with production commencing shortly thereafter. 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. As the Company
continues to expand its airbag operations worldwide, it will continue to
experience variability in its operating results.
Defense Division. Historically, the demand for the Defense Division's products
has been driven primarily by the U.S. Government's purchase of small and medium
caliber military ammunition. In September 1994, the Company was awarded a
systems contract for approximately $60 million by the U.S. Army for the delivery
of 120mm mortar cartridges (the "Systems Contract"). Under the Systems Contract,
the Company serves as the prime contractor coordinating the
8
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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.
The Company's failure to receive the award for the follow-on orders is
expected to adversely affect the level of sales in the Company's Defense
Division upon completion of the current Systems Contract. U.S. Government
contracts and contracts with defense contractors are, by their terms, subject to
termination by the U.S. Government for its convenience. Fixed-price contracts
provide for payment upon termination for items delivered to and accepted by the
government, and, if the termination is for convenience, for payment of the
contractor's costs incurred through the date of termination plus the costs of
settling and paying claims by terminated subcontractors, other settlement
expenses, and a reasonable profit on the costs incurred. In light of the
variability of the Defense Division's performance and the future outlook for the
U.S. defense ordnance budget, although the Company intends to take the necessary
steps to realize the $23 million in backlog under the current Systems Contract
and will continue to bid on additional Systems opportunities as they arise it
will concentrate its efforts on maximizing the growth potential of the
Automotive Division.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1995.
Net Sales. Net sales for the Automotive Division increased to $20,559,000 for
the three months ended December 31, 1996 from $12,126,000 for the same period in
the prior year, principally reflecting the Company's acquisition of Phoenix
Airbag. The Company's sales of passenger and driver side airbags produced for
the North American market increased, primarily as a result of sales to Delphi
and increased sales of driver side bags to TRW, partially offset by lower sales
of passenger side airbags to TRW. Sales to TRW-Europe decreased as a result of
lower unit prices reflecting redesigned products and lower fabric prices. Period
to period, the Company's unit sales volume increased by approximately 142%.
Net sales for the Defense Division decreased to $4,103,000 for the three months
ended December 31, 1996 from $12,321,000 for the same period in the prior year.
Defense sales were lower reflecting the current contract schedule for the
Systems Contract, which has been delayed as a result of the failure of one of
the Company's subcontractors to meet the U.S. Army's revised engineering
standards and obtain government process approval for final load, assembly and
pack. As a result of these issues, the U.S. Army has extended the time for
delivery and the Company now anticipates, based upon discussions with the
subcontractor and the U.S. Army, that deliveries will begin in the first quarter
of fiscal year 1998. The reduced sales under the Systems Contract were partially
offset by the increased sales of metal ordnance products.
Gross Profit. Gross profit of the Automotive Division increased to $4,488,000
for the three months ended December 31, 1996 from $1,875,000 for the same period
in the prior year. The increase in gross profit resulted from increased sales
volumes in Europe, principally due to the acquisition of Phoenix Airbag, and
also to a lesser extent due to increased sales volumes in North America and
ongoing cost reduction programs. Gross profit as a percentage of sales increased
to approximately 22% for the three months ended December 31, 1996 from
approximately 15% for the three months ended December 31, 1995.
Gross profit for the Defense Division decreased to $792,000 for the three months
ended December 31, 1996 from $1,525,000 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 increased to $1,487,000 for
the three months ended December 31, 1996 from $940,000 for the same period in
the prior year. The increase resulted primarily from greater expenditures
related to the continued expansion of the Company's business and increased
marketing expenses on higher sales volumes.
Selling, general and administrative expenses for the Defense Division decreased
to $411,000 for the three months ended December 31, 1996 from $517,000 for the
same period in the prior year. The decrease reflected lower allocated corporate
overhead expenses, and, to a lesser extent, lower bid and proposal costs.
9
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Operating Income. Operating income for the Automotive Division increased to
$2,769,000 for the three months ended December 31, 1996 from $935,000 for the
same period in the prior year. The increase period to period resulted primarily
from the Company's acquisition of Phoenix Airbag and from the continued
improvement in the profitability of the North American manufacturing operations,
due to higher sales volume and greater efficiencies.
Operating income for the Defense Division decreased to $381,000 for the three
months ended December 31, 1996 from $1,008,000 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 change in product mix.
Net Income. Net income increased to $1,420,000 for the three months ended
December 31, 1996 from $1,297,000 for the same period in the prior year. The
income tax provision was calculated using a 40% combined federal and state
income tax rate for the U.S. operations and a 48% rate for the European
operations. Interest expense, net of interest income, was $445,000 for the three
months ended December 31, 1996 compared to $66,000 of net interest income for
the same period in the prior year. Increased interest expense resulted from the
financing costs of the $20 million term loan used for the acquisition of Phoenix
Airbag. Other expense was $119,000 for the three months ended December 31, 1996
compared to other income of $36,000 for the three months ended December 31,
1995. 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. The majority of the Automotive Division's transactions in North America
are conducted in U.S. Dollars. The Company continually evaluates and monitors
its foreign currency risks. To date, the Company has determined that the
benefits of hedging the foreign currency exposure have not outweighed the costs
associated thereto.
NINE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1995.
Net Sales. Net sales for the Automotive Division increased to $47,444,000 for
the nine months ended December 31, 1996 from $37,826,000 for the same period in
the prior year, principally reflecting the Company's acquisition of Phoenix
Airbag. The Company's sales of passenger and driver side airbags produced for
the North American market increased, primarily as a result of sales to Delphi
and increased sales of driver side bags to TRW, partially offset by lower sales
of passenger side airbags to TRW. These increases were partially offset by lower
sales to TRW-Europe.
Net sales for the Defense Division decreased to $12,267,000 for the nine months
ended December 31, 1996 from $35,621,000 for the same period in the prior year.
Defense sales were down reflecting the Systems Contract schedule delays referred
to above. The reduction in sales under the Systems Contract was partially offset
by the increased sales of metal ordnance products.
Gross Profit. Gross profit of the Automotive Division increased to $9,417,000
for the nine months ended December 31, 1996 from $5,593,000 for the same period
in the prior year. The increase in gross profit resulted from increased sales
volumes in Europe due to the acquisition of Phoenix Airbag and, to a lesser
extent, increased sales volumes in North America and ongoing cost reduction
programs. The increase in gross profit was partially offset by decreased sales
volumes in the U.K. Gross profit as a percentage of sales increased to
approximately 20% for the nine months ended December 31, 1996 from approximately
15% for the nine months ended December 31, 1995.
Gross profit for the Defense Division decreased to $2,231,000 for the nine
months ended December 31, 1996 from $4,364,000 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 slightly to
$3,275,000 for the nine months ended December 31, 1996 from $2,919,000 for the
same period in the prior year. The increase resulted primarily from greater
expenditures related to the continued expansion of the Company's business and
increased marketing expenses on higher sales volumes.
Selling, general and administrative expenses for the Defense Division decreased
to $1,143,000 for the nine months ended December 31, 1996 from $1,581,000 for
the same period in the prior year, reflecting lower allocated corporate overhead
expenses on lower revenues.
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Operating Income. Operating income for the Automotive Division increased to
$5,756,000 for the nine months ended December 31, 1996 from $2,674,000 for the
same period in the prior year. The increase period to period resulted primarily
from the Company's acquisition of Phoenix Airbag and, to a lesser extent, from
the continued improvement in the profitability of the manufacturing operations
due to higher sales volume and greater efficiencies.
Operating income for the Defense Division decreased to $1,088,000 for the nine
months ended December 31, 1996 from $2,783,000 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 change in product mix.
Net Income. Net income decreased to $3,421,000 for the nine months ended
December 31, 1996 from $3,687,000 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 47% rate for the European
operations. Interest expense net of interest income was $695,000 for the nine
months ended December 31, 1996 compared to $178,000 of net interest income for
the same period in the prior year. The increase in interest expense resulted
from the financing costs of the $20 million term loan used for the acquisition
of Phoenix Airbag. Other expense was $192,000 for the nine months ended December
31, 1996 compared to $138,000 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.
On June 21, 1995, the Company completed its second 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, 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 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 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. Phoenix Airbag met the performance targets for calendar year 1996 and one-
third of the contingent purchase price has been accrued at December 31, 1996. If
the annual performance targets for 1997 and 1998 are not met, the Company will
acquire the remaining twenty percent (20%) without any additional consideration.
Additionally, the Company will, under certain circumstances, be required to
provide a bank guaranty, in August 1997, to secure the payment of up to
approximately $4.0 million of the contingent purchase price.
On August 1, 1996, the Company entered into a loan agreement with Bank of
America National Trust and Savings Association. The loan agreement provided the
Company with financing for the acquisition of Phoenix Airbag 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. (The term
loan, revolving credit facility and stand-by letter of credit facility are
collectively referred to as the ("Bank of America Facility"). Indebtedness under
the Bank of America Facility is secured by substantially all the assets of the
Company and bears interest at the LIBOR indexed rate plus 2-1/4%. The Bank of
America 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
prohibitions on the payment of dividends.
11
<PAGE>
The Company, as of December 31, 1996, has outstanding commitments for capital
expenditures for additional property, plant and equipment of approximately $2
million, which includes the completion of the Czech facility and the acquisition
of additional equipment to expand the Company's production capacity worldwide.
The Company will pay for these capital expenditures through the use of cash on
hand, from the proceeds of the June 1995 public offering, additional equipment
financing and use of the Company's revolving credit facility.
This Form 10-Q 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, costs 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
ability of a subcontractor of the Company to resolve its disputes with the U.S.
Army, the timing of defense procurement and specific defense program
appropriation decisions.
12
<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
10.1 TRW/SCI Multi Year Agreement dated as of April 1, 1996 among TRW
Vehicle Safety Systems, Inc., TRW, Inc. and Safety Components
International, Inc. Confidential treatment requested as to certain
portions of this exhibit. Such portions have been redacted.
10.2 Exhibits and Schedules to Credit Agreement dated as of March 15, 1996
among Safety Components International, Inc., Automotive Safety
Components International, Inc., Galion, Inc., Valentec Systems, Inc.
and Citicorp USA, Inc.
10.3 Amendment No. 1 to Loan Agreement among Safety Components
International, Inc., Automotive Safety Components International, Inc.,
ASCI Holdings Germany (DE), Inc. and Bank of America National Trust &
Savings Association dated as of September 30, 1996.
10.4 Amendment No. 2 to Loan Agreement among Safety Components
International, Inc., Automotive Safety Components International, Inc.,
ASCI Holdings Germany (DE), Inc. and Bank of America National Trust &
Savings Association dated as of October 31, 1996.
10.5 Amendment No. 3 to Loan Agreement among Safety Components
International, Inc., Automotive Safety Components International, Inc.,
ASCI Holdings Germany (DE), Inc. and Bank of America National Trust &
Savings Association dated as of December 31, 1996.
11.1 Statement of Computation of Per Share Earnings
27 Financial Data Schedule
13
<PAGE>
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: February 14, 1997 By: /s/ W. Hardy Myers
----------------- ------------------------------
W. Hardy Myers
Chief Financial Officer
(Principal Accounting Officer)
14
<PAGE>
Exhibit Index
EXHIBIT DESCRIPTION PAGE
10.1 TRW/SCI Multi Year Agreement dated as of April 1,
1996 among TRW Vehicle Safety Systems, Inc., TRW,
Inc. and Safety Components International, Inc.
Confidential treatment requested as to certain
portions of this exhibit. Such portions have been
redacted.
10.2 Exhibits and Schedules to Credit Agreement dated as
of March 15, 1996 among Safety Components
International, Inc., Automotive Safety Components
International, Inc., Galion, Inc., Valentec Systems,
Inc. and Citicorp USA, Inc.
10.3 Amendment No. 1 to Loan Agreement among Safety
Components International, Inc., Automotive Safety
Components International, Inc., ASCI Holdings
Germany (DE), Inc. and Bank of America National
Trust & Savings Association dated as of September
30, 1996.
10.4 Amendment No. 2 to Loan Agreement among Safety
Components International, Inc., Automotive Safety
Components International, Inc., ASCI Holdings
Germany (DE), Inc. and Bank of America National Trust
& Savings Association dated as of October 31, 1996.
10.5 Amendment No. 3 to Loan Agreement among Safety
Components International, Inc., Automotive Safety
Components International, Inc., ASCI Holdings
Germany (DE), Inc. and Bank of America National Trust
& Savings Association dated as of December 31, 1996.
11.1 Statement of Computation of Per Share Earnings
27 Financial Data Schedule
15
<PAGE>
EXHIBIT 10.1
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked "[***]", have been
separately filed with the Securities and Exchange Commission.
TRW / SCI
MULTIYEAR AGREEMENT
INCLUDES:
. PURCHASE AGREEMENT
. ASCI REVISION "D" DRAFT
. J. AIELLO PCN LOG
. TERMS AND CONDITIONS
<PAGE>
PURCHASE AGREEMENT
------------------
THIS PURCHASE AGREEMENT (this "Agreement") is entered into as of the 1st
day of April, 1996, by and between TRW TRW VEHICLE SAFETY SYSTEMS INC. ("VSSI"),
a Delaware corporation, TRW INC., an Ohio corporation, acting for and on behalf
of its TRW Safety Systems/Mesa operations ("Mesa") (VSSI, TRW Inc. and Mesa
being collectively referred to herein as "Buyer"), and SAFETY COMPONENTS
INTERNATIONAL INCORPORATED ("Seller") a Delaware corporation, for the purpose of
establishing the terms and conditions on which Buyer will purchase from Seller
and Seller will sell automotive airbag cushion assemblies ("Product").
Buyer and Seller agree as follows:
1.0 VOLUME AND PRICE
1.1 Volume and Price
----------------
(a) Buyer will purchase from Seller its requirements for Product as
described in Exhibit 1 hereto in accordance with the terms and conditions
set forth in Exhibit 1 for the identified calendar years, provided that
Seller's prices, delivery, technology and quality remain competitive.
(b) The associated volume estimates set forth in Exhibit 1 (the
"Volume Estimates") are provided solely for Seller's planning purposes and
do not constitute a commitment or obligation of any kind on the part of
Buyer to purchase such quantities. However, Seller shall maintain the
capacity to manufacture and ship twenty-five percent (25%) more than the
Volume Estimates in each calendar year.
(c) The Volume Estimates do not, in and of themselves, authorize
Seller to procure raw materials, manufacture Product or build inventories
in advance of Seller's receipt of Buyer's Releases (as defined below),
other than as stated in Section 2.4 below.
(d) Seller will supply all Product ordered by Buyer up to a maximum
of one hundred twenty-five percent (125%) of the Volume Estimates for each
calendar year.
<PAGE>
2.0 RELEASES AND SUPPLY OF GOODS
2.1 Releases: Unless in Buyer's judgment supply frequency requirements
--------
dictate otherwise, Buyer will issue to Seller bi-weekly releases, in the form
specified by Buyer ("Releases"), consisting of a Shipping Authorization (as
described in Section 2.2) and the Material Planning & Authorization (as
described in Section 2.3). If there is any conflict in the terms of Releases,
the most recent Release will prevail; provided, however, that Seller will be
-------- -------
fully compensated hereunder for its actions in supplying Product identified by a
Shipping Authorization, in fabricating Product pursuant to a Fabrication
Authorization (as described in Section 2.3) and in procuring materials pursuant
to a Raw Material Authorization (as described below) taken or committed to prior
to the receipt of such later Release.
2.2 Shipping Authorization: Each Shipping Authorization will authorize
----------------------
Seller to ship specified quantities of Product for arrival at the location
designated by Buyer on specified due dates. Those quantities identified by a
Shipping Authorization will be the only quantities Seller is authorized to
deliver to Buyer.
2.3 Material Planning & Authorization: Each Material Planning &
---------------------------------
Authorization will state the following information:
(a) the quantities of Product that Seller will be authorized to
fabricate ("Fabrication Authorization").
(b) the quantities of Product for which Seller will be authorized to
procure the necessary raw materials ("Raw Material Authorization"). Buyer
will have no obligation for any fabrication with respect to the materials
procured pursuant to such Raw Material Authorization, other than as has
been authorized by a Fabrication Authorization.
2.4 Finished Goods Inventory: Seller will maintain at its sole expense
------------------------
finished goods inventory consisting of two (2) weeks' supply of the Product as
estimated on Buyer's latest Material Planning and Authorization (the "Finished
Goods Inventory"). Buyer at its option may draw down such inventory and in such
event Seller will have a reasonable time in which to replenish the Inventory.
The Finished Goods Inventory will be maintained at ASCI's Otay facility in Mesa,
Arizona.
2.5 Deliveries: Seller will deliver all Product in the quantities and on
----------
the dates specified by Shipping Authorization unless any variance thereto is
agreed in writing by Buyer. Seller will bear all expenses, losses or costs
reasonably incurred by Buyer as a result of any failure by Seller to deliver
Product in accordance with any Shipping Authorization. Seller will deliver
Product on either of the following trade terms designated by Buyer and in
-2-
<PAGE>
accordance with the method of shipment (such as sea, air, rail or truck)
designated by Buyer:
(a) C.I.F. (Incoterms 1980) with All Risks Insurance, named port of
destination; or
(b) Delivered Duty Paid (Incoterms 1980), named place of destination.
Seller will separately invoice Buyer for the following (collectively, the
"Delivery Charges"): (i) freight to the named port or place of destination, (ii)
export licenses, export taxes and export fees, (iii) premium, if any, incurred
for the Insurance of Product during shipment, (iv) loading and unloading costs,
if any, and (v) if Buyer has designated Delivered Duty Paid trade terms, import
licenses, import duties, import taxes and import fees.
2.6 Notification of Inability to Deliver: Seller will immediately notify
------------------------------------
Buyer of any inability to supply Product in accordance with the terms of a
Shipping Authorization. Seller may be required by Buyer to submit a plan to
prevent reoccurrence of such inability. Buyer may take such action as it deems
necessary to prevent reoccurrence, including increasing the required size of the
Finished Goods Inventory.
2.7 Invoices: Seller may not submit invoices to Buyer until after
--------
shipment to Buyer of the Product to which such invoices relate. All invoices
must include purchase order number, TRW part number, Release number, quantity
shipped and date of shipment. Payment will be due from Buyer within thirty (30)
days of invoice date but Buyer will be entitled to a one percent (1%) discount
if payment is made within ten (10) days of Buyer's receipt of Seller's Invoice.
3.0 QUALITY/PROCESS CONTROL
3.1 Specifications: Product will conform in all respects with all Buyer
--------------
drawings and specifications identified on purchase orders or Releases issued by
Buyer from time to time under this Agreement (the "Specifications").
3.2 Compliance with Quality Control Standards: Seller will comply with
-----------------------------------------
Buyer's Supplier Development Program Manual QPS-0100, Revision F, dated June
1995, and all amendments and supplements thereto and all restatements thereof
(the "Quality Manual"), the provisions of which are hereby incorporated herein
by reference. Seller acknowledges that it has previously received a copy of the
Quality Manual.
3.3 Compliance with Law: All Product supplied under this Agreement are to
-------------------
be manufactured and shipped in accordance with all applicable local, state and
federal laws and regulations.
-3-
<PAGE>
4.0 GENERAL TERMS AND CONDITIONS
The provisions of this Agreement include the General Terms and Conditions
of Purchase which appear on the reverse side of Buyer's purchase order form (the
"Terms and Conditions"), a copy of which is attached as Attachment B to Exhibit
1 hereto, and which are hereby incorporated herein by this reference. In the
event of any conflict between the provisions of this Agreement and Exhibit 1
hereto or the Terms and Conditions, the provisions of this Agreement will
govern. This Agreement, together with Exhibit 1 hereto and the Terms and
Conditions, is in lieu of and overrides any contrary term or condition,
preprinted or otherwise, that may appear on any form used (a) by Buyer to
purchase, offer to purchase, or to confirm the purchase of any Product or (b) by
Seller to acknowledge such purchase, offer or confirmation.
5.0 TERMINATION
5.1 Termination Without Cause: Buyer, at its option, may terminate this
-------------------------
Agreement on at least ninety (90) days' prior written notice to Seller.
5.2 Termination For Cause: Buyer may terminate this Agreement upon the
---------------------
occurrence of any of the following events ("Default"):
(a) Seller's failure to comply with any term of this Agreement; or
(b) Seller's insolvency, bankruptcy or dissolution; or
(c) seller's failure to give Buyer, upon request, reasonable
assurances of Seller's future performance; or
(d) Any other event which causes reasonable doubt as to Seller's
ability to render due performance hereunder.
6.0 EFFECT OF TERMINATION
6.1 Seller's Obligation Upon Termination Without Cause: Upon Buyer's
--------------------------------------------------
termination of this Agreement pursuant to Section 5.1 above, Seller will, unless
otherwise directed by Buyer, (a) immediately terminate all work under this
Agreement; (b) transfer title and deliver to Buyer all finished Product
conforming to Buyer's Specifications, work in process (provided that Buyer
authorized the fabrication of such work in process by a Fabrication
Authorization) and raw material (provided that Buyer authorized the procurement
of such Raw Material by a Raw Material Authorization); and (c) take all action
necessary to protect property in Seller's possession in which Buyer has or may
acquire an interest and, if requested, return such property.
6.2 Buyer's Obligation Upon Termination Without Cause: Upon Buyer's
-------------------------------------------------
termination of this Agreement pursuant to Section 5.1 above,
-4-
<PAGE>
Buyer will pay to Seller an amount equal to the sum of: (a) the contract price
for all finished Product transferred and delivered to Buyer in accordance with
clause (b) of Section 6.1; plus (b) Seller's actual cost of the work in process
and raw materials transferred and delivered to Buyer in accordance with clause
(b) of Section 6.1, provided that Buyer's obligations under this clause may not
exceed the obligation Buyer would have had to Seller in the absence of
termination.
6.3 Seller's Claim Period: Seller will submit to Buyer promptly, but not
---------------------
later than sixty (60) days from the effective date of termination, its claim for
payment pursuant to Section 6.2 ("Termination Claim"). If Seller fails to submit
its Termination Claim within such period, Buyer may determine on the basis of
information available to it the amount, if any, due Seller with respect to the
termination and such determination will be final and binding on Seller.
6.4 Access to Records: Buyer will have access to Seller's premises and
-----------------
records, prior and subsequent to payment, to verify the Termination Claim.
6.5 Buyer's Obligation Upon Termination for Cause: Buyer will have no
---------------------------------------------
obligation to Seller if this Agreement is terminated by Buyer because of the
occurrence of a Default.
6.6 Exclusive Remedy: Section 6.0 is a complete statement of Seller's
----------------
recoverable damages related to Buyer's termination of this Agreement with or
without cause. Seller hereby waives all other direct, indirect, consequential,
incidental, or other damages (including lost profits) for Buyer's termination of
this Agreement, even if Buyer has been advised of the possibility of such
damages.
6.7 Surviving Rights and Obligations: Termination of this Agreement will
--------------------------------
not terminate vested rights or relieve either party from due performance of all
obligations which by their nature continue after the termination of this
Agreement, including, but not limited to, the following paragraphs of the Terms
and Conditions:
Paragraph 5 Product Warranties
Paragraph 6 Product Indemnification
Paragraph 7 Infringement Indemnification
Paragraph 13 Proprietary Information-
Confidentiality--Advertising
Paragraph 14 License to Repair; Use of Copyrighted
Materials
Paragraph 15 Indemnity/Insurance
-5-
<PAGE>
7.0 MERGER/AMENDMENT
This Agreement supersedes all prior agreements and understandings between
the parties respecting the subject matter hereof. The provisions of this
Agreement may not be amended, supplemented or otherwise modified except by a
written agreement signed by an authorized individual for each party.
8.0 HEADINGS
Section headings used in this Agreement are for convenience only and are
not a part of this Agreement for any other purpose.
9.0 GOVERNING LAW
This Agreement will be governed by and construed in accordance with the
laws of the State of Michigan. The parties hereto stipulate that any litigation
which relates to this Agreement or the transactions contemplated hereby may only
be filed in the United States District Court for the district in which Buyer's
principal place of business is located, except that if such court lacks subject
matter jurisdiction, any such action may be filed in a court of the State of
Michigan having subject matter jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives.
TRW VEHICLE SAFETY SYSTEMS SAFETY COMPONENTS
INC. INTERNATIONAL INCORPORATED
By:_______________________ By: ______________________
Title:________________ Title: CEO
---------------------
Date: 1/8/97 Date: Dec. 4, 1996
------------ ----------
TRW INC.
By:_______________________
Title:________________
Date:___________, 1996
-6-
<PAGE>
The information marked by "[***]" has been omitted pursuant to a request for
---
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
EXHIBIT 1
=========
DRAFT FOR AIRBAG PURCHASE AGREEMENT - REVISION "D" - JULY 12, 1996
------------------------------------------------------------------
This Airbag Purchase Agreement is entered into this 1st day of April, 1996 by
and between TRW VEHICLE SAFETY SYSTEMS INCORPORATED, a Delaware Corporation
("TRW") and SAFETY COMPONENTS INTERNATIONAL INCORPORATED, a Delaware Corporation
("SCI"), acting on behalf of its Automotive Safety Components International
Division ("ASCI"), for the purpose of establishing the terms and conditions on
which TRW will purchase from ASCI and ASCI will supply automotive airbag cushion
assemblies ("Product").
1 General (Basis For Multi-Year Agreement)
----------------------------------------
1.1 The long term agreement will consist of a four year contract for
calendar years 1996, 1997, 1998 and 1999.
1.2 [ *** ]
---
1.3 Contributing factors inclusive in calendar year 1996 Cost Reductions
shall include peso devaluation benefits, productivity improvements,
overhead reduction, off-all scrap savings, freight savings and ASCI
cost reduction projects which were identified as part of the Calendar
Year 1996 Cost Reduction directive.
1.4 The following programs have been identified as Calendar Year 1996 Cost
Reduction directive programs. [ *** ]
---
Please Note: Should current program products change from stated Part Number and
- -------------------------------------------------------------------------------
Revision level stated in Attachment "A", provisions Stated in Section 5 "PRODUCT
- --------------------------------------------------------------------------------
DESIGN CHANGES" will apply.
- ---------------------------
<PAGE>
The information marked by "[***]" has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
Draft for Airbag Purchase Agreement - Revision "D" - July 12, 1996
Page Two
1.5 The following programs have been identified as Calendar Year 1996
Cost reduction directive programs. [ *** ]
---
1.6 In Calendar Years 1997, 1998, and 1999, Value Analysis program
------------------------------------------------------------------------
savings will be evenly split between ASCI and TRW after ASCI has
----------------------------------------------------------------
been reimbursed for cost of implementation.
------------------------------------------
1.7 ASCI shall maintain all current business (platforms/volumes)
presently held by ASCI, Ensenada and will receive replacement
business for current programs through calendar year 1999 provided
that TRW is awarded the replacement business by their customers,
and as long as ASCI remains competitive. Please see Attachment
"A" for current platform program designations and associated
volumes.
1.8 [ *** ]
---
1.9 [ *** ]
---
1.10 [ *** ]
---
1.11 In calendar years 1997, 1998 and 1999, should the aggregate total
of passenger and driver cushions exceed the volumes listed in
Attachment "A" (1,966,966 products), TRW will continue to enjoy
the per unit savings from each product purchased above the listed
volumes.
<PAGE>
The information marked by "[***]" has been omitted pursuant to a request for
---
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
Draft for Airbag Purchase Agreement - Revision "D" - July 12, 1996
Page Three
1.12 [ *** ]
---
1.13 Cost savings realized from product manufacturing in China are not
included in savings calculations. Amendment(s) for "China Bag"
manufacturing may be forthcoming.
1.14 "Terms and Conditions of Purchase" for this agreement have been
provided, see Attachment "B". Because the savings commitments provided
by ASCI are tied to production orders from TRW over a four year
period, the following altered language for Section 10 - Termination
for Convenience, shall apply:
1.14.1 Termination for Convenience: Buyer, at its option may
---------------------------
terminate this Agreement on at least ninety (90) days' prior
written notice to Seller.
1.14.2 Effect of Termination
---------------------
1.14.2.1 Seller's Obligation Upon Termination for Convenience:
-----------------------------------------------------
Upon Buyer's termination of this Agreement pursuant
to Section 1.14.1 above, Seller will, unless
otherwise directed by Buyer, (a) immediately
terminate all work under this Agreement; (b) transfer
title and deliver to Buyer all finished Product
conforming to Buyer's Specifications work in process
(provided that Buyer authorized the fabrication of
such work in process by a Fabrication Authorization)
and raw material (provided that Buyer authorized the
procurement of such Raw Material by a Raw Material
Authorization); and (c) take all action necessary to
protect property in Seller's possession in which
Buyer has or may acquire an interest and, if
requested, return such property.
1.14.2.2 Buyer's Obligation Upon Termination for Convenience:
----------------------------------------------------
Upon Buyer's termination of this Agreement pursuant
to Section 1.14.2.1 above, Buyer will pay to Seller
an amount equal to the sum of: (a) the contract price
for all finished Product transferred and delivered to
Buyer in accordance with clause (b) of Section
1.14.2.1; plus (b) Seller's actual cost of the work
in process and raw materials transferred and
delivered to Buyer in accordance with clause (b) of
Section 1.14.2.1, provided that Buyer's obligations
under this clause may not exceed the obligation Buyer
would have had to Seller in the absence of
termination. In addition, Buyer shall reimburse
Seller for all cost savings provided to Buyer within
------------------------
a twelve month period from the time of termination.
--------------------------------------------------
(previously read "...outlined in this agreement up to
and including that offered for Calendar Year 1996.)
<PAGE>
The information marked by "[***]" has been omitted pursuant to
---
a request for confidential treatment. The omitted portion has
been separately filed with the Securities and Exchange Commission.
Draft for Airbag Purchase Agreement - Revision "D" - July 12, 1996
Page Four
1.14.2.3 Seller's Claim Period
---------------------
Seller will submit to Buyer promptly, but not later than
sixty(60) days from the effective date of termination,
its claim for payment pursuant to Section 1.14.2.2
("Termination Claim"). If Seller fails to submit its
Termination Claim within such period, Buyer may determine
on the basis of information available to it the amount,
if any, due Seller with respect to the termination and
such determination will be final and binding on Seller.
2 Calendar Year 1996 Cost Reduction Payout (Paid by ASCI.)
--------------------------------------------------------
2.1 [ *** ]
---
2.2 New product prices will be put into effect on April 1, 1996. These
prices will be those listed in Attachment "A". TRW should adjust
current purchase orders to reflect these prices.
2.3 ASCI will provide the balance of the cost reductions (from the one
time management challenge) via additional product price reductions or
lump sum distribution on or before December 15, 1996.
3 Pricing Formula
---------------
[ ***
---
]
<PAGE>
Draft for Airbag Purchase Agreement - Revision "D" - July 12, 1996
Page Five
4 Annual Savings for Calendar Years 1997, 1998 and 1999
-----------------------------------------------------
4.1 Savings will be calculated as a fixed percentage of direct labor
cost, variable overhead cost (burden on labor), fixed overhead cost
(ASCI Value Added) and G & A cost only.
---------
4.2 The fixed percentage used for savings will be determined by that
outlined in Sections 1.4 through and including Section 1.8 of this
document.
4.3 Contributing factors inclusive in these savings totals shall include
peso devaluation benefits, productivity improvements, overhead
reductions, freight savings, off-all scrap savings and 50% of value
analysis (V.A.) benefits not listed in Sections 1.4 and 1.5 (the other
50% from V.A. benefits will be provided to TRW as additional savings
for each specific program).
5 New Business
------------
5.1 All new business will be presented using the newly described pricing
formula described in Section 3.
5.2 Price of labor, overheads (both variable and fixed), G & A and profit
will remain constant for the first year of production (from Production
Ramp date), providing no design alterations have been made.
5.3 Price reductions for additional years will follow that described in
Section 4.
6 Product Design Changes
----------------------
6.1 Should a design alteration occur on an existing product, and the level
of the design change requires that a new part number be assigned, for
purposes of this agreement the new design will be treated as "New
Business" and will follow that outlined in Section 5.
6.2 Should a design alteration occur on an existing product, and the level
of the design change not require that a new part number be assigned,
the cost differential for this product will determined through the use
of the new Pricing Formula described
<PAGE>
Draft for Airbag Purchase Agreement - Revision "D" - July 12, 1996
Page Six
in Section 3. Savings from this design change, provided it is not
included in Sections 1.4 and 1.5, will be provided to TRW. Design
change items inclusive in Section 1.4 and 1.5 have been included in
the Calendar Year 1996 Cost Reduction total by ASCI.
6.3 Savings resulting from Product design changes recommended by ASCI
personnel will be split evenly between TRW and ASCI.
7 Peso Adjustment/Mexican Government Mandated Labor Increases
-----------------------------------------------------------
7.1 For Calendar Years 1996, 1997, 1998 and 1999, TRW will not receive
benefit or loss for Mexican Peso fluctuations, nor will existing
product prices listed in Attachment "A" be effected by Mexican
Government Mandated Wage increases.
8 Amendments To Previously Executed Airbag Purchase Agreement(s)
--------------------------------------------------------------
8.1 Once executed, this Agreement will supersede all previous agreement,
either written or oral.
<PAGE>
The information marked by "[***]" has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
ATTACHMENT A
[***
---
]
<PAGE>
<PAGE>
ATTACHMENT B
Draft of 5/29/90
----------------
TERMS AND CONDITIONS OF PURCHASE
--------------------------------
"Buyer" means the TRW Safety Systems/Mesa operation of TRW Inc. and
TRW Vehicle Safety Systems Inc.; "Buyer's Terms" means the terms and conditions
on the face and back of this order and any other terms and conditions
specifically incorporated herein by reference; "Seller" means the vendor shown
on the face of this order; and "Goods" means the products of Seller shown on the
face of this order and all raw materials, components, tooling, equipment and
supplies to be delivered by and all services to be provided by Seller hereunder.
1. Acceptance: (a) Seller will be deemed to have accepted this order when
----------
Seller returns the acknowledgement copy of this order or begins performance
under this order. Seller's acceptance is limited to acceptance of Buyer's
Terms. Buyer hereby objects to and rejects any proposal by Seller for
additional or different terms. If Seller proposes additional or different
terms which relate to the description, quantity, price or delivery schedule
of the Goods, Seller's proposal will operate as a rejection of Buyer's
offer; in all other cases, Seller's proposal will be deemed a material
alteration of Buyer's Terms, and Buyer's Terms will be deemed accepted by
Seller without Seller's additional or different terms.
(b) If this order is deemed an acceptance of Seller's prior offer, Buyer's
acceptance is limited to Buyer's Terms. Any proposal by Seller for
additional or different terms or any attempt to modify Buyer's Terms will
be deemed a material alteration of Buyer's Terms, and Buyer objects to and
rejects such other terms, but this order will not operate as a rejection of
Seller's offer unless it contains variances in the terms of the
description, quantity, price or delivery schedule of the Goods.
(c) Seller and Buyer agree that, notwithstanding the prior or subsequent
use by Seller of any order form, invoice or other document containing
printed terms or conditions, they are contracting solely on the basis of
this order, which contains the entire understanding of the parties and is
intended as a final expression of their agreement and a complete statement
of the
-1-
<PAGE>
Draft of 5/29/90
----------------
terms thereof, and may not be amended, modified or otherwise supplemented
unless such amendments, modifications or supplements are in writing and
signed by Buyer's authorized representative. A provision contained in any
order form, invoice or other document used by Seller (whether prior or
subsequent to the date hereof) which is inconsistent with this subparagraph
will have no force or effect and will not be binding on the Buyer unless
such provision is contained in an order form, invoice or other document
dated subsequent to the date hereof and is specifically initialled by
Buyer's authorized representative.
2. Delivery: (a) Time is of the essence in this order. Seller will make
--------
deliveries in the quantities and at the times specified herein or in
releases issued hereunder. If Seller's deliveries fail to meet Buyer's
delivery schedule, Buyer, in addition to its other rights, may direct
expedited routing and charge Seller for any excess costs incurred as a
result.
(b) Buyer will not be liable for Seller's commitments or production
arrangements in excess of the amount or in advance of the time required
under Buyer's delivery schedule. If Seller delivers Goods in advance of
Buyer's delivery schedule, Buyer may either (i) return such Goods at
Seller's expense for proper delivery; or (ii) withhold payment for such
Goods until the scheduled delivery date and place such Goods in storage for
Seller's account until the scheduled delivery date. While the Goods are
being returned in accordance with (i) of the preceding sentence or being
retained in accordance with (ii) of such sentence, the Goods will be at
Seller's risk.
3. Quality: Seller will maintain an inspection and quality system acceptable
-------
to Buyer and in conformity with any drawings, specifications and data which
are part of this order and with any quality program of Buyer described in
materials referenced on the face of this order and incorporated herein by
such reference. Seller will maintain adequate authenticated inspection and
test reports, affidavits, and certifications relating to the work performed
under this order, retain such records for a period of ten (10) years after
completion of this order or as otherwise specified by Buyer, and make such
records available
-2-
<PAGE>
Draft of 5/29/90
----------------
to Buyer upon request. Seller acknowledges that Buyer may reduce its
incoming inspection procedures in reliance upon Seller's maintenance of a
quality system as required hereunder.
4. Inspection and Acceptance of Goods: (a) Buyer may inspect all Goods ordered
----------------------------------
hereunder at all times and places, including during the period of
manufacture. Such inspection may at Buyer's option include confirmation of
Seller's compliance with required quality control procedures. Seller will
permit Buyer and/or its designess access to Seller's facilities at all
reasonable times and will provide all tools, facilities and assistance
reasonably necessary for such inspection and/or confirmation at no
additional cost to Buyer. All Goods are subject to final inspection and
acceptance anytime after delivery to Buyer.
(b) Notwithstanding any acts of Buyer which may be deemed under applicable
law to constitute acceptance of the Goods, payment for delivered Goods will
not constitute acceptance thereof. Buyer many reject any Goods which do not
meet the specifications set forth in this order. Buyer may return any such
Goods to Seller for reimbursement, credit, replacement or correction as
Buyer may direct, or Buyer may correct and/or replace such Goods at
Seller's cost. Any Goods rejected by Buyer will be at Seller's risk and
expense and Seller will not thereafter tender such Goods for acceptance
unless the former rejection or requirement of correction is disclosed.
Seller will reimburse Buyer for any packaging, handling and transportation
costs Buyer incurs with respect to rejected Goods.
(c) Buyer may revoke its acceptance of Goods at any time, whether or not a
substantial modification to the Goods has been made, if a defect in the
Goods which could not have been discovered during Buyer's normal inspection
procedures or which is not normally discoverable until the Goods are used
substantially impairs the value of the Goods to Buyer.
(d) Neither Buyer's exercise of nor its failure to exercise, any rights
provided hereunder will relieve the Seller from responsibility for such
Goods as are not in accordance with the order requirements or impose
liability on Buyer therefor.
-3-
<PAGE>
Draft of 5/29/90
----------------
5. Product Warranties: (a) Seller warrants that the Goods (i) will be fit and
------------------
sufficient for the purpose intended (if Seller knows or has reason to know
the particular purpose for which Buyer intends to use the Goods); (ii) will
be of merchantable quality and free from all defects, including defects in
material and workmanship, and, if not of Buyer's detailed written design,
defects in design; and (iii) will conform with all representations,
descriptions, samples, drawings, plans, specifications, designs and other
data supplied by Seller or listed on the front side of this order. The
foregoing warranties are in addition to those available to Buyer by law.
(b) All warranties hereunder will survive Buyer's acceptance, use and/or
payment and will run to Buyer and its customers.
(c) Buyer's review or approval of any samples, drawings, specifications or
other data developed by Seller in connection with this order will not limit
Seller's responsibility under the warranties contained herein or alter the
cost, rate of output or delivery requirements of this order.
(d) Buyer's specifications and requirements take precedence over industry
standards. Seller will advise Buyer in writing if Buyer's specifications or
requirements are not as extensive as industry standards.
6. Product Indemnification: Seller will indemnify, defend and hold harmless
-----------------------
Buyer, its officers, employees, agents, successors, assigns, customers, and
users of its products from and against any and all losses, expenses,
damages, claims, suits and liabilities (including recall, repair and
replacement expenses and other incidental and consequential damages; court
costs and attorneys' fees) arising as a result of actual or alleged breach
of any warranties or other terms contained herein or arising under any
strict tort or negligence claims premised on either an actual or alleged
defect in the Goods. At Buyer's request, Seller will assume promptly full
responsibility for the defense of any action described in this paragraph
which may be brought or threatened by a third party against Seller and/or
Buyer.
-4-
<PAGE>
Draft of 5/29/90
----------------
7. Infringement Indemnification: Seller will indemnify and hold harmless
----------------------------
Buyer, its officers, employees, agents, successors, assigns, customers and
users of its products from and against any and all losses, expenses,
damages, claims, suits and liabilities (including incidental and
consequential damages, court costs and attorneys' fees) arising as a result
of any claim that the manufacture, use, sale or resale of any Goods
infringes any patent, utility model, industrial design, copyright, or other
intellectual property right in any country. Seller will, when requested by
Buyer, defend any action or claim of such infringement at its own expense.
Seller's obligations under the preceding two sentences will apply even
though Buyer furnishes all or any portion of the design of or specifies all
or any portion of the processing for the Goods. If the sale and/or use of
the Goods is enjoined or, in Buyer's sole judgment, is likely to be
enjoined, Seller will, at Buyer's election and Seller's sole expense,
either procure for Buyer the right to continue using such Goods, or replace
same with equivalent noninfringing goods, or modify such Goods so they
become noninfringing, or remove same and refund the purchase price,
including transporation, installation, removal and other charges incidental
thereto.
8. Changes: Buyer may at any time by a written order but without notice to
-------
sureties change drawings, designs, specifications, materials, packing, time
and place of delivery or method of transportation. If any such change
increases or decreases the cost or time required for Seller's performance
hereunder, an equitable adjustment will be made and this order will be
modified in writing accordingly. Any claim by Seller for any adjustment
hereunder must be made within ten (10) days of the date Seller is first
notified of the change. If Seller's claim includes any cost for property
made obsolete as a result of the change, Buyer may prescribe the manner in
which such property will be disposed. Pending the resolution of any dispute
regarding any such adjustment, Seller will diligently pursue the order as
changed. No change to design, material, process, procedures or practice is
to be made by Seller without written authorization by Buyer.
-5-
<PAGE>
Draft of 5/29/90
----------------
9. Force Maieure: If, due to forces beyond its control, Buyer determines to
-------------
alter Buyer's delivery schedule to delay delivery, the provisions of this
paragraph (rather than the preceding paragraph) will control. Seller will
hold any such delayed Goods at the direction of Buyer and will deliver them
when the cause affecting the delay has been removed. Buyer will be
responsible only for Seller's direct additional costs (excluding interest
on the purchase price) incurred in holding the Goods or delaying
performance at Buyer's request. Either party will be excused from
performance which has been made impracticable by the occurrence of a
contingency the nonoccurrence of which was a basic assumption on which the
order was offered and accepted, or by good faith compliance with any law,
even if later found invalid.
10. Termination for Convenience: Buyer may terminate this order or any part of
---------------------------
it for its convenience by written notice to Seller. Upon receipt of notice
of termination, Seller will immediately stop all work hereunder and cause
any of its suppliers or subcontractors to cease such work. Buyer will pay
Seller for all goods which are (i) ready for shipment in accordance with
this order's delivery schedule prior to Seller's receipt of the termination
notice, (ii) conform to all requirements of this order, and (iii) are free
and clear of all encumbrances. Buyer will not pay for any work done after
Seller's receipt of notice of termination, nor for any costs incurred by
Seller's suppliers or subcontractors which Seller could reasonably have
avoided.
11. Termination for Cause: Buyer may terminate this order or any part hereof
---------------------
for cause in the event of a Default by Seller."Default" means (i) Seller's
failure to comply with any of the terms and conditions of this order; (ii)
Seller's failure to give Buyer, upon request, reasonable assurances of
Seller's future performance; (iii) insolvency, bankruptcy, liquidation or
dissolution of Seller; or (iv) any other event which causes reasonable
doubt as to Seller's ability to render due performance hereunder. If, after
termination for Default, it is determined that Seller was not in Default,
the rights and obligations of the parties will be the same as if the
termination was for Buyer's convenience.
-6-
<PAGE>
Draft of 5/29/90
----------------
12. Default--Cancellation: In the event of Default, Buyer may, upon written
---------------------
notice to Seller but without further liability to Seller, (i) waive all or
any part of the Default; (ii) agree in writing to any change in or
modification of this order as Buyer may in its judgment deem advisable;
(iii) cancel this order in whole or in part; (iv) purchase goods in
substitution for those to be supplied by Seller hereunder and charge Seller
for any excess cost resulting therefrom; and/or (v) exercise any other
rights or remedies Buyer may have under applicable law. Seller's liability
for Default will include Buyer's incidental and consequential damages.
13. Proprietary Information--Confidentiality--Advertising:
---------------------------------------------------
(a) Seller will consider all information furnished by Buyer hereunder
(including drawings, specifications, or other documents prepared by Seller
for Buyer in connection with this order) to be confidential and will not
disclose any such information to any other person, or use such information
itself for any purpose other than performing this order, unless Seller
obtains Buyer's prior written permission. Seller will not advertise or
publish the fact that Buyer has contracted to purchase Goods from Seller,
or disclose any information relating to the order without Buyer's written
permission.
(b) Unless otherwise agreed in writing, no information disclosed in any
manner or at any time by Seller to Buyer will be deemed secret or
confidential, and Seller will have no rights against Buyer with respect
thereto except such rights as may exist under patent laws.
14. License to Repair; Use of Copyrighted Materials: Seller hereby grants to
----------------------------------------------
Buyer a nonexclusive, royalty-free, irrevocable, worldwide license to
repair, rebuild, reconstruct and relocate the Goods. Seller also grants to
Buyer a nonexclusive, paid-up, irrevocable, worldwide license to use all
copyrighted materials of Seller which are furnished to Buyer during the
course of Seller's performance hereunder and which relate to any Goods.
Without limiting the generality of the foregoing, Buyer's use of such
copyrighted materials pursuant to such license may include reproduction,
distribution to customers and others and public display.
-7-
<PAGE>
Draft of 5/29/90
----------------
15. Indemnity/Insurance: To the extent Seller's agents, employees or
-------------------
subcontractors enter upon premises occupied by or under the control of
Buyer or any of its customers or suppliers in the course of the performance
of this order, Seller will take reasonable steps to prevent any injury to
persons or property arising out of acts or omissions of such agents,
employees, or subcontractors. Except to the extent that any such injury or
damage is due solely and directly to Buyer's negligence, Seller will
indemnify, defend and hold Buyer, its officers, employees and agents,
harmless from and against any and all losses, expenses, damages, claims,
suits, or any liability whatsoever (including incidental and consequential
damages, court costs and attorneys' fees) arising out of any act or
omission of Seller, its agents, employees or subcontractors. Seller will
maintain and require its subcontractors to maintain (i) public liability
and property damage insurance, including contractual liability (both
general and vehicle) in amounts sufficient to cover obligations set forth
above, and (ii) workers' compensation and employer's liability insurance
covering all employees engaged in the performance of this order for claims
arising under any applicable workers' compensation, occupation disease or
health and safety laws and/or regulations. Seller will furnish certificates
evidencing such insurance which will expressly provide that no expiration,
termination or modification will take place without thirty (30) days'
written notice to Buyer. Any property of Buyer used by Seller in the
performance of this order will be deemed to have been under the sole
custody and control of Seller during the period of such use by Seller.
16. Buyer's Property: (a) Buyer will retain title to any property Buyer
----------------
furnishes to Seller. Seller will not alter or use such property for any
purpose other than that specified by Buyer or for any other person without
the prior written consent of Buyer. Seller will keep adequate records of
such property, which records will be made available to Buyer upon request,
and will store, protect, preserve, repair and maintain such property in
accordance with sound industrial practice, all at Seller's expense.
-8-
<PAGE>
Draft of 5/29/90
----------------
(b) If Buyer's property becomes lost or damaged while in Seller's
possession, Seller will indemnify Buyer or replace such property at
Seller's expense, in accordance with Buyer's request. At the completion,
cancellation or termination of this order for which Buyer's property was
required, Seller will request disposition instructions for all such
property, or the remainder thereof, whether in its original form or in
semiprocessed form. Seller will make such property available to Buyer at
Buyer's request, in the manner directed by Buyer, including preparation,
packaging and shipping as directed. Expenses for preparation for shipment
will be for Seller's account and shipment will be made F.O.B. Seller's
plant.
17. Tooling: Unless otherwise specified in this order, all tooling and/or all
-------
other articles required for the performance hereof will be furnished by
Seller, who will maintain such articles in good condition and replace them
when necessary at Seller's expense whether furnished by Buyer or Seller.
Seller will not use any such article furnished by Buyer except for
performance by Seller hereunder.
18. Compliance with Laws: In the performance of this order, Seller will fully
--------------------
comply with all applicable law and will hold Buyer harmless from any
liability resulting from Seller's failure to so comply.
19. Taxes: Seller's prices will be exclusive of any federal, state or local
-----
sales, use or excise taxes levied upon, or measured by, the sale, the sales
price, or use of the Goods. Seller will list separately on its invoice any
such tax lawfully applicable to the Goods and payable by Buyer with
respect to which Buyer does not furnish to Seller lawful evidence of
exemption.
20. Setoff: All claims for money due or to become due from Buyer will be
------
subject to deduction or setoff by Buyer for any counterclaim arising from
this or any other transaction with Seller.
21. Notice of Delay: Seller will immediately give Buyer a detailed written
---------------
notice of any event (including an actual or potential
-9-
<PAGE>
Draft of 5/29/90
----------------
labor dispute) of which Seller becomes aware and which may delay Seller's
timely performance of this order.
22. Payments: Buyer will pay the prices stipulated on this order for Goods
--------
delivered and accepted, less deductions, if any, as herein provided, but
only upon submission by Seller of an invoice. The prices for Goods will not
be subject to any variation without the prior written consent of Buyer.
Unless otherwise specified, Buyer will pay for partial deliveries accepted
by the Buyer.
23. Remedies: The rights and remedies provided Buyer herein will be cumulative
--------
and in addition to any other remedies provided by law or equity. Buyer's
waiver of a breach of any provision hereof will not constitute a waiver of
any other breach.
24. Severability: Any provision of this order which is finally determined to
------------
be unlawful will be deemed severed from this order and every other lawful
provision of this order will remain in full force and effect.
25. Assignments and Subcontracting: No part of this order may be assigned or
------------------------------
subcontracted without the prior written approval of Buyer.
26. Government Contracts: (a) The provisions of the following sections of the
--------------------
Federal Acquisition Regulations (48 C.F.R. Part 52) are incorporated herein
by this reference: (i) 52.222-26, Equal Opportunity (APR 1984); (ii)
52.222-35, Affirmative Action for Special Disabled and Vietnam Era Veterans
(APR 1984); and (iii) 52.222-36, Affirmative Action for Handicapped Workers
(APR 1984).
(b) If the face of this order specifies that this order is issued under
government contract, (i) the terms and conditions on form GC-1 (Rev. 10/86)
are herein incorporated by this reference and will govern over any
inconsistent terms herein; (ii) all references to Buyer herein will include
reference to the United States Government.
-10-
<PAGE>
Draft of 5/29/90
----------------
27. Fair Labor Standards: Seller warrants that the Goods will be made in
--------------------
compliance with the Fair Labor Standards Act of 1938, as amended.
28. Governing Law: This order will be governed by the laws of the state shown
-------------
in Buyer's address on the face of this order.
5/29/90
-11-
<PAGE>
EXHIBIT 10.2
<PAGE>
SCHEDULES TO CREDIT AGREEMENT OF SAFETY COMPONENTS INTERNATIONAL, INC.
SCHEDULE 1 - EXISTING DEBT
EQUIPMENT NOTES PAYABLE
-----------------------
1.*Promissory Note, for manufacturing equipment located in Ensenada, Mexico,
dated December 31, 1993 with General Electric Capital Corporation.
2.*Promissory Note, for manufacturing equipment located in Ensenada, Mexico,
dated February 15, 1994 with General Electric Capital Corporation.
3.*Promissory Note, for manufacturing equipment located in Ensenada, Mexico,
dated April 12, 1995 with General Electric Capital Corporation.
4.*Promissory Note, to be executed for the purchase of manufacturing equipment
in favor of General Electric Capital Corporation for approximately
$1,200,000.
CREDIT AGREEMENTS
-----------------
5.Revolving Credit agreement between Congress Financial Corporation and Safety
Components International Inc., payable at the discretion of the borrower with a
$3.5 million maximum limit and interest payable monthly at prime plus 1.0%,
expiring July 18, 1996.
GUARANTEES
----------
6.*Guarantee of Safety Components International, Inc. in favor of Midland Bank
relating to overdraft and deposit facility between Midland Bank and Automotive
Safety Components International Limited for the amount of 500,000 pounds.
OTHER DEBT
----------
7.*European Coal and Steel Community ("ECSC") Loan to Automotive Safety
Components International Limited dated January 20, 1994 administered by Midland
Bank on behalf of ECSC. Principal is due in annual installments of $194,125
beginning January 12, 1999 to January 12, 2002.
8.*Chattel Mortgage, for manufacturing equipment located at Automotive Safety
Components International Limited, dated November 13, 1993 with Forward Asset
Finance Limited.
9.*Automotive Safety Components International Limited has an overdraft and
deposit facility of 500,000 pounds with Midland Bank.
*All of the above listed indebtedness will remain outstanding after the Closing
except for Item 5 above.
2
<PAGE>
SCHEDULES TO CREDIT AGREEMENT OF SAFETY COMPONENTS INTERNATIONAL, INC.
SCHEDULE 2 - EXISTING LIENS
1. The following liens:
<TABLE>
<CAPTION>
===================================================================================================================
Name and Address of Name and Address of Place of Filing (State Filing/Recording Info Collateral
Debtor Secured Party and Dept. or County) Description
===================================================================================================================
<S> <C> <C> <C> <C>
Safety Components Congress Financial Sec. of State, CA Recorded: 07/18/94 Accounts, contract
International, Inc. Corporation (Western) -------- rights, general
3190 Pullman St. 225 South Lake Ave. Doc. #: 94-146172 intangibles,
Costa Mesa, CA Pasadena, CA 91101* ---- documents,
92626 instruments,
inventory,
equipment, fixtures,
and other property
- -------------------------------------------------------------------------------------------------------------------
Safety Components Congress Financial Sec. of State, OH Recorded: 07/19/94 Accounts, contract
International, Inc. Corporation (Western) -------- rights, general
3190 Pullman St. 225 South Lake Ave. Doc. #: AL15779 intangibles,
Costa Mesa, CA Pasadena, CA 91101* ------ documents,
92626 instruments,
inventory,
equipment, fixtures,
and other property
- -------------------------------------------------------------------------------------------------------------------
Safety Components Congress Financial Crawford County, Recorded: 7/18/94 Accounts, contract
International, Inc. Corporation (Western) OH -------- rights, general
3190 Pullman St. 225 South Lake Ave. County Recorder Doc. #: 21244 intangibles,
Costa Mesa, CA Pasadena, CA 91101* ------ documents,
92626 instruments,
inventory,
equipment, fixtures,
and other property
- -------------------------------------------------------------------------------------------------------------------
Galion, Inc. Congress Financial Sec. of State, CA Recorded: 07/18/94 Accounts, contract
515 N East St. Corporation Western -------- rights, general
Galion, OH 44833 225 South Lake Ave. Doc. #: 94-146174 intangibles,
Pasadena, CA 91101* ------ documents,
instruments,
inventory,
equipment, fixtures,
and other property
- -------------------------------------------------------------------------------------------------------------------
Galion, Inc. Congress Financial Sec. of State, TN Recorded: 07/18/94 Accounts, contract
515 N East St. Corporation Western -------- rights, general
Galion, OH 44833 225 South Lake Ave. Doc. #: 94332086 intangibles,
Pasadena, CA 91101* ------ documents,
instruments,
inventory,
equipment, fixtures,
and other property
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
SCHEDULES TO CREDIT AGREEMENT OF SAFETY COMPONENTS INTERNATIONAL, INC.
SCHEDULE 2 - EXISTING LIENS
<TABLE>
<CAPTION>
===================================================================================================================
Name and Address of Name and Address of Place of Filing (State Filing/Recording Info Collateral
Debtor Secured Party and Dept. or County) Description
===================================================================================================================
<S> <C> <C> <C> <C>
Galion, Inc. Congress Financial Crawford County Recorded: 7/18/94 Accounts, contract
515 N East St. Corporation Western County Recorder -------- rights, general
Galion, OH 44833 225 South Lake Ave. Doc. #: 21243 intangibles,
Pasadena, CA 91101* ------ documents,
instruments,
inventory,
equipment, fixtures,
and other property
- --------------------------------------------------------------------------------------------------------------------
Galion, Inc. Congress Financial Summit County, OH Recorded: 7/18/94 Accounts, contract
515 N East St. Corporation Western County Recorder -------- rights, general
Galion, OH 44833 225 South Lake Ave. Doc. #: 483544 intangibles,
Pasadena, CA 91101* ------ documents,
instruments,
inventory,
equipment, fixtures,
and other property
- --------------------------------------------------------------------------------------------------------------------
Galion, Inc. Congress Financial Montgomery Recorded: 7/18/94 Accounts, contract
515 N East St. Corporation Western County, OH -------- rights, general
Galion, OH 44833 225 South Lake Ave. County Recorder Doc. #: 9408481 intangibles,
Pasadena, CA 91101* ------ documents,
instruments,
inventory,
equipment, fixtures,
and other property
- --------------------------------------------------------------------------------------------------------------------
Galion, Inc. Congress Financial Franklin County, OH Recorded: 7/18/94 Accounts, contract
515 N East St. Corporation Western County Recorder -------- rights, general
Galion, OH 44833 225 South Lake Ave. Doc. #: 23706 intangibles,
Pasadena, CA 91101* ------ documents,
instruments,
inventory,
equipment, fixtures,
and other property
- --------------------------------------------------------------------------------------------------------------------
Galion, Inc. Congress Financial Sec. of State, CT Recorded: 7/18/94 Accounts, contract
515 N East St. Corporation Western -------- rights, general
Galion, OH 44833 225 South Lake Ave. Doc. #: 1065708 intangibles,
Pasadena, CA 91101* ------ documents,
instruments,
inventory,
equipment, fixtures,
and other property
- --------------------------------------------------------------------------------------------------------------------
Galion, Inc. Congress Financial Sec. of State, OH Recorded: 7/18/94 Accounts, contract
515 N East St. Corporation Western -------- rights, general
Galion, OH 44833 225 South Lake Ave. Doc. #: AL15611 intangibles,
Pasadena, CA 91101* ------ documents,
instruments,
inventory,
equipment, fixtures,
and other property
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
SCHEDULES TO CREDIT AGREEMENT OF SAFETY COMPONENTS INTERNATIONAL, INC.
SCHEDULE 2 - EXISTING LIENS
<TABLE>
<CAPTION>
===================================================================================================================
Name and Address of Name and Address of Place of Filing (State Filing/Recording Info Collateral
Debtor Secured Party and Dept. or County) Description
===================================================================================================================
<S> <C> <C> <C> <C>
Automotive Safety Congress Financial Sec. of State, CA Recorded: 07/18/94 Accounts, contract
Components Corporation Western -------- rights, general
International, Inc. 225 South Lake Ave. Doc. #: 94-146173 intangibles,
3190 Pullman St. Pasadena, CA 91101* ------ documents,
Costa Mesa, CA instruments,
92626 inventory,
equipment, fixtures,
and other property
- --------------------------------------------------------------------------------------------------------------------
Valentec Systems, Congress Financial Dept. of State, Fl Recorded: 04/23/93
Inc. Corporation (Western) --------
3190 Pullman St. 225 South Lake Ave. Doc. #: 930000085116
Costa Mesa, CA Pasadena, CA 91101* ------
92626
- --------------------------------------------------------------------------------------------------------------------
Valentec Systems, Congress Financial Sec. of State, VA Recorded: 04/22/93
Inc. Corporation (Western) --------
3190 Pullman St. 225 South Lake Ave. Doc. #: 930422-7741
Costa Mesa, CA Pasadena, CA 91101* ------
92626
- --------------------------------------------------------------------------------------------------------------------
Valentec Systems, Congress Financial Sec. of State, CA Recorded: 07/18/94 Accounts, contract
Inc. Corporation (Western) -------- rights, general
3190 Pullman St. 225 South Lake Ave. Doc. #: 94-146171 intangibles,
Costa Mesa, CA Pasadena, CA 91101* ------ documents,
92626 instruments,
inventory,
equipment, fixtures,
and other property
=====================================================================================================================
</TABLE>
______________________________
* Will be released upon the consummation of this financing.
2)Liens securing the indebtedness described in paragraphs 1-3 of Schedule 1
above.
3)Liens to be granted securing the indebtedness to be secured as described in
paragraph 4 of Schedule 1 above.
5
<PAGE>
SCHEDULES TO CREDIT AGREEMENT OF SAFETY COMPONENTS INTERNATIONAL, INC.
SCHEDULE 5.5 - CONSENTS
A. CONSENTS
1. Landlord Waiver re: property at 2155 Paseo de las Americas, Suite 33 Otay
Mesa, San Diego, CA
2. Landlord Waiver re: property at 200 Valley Road, Mt. Arlington, NJ
3. Landlord Waiver re: property at 7580 E. Gray Road, Scottsdale, AZ
4. Landlord Waiver re: property at 3190 Pullman Street, Costa Mesa, CA
5. An assignment of claims needs to be filed relating to the assignment of
receivables under the following contract:
VALENTEC SYSTEMS, INC.
----------------------
DAAA0-94-C-0532 contract, issued by HQ, IOC, effective September 16, 1994
(120MM, M933)
Current Award Price: $65,032,406
Remaining Value: $41,100,406
Not Assigned
Modification Date Modification Date
------------ ---- ------------ ----
P00001 1/02/95 P00005 6/13/95
P00002 undated P00006 6/29/95
P00003 2/17/95 P00007 pending
P00004 3/22/95
B. NOTICES
1. Notice to sole administrator of Automotive Safety Components International,
S.A. de C.V.
<TABLE>
<CAPTION>
Jurisdiction of
Incorporation of Direct or Indirect Percentage
Borrower Subsidiaries Subsidiaries Ownership Ownership
======== ============ ============ ========= =========
<S> <C> <C> <C> <C>
Safety Components Automotive Safety
International, Inc. Components
International, Inc. Delaware Direct 100%
</TABLE>
6
<PAGE>
SCHEDULES TO CREDIT AGREEMENT OF SAFETY COMPONENTS INTERNATIONAL, INC.
SCHEDULE 5.8 - SUBSIDIARIES
<TABLE>
<S> <C> <C> <C> <C>
Galion, Inc. Delaware Direct 100%
Valentec Systems, Inc. Delaware Direct 100%
Automotive Safety
Components 9.9% (999
International, S.A. hares of 1000
de C.V. Mexico Indirect hares outstanding)
Automotive Safety
Components
International Limited United Kingdom Indirect 100%
Automotive Safety
Components
International, s.r.o. Czech Republic Indirect 100%
Automotive Safety Automotive Safety 99.9% (999
Components Components shares of 1000
International International, S.A. shares
de C.V. Mexico Direct outstanding)
Automotive Safety
Components
International Limited United Kingdom Direct 100%
Automotive Safety
Components
International, s.r.o. Czech Republic Direct 100%
</TABLE>
7
<PAGE>
SCHEDULES TO CREDIT AGREEMENT OF SAFETY COMPONENTS INTERNATIONAL, INC.
SCHEDULE 5.14 - ERISA
None.
8
<PAGE>
SCHEDULES TO CREDIT AGREEMENT OF SAFETY COMPONENTS INTERNATIONAL, INC.
SCHEDULE 5.15 - ENVIRONMENTAL, SAFETY AND HEALTH MATTERS
Safety Components International, Inc.'s financial statements included a $350,000
accrual for environmental remediation. This accrual relates to two areas of
underground contamination at Galion, Inc.'s facility in Galion, Ohio. One area
involves a localized plating solution spill which is currently being handled by
the existing waste water treatment system. The second area involves a
chlorinated solvent spill in the vicinity of a former above ground storage area.
The Company has retained environmental consultants to further quantify the
extent of this problem; such environmental consultants estimate that the
Company's voluntary plan of remediation will take three to five years to
complete.
9
<PAGE>
SCHEDULES TO CREDIT AGREEMENT OF SAFETY COMPONENTS INTERNATIONAL, INC.
SCHEDULE 5.25 - LEASES
1. Property Leased: Office/warehouse space at 2155 Paseo de las Americas,
Suite 33 Otay Mesa, San Diego, CA
Term of Lease: 4/1/95 to 3/31/98
Lessor: CASAS International Brokerage, Inc.
Lessee: Automotive Safety Components International, Inc.
Annual Rental Cost: $50,796
2. Property Leased: Office Space at 200 Valley Road, Mt. Arlington, N.J.
Term of Lease: 10/1/95 to 09/30/2000
Lessor: Mt. Arlington Corporate Center
Lessee: Valentec Systems, Inc.
Annual Rental Cost: $39,846
3. Property Leased: Office Space at 7580 E. Gray Road, Scottsdale, AZ
Term of Lease: 8/01//95 to 7/31/98
Lessor: Pacific Reality Holdings, Inc.
Lessee: Safety Components International, Inc.
Annual Rental Cost: $86,900
4. Property Leased: Buildings at Boulevard Estancia, Ensenada, Mexico
Term of Lease: 2/15/95 to 2/15/98
Lessor: Immobiliaria Calibert, S.A. de C.V
Lessee: Automotive Safety Components International, S.A. de C.V.
Annual Rental Cost: $339,768
5. Property Leased: Factory at Penyfan Industrial Estate, Crumlin, Gwent,
Wales
Term of Lease: 9/93 to 9/03
Lessor: Valentec International Ltd. (sublease)
Lessee: Automotive Safety Components International Limited
Annual Rental Cost: $112,400
10
<PAGE>
SCHEDULES TO CREDIT AGREEMENT OF SAFETY COMPONENTS INTERNATIONAL, INC.
SCHEDULE 5.26 - LIST OF MATERIAL CONTRACTS
1 Airbag Purchase Agreement by and between TRW Vehicle Safety
Systems, Inc. and Valentec International Corporation ("VIC")
dated March 31, 1993 (confidential treatment granted as to part)
2 Long-Term Contract for the Supply of Airbags by and between TRW
REPA GmbH and Valentec International Limited ("VIL") dated
September 20, 1993 (confidential treatment granted as to part)
3 Representation Agreement by and between Automotive Safety
Components International, Inc. ("Automotive Safety") and Champion
Sales and Service Co. ("Champion") effective as of May 13, 1994
4 Employment Agreement effective as of May 13, 1994, between Safety
Components International, Inc. ("SCI") and Robert A. Zummo
5 Facility Agreement dated May 13, 1994, between VIL and Automotive
Limited
6 Representation Agreement by and between Automotive Limited and
Champion effective as of May 13, 1994
7 Form of Sublease Agreement dated May 13, 1994, between VIL and
Automotive Limited
8 Contract DAAA09-94-C-0532 (Systems Contract) between SCI and the
U.S. Army
9 Lease Agreement dated February 15, 1995, between Inmobiliara
Calibert, S.A. De C.V. and Automotive Safety Components
International S.A. de C.V.
11
<PAGE>
SCHEDULES TO CREDIT AGREEMENT OF SAFETY COMPONENTS INTERNATIONAL, INC.
SCHEDULE 5.27 - INVESTMENTS
Account Account Balance at
Name Number 2/29/96
Vista Global Money Market 351 272 $ 10,485.52
Excelsior Money Market 479 7,628,016.54
Citibank Insured Money Market 468 330 75 5,944.04
12
<PAGE>
SCHEDULES TO CREDIT AGREEMENT OF SAFETY COMPONENTS INTERNATIONAL, INC.
SCHEDULE 5.28 - PATENTS, TRADEMARKS, COPYRIGHTS
None.
13
<PAGE>
EXHIBIT A
---------
TRANSFER CERTIFICATE OF MEMBER'S INTEREST
FOR VALUED RECEIVED, AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL, INC.
Please ______ Social security or other
_______________
--------------------
hereby collaterally sell, assign and transfer unto-- -------------------- ------
CITICORP USA, INC.
________________________________________________________________________________
(________________________) Certificate(s) representing 65% of the Member
Interests in AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL s.r.o. standing in my
(our) name(s) on the books of said Company represented by Member Certificate(s)
No(s)___________________________________________________________________________
herewith, and do hereby irrevocably constitute and appoint______________________
________________________________________________________attorney to transfer the
said Capital Interests on the books of said Company with full power of
substitution in the premises.
Dated March __, 1996
____________________________
____________________________
In presence of
___________________________________________________
14
<PAGE>
EXHIBIT A
REVOLVING CREDIT NOTE
---------------------
- --$10,000,000.00-- New York, New York
March __, 1996
FOR VALUE RECEIVED, the undersigned, SAFETY COMPONENTS INTERNATIONAL, INC.;
AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL, INC.; GALION, INC.; and VALENTEC
SYSTEMS, INC., (together with any successors, the "Borrowers"), hereby jointly,
severally and unconditionally promise to pay on the Maturity Date, as defined in
the Credit Agreement between the Borrowers and Citicorp USA, Inc., dated as of
March __, 1996 (the "Credit Agreement"), to the order of CITICORP USA, INC.
(together with any successor, the "Bank"), with offices located at 153 East 53rd
Street, New York, New York 10022, in lawful money of the United States of
America and in immediately available funds, an aggregate amount equal to the
lesser of (a) TEN MILLION DOLLARS ($10,000,000.00) or (b) the aggregate unpaid
principal amount of all Loans made under the Credit Agreement. The Borrowers
further promise to pay interest in like money on the unpaid principal balance
of, and, in certain cases, on the unpaid interest due on, this Note from time to
time outstanding at the rate and times and computed in the manner provided in
the Credit Agreement, but in no event in excess of the maximum rate of interest
permitted under applicable law.
All Loans made by the Bank pursuant to the Credit Agreement and all
payments of the principal thereof shall be endorsed by the holder of this Note
on the schedule annexed hereto (including any additional pages such holder may
add to such schedule), which endorsement shall constitute prima facie evidence
----- -----
of the accuracy of the information so endorsed; provided, that the failure of
--------
the holder of this Note to insert any date or amount or other information on
such schedule shall not in any manner affect the joint and several obligations
of the Borrowers to repay any Loans in accordance with the terms of the Credit
Agreement.
This Note is the promissory note referred to in the Credit Agreement, is
secured to the extent provided in the Credit Agreement and the other Credit
Documents, and is entitled to the benefits thereof and of the guaranty contained
in the Credit Agreement. The Borrowers shall make when due any and all payments
and prepayments on this Note required under the Credit Agreement. Reference is
herein made to the Credit Agreement for the rights of the holder to accelerate
the unpaid balance hereof prior to maturity and all other obligations of the
Borrowers.
The Borrowers hereby waive diligence, demand, presentment, protest and
notice of any kind, release, surrender or substitution of security, or
forbearance or other indulgence, without notice.
Capitalized terms used herein and not otherwise defined shall have the
respective meanings ascribed to them in the Credit Agreement.
This Note may not be changed, modified, or terminated orally, but only by
an agreement in writing signed by the party to be charged.
<PAGE>
IN THE EVENT OF ANY LITIGATION WITH RESPECT TO THIS REVOLVING CREDIT NOTE,
THE BORROWERS KNOWINGLY AND VOLUNTARILY WAIVE (TO THE EXTENT PERMITTED BY
APPLICABLE LAW) THE RIGHT TO A TRIAL BY JURY AND THE DEFENSES OF FORUM NON
CONVENIENS AND IMPROPER VENUE. THE BORROWERS HEREBY IRREVOCABLY CONSENT TO THE
NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF ANY
FEDERAL COURT LOCATED IN THE CITY OF NEW YORK IN CONNECTION WITH ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS REVOLVING CREDIT NOTE. THIS NOTE
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS AND SHALL BE BINDING
UPON THE SUCCESSORS AND ASSIGNS OF THE BORROWER AND INURE TO THE BENEFIT OF THE
LENDER AND ITS SUCCESSORS AND ASSIGNS. If any item or provision of this Note
shall be held invalid, illegal or unenforceable, the validity of all other terms
and provisions herein shall in no way be affected thereby.
IN WITNESS WHEREOF, the Borrowers have executed and delivered this Note on
the date first above written.
SAFETY COMPONENTS INTERNATIONAL,
INC.
By:__________________________
Name: W. Hardy Myers
Title: Chief Financial Officer
AUTOMOTIVE SAFETY COMPONENTS
INTERNATIONAL, INC.
By:__________________________
Name: W. Hardy Myers
Title: Chief Financial Officer
GALION, INC.
By:___________________________
Name: W. Hardy Myers
Title: Chief Financial Officer
16
<PAGE>
VALENTEC SYSTEMS, INC.
By:___________________________
Name: W. Hardy Myers
Title: Chief Financial Officer
17
<PAGE>
Grid Schedule
Attached to and made part of the Revolving Credit Note, dated March __,
1996, by SAFETY COMPONENTS INTERNATIONAL, INC.; AUTOMOTIVE SAFETY
COMPONENTS INTERNATIONAL, INC.; GALION, INC.; and VALENTEC SYSTEMS, INC.,
to the order of CITICORP USA, INC., pursuant to the Credit Agreement, dated
as of March __, 1996, between such parties.
________________________________________________________________________________
________________________________________________________________________________
Principal Amount Unpaid Name of
Amount Repaid or Principal Person Making
Date Borrowed Prepaid Balance Notation
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
18
<PAGE>
EXHIBIT B
NOTICE OF BORROWING
-------------------
CITICORP USA, INC., as "Lender"
and a party to the Credit Agreement
referred to below
_________________________
_________________________ [Date]
Attention: Mr. Stephen K. Goetschius
Gentlemen:
The undersigned, [Name of Borrower], refers to the Credit Agreement,
dated as of March ___, 1996 (the "Credit Agreement", the terms defined therein
being used herein as therein defined), among the undersigned, certain other
Borrowers and the Bank, and hereby gives you notice, irrevocably, pursuant to
Section 3.1 of such Credit Agreement that the undersigned hereby requests a Loan
under the Credit Agreement, and in that connection sets forth below the
information relating to such Loan (the "Proposed Borrowing") as required by
Section 3.1(b) of the Credit Agreement:
(i) The Business Day of the Proposed Borrowing is __________ ___,
199__.
(ii The aggregate amount of the Proposed Borrowing is $__________.
The undersigned hereby certifies that the following statements are
true on the date hereof, and will be true on the date of the Proposed Borrowing:
(A) the representations and warranties contained in the Credit
Agreement are true and correct in all material respects, before and after giving
effect to the Proposed Borrowing and to the application of the proceeds
therefrom, as though made on and as of such date, except to the extent that such
representations and warranties expressly relate solely to an earlier date (in
which case such
B-1
<PAGE>
representations and warranties were true and correct in all material respects on
and as of such earlier date); and
(B) no event has occurred and is continuing, or would result from such
Proposed Borrowing or from the application of the proceeds therefrom, which
constitutes an Event of Default or would constitute an Event of Default but for
the requirement that notice be given or time elapse or both.
(C) [All of the conditions precedent in Section 2.1 of the Credit
Agreement have been satisfied in full.]
(D) All of the conditions precedent in Section 2.2 of the Credit
Agreement have been satisfied in full.
Very truly yours,
[NAME OF BORROWER]
By: ____________________________
Title:
B-2
<PAGE>
EXHIBIT C
BLOCKED ACCOUNT AGREEMENT
-------------------------
March 14, 1996
Citicorp USA, Inc.
153 East 3rd Street
5th Floor/Zone 3
New York, NY 10043
Gentlemen:
i. CoreStates Bank, N.A. (herein "Bank"), is advised that you are making loans
to Safety Components International, Inc., Automotive Safety Components
International, Inc., Galion, Inc. and Valentec Systems, Inc. (herein the
"Borrowers"), with a place of business at 3190 Pullman Street, Costa Mesa,
California 92626, which are secured by, among other things, the accounts
receivable of Borrowers, and that as a normal requirement to such
financing, all *original remittances received by Borrowers as payment for
such accounts receivable should be forwarded to you daily on the day of
receipt. You have been requested by Borrowers to allow it to establish a
special account at Bank for such original remittances, with Bank forwarding
to you daily by internal day wire the total amount of such deposits made
the previous day. You have indicated that you would be agreeable to this
special arrangement provided that Borrowers' right to withdraw from the
special account is limited as set forth below, and provided that Bank
waives any right of offset it may have with respect to the special account.
i. Borrowers and Bank hereby confirm to you that Special Account ________
(herein) "Blocked Account") has been set up by Borrowers with Bank on which
only payments to your order may be drawn, and Bank hereby further agrees,
with knowledge that your continued acceptance of this procedure will be in
reliance hereon, that it will not exercise or claim any right of offset
against the Blocked Account. Bank and Borrowers further waive and release
to you any right or claim which Bank or Borrowers may have in any of the
funds deposited in the Blocked Account.
i. Unless you direct Bank in writing to the contrary Borrowers and Bank hereby
agree that Bank will transfer to you by internal day wire previous day
credits one business day after deposit of such funds.
<PAGE>
EXHIBIT C
Such transfers shall be made as follows:
Citibank, N.A.
ABA# 021000089
Credit Account: 40602292
For further credit to: Safety Components International, Inc.
*Original remittances defined as checks received in three Lock Boxes #______,
#______, and #______, wire transfers or deposits made by Borrowers.
i. All Returned checks or other deposits shall be charged to Account #______
which will be an account established by Borrowers at Bank ("Operating
Account"). All fees for the Blocked Account and expenses or adjustments for
collected funds shall be paid by Borrowers and under no circumstances will
the Blocked Account be charged for them.
a)
ii. You hereby agree to indemnify Bank against any losses, claims, or
liabilities incurred by Bank * in connection with any payments made by Bank
to you in accordance with the provisions hereof, including, without
limitations: (a) the amount of any payments made to you hereunder which
Bank is legally required to turn over to any trustee in bankruptcy or other
third person; and (b) the amount of any items returned to Bank which
represent non-payment of any items previously deposited in the Blocked
Account and paid by Bank to you, plus Bank's charges, costs and expenses in
connection with such items, to the extent that funds in the Operating
Account are insufficient or otherwise unavailable to cover all such
amounts. Nothing contained herein is intended to release the Borrowers from
any liability to Bank or to you, and Borrowers hereby agrees to indemnify
Bank and you from all liabilities, losses or damages suffered or incurred
by Bank or you in connection with any transactions arising hereunder
including, but not limited to, any attorneys' fees and costs incurred by
Bank or you in connection with any claims asserted by any trustee in
bankruptcy for Borrowers.
a)
iii As collateral security for the payment of all obligations of Borrowers to
you, howsoever evidenced or acquired, whether now existing or hereafter
arising, whether direct or indirect, absolute or contingent, Borrowers
hereby assigns, pledges and transfers to you all of its right, title and
interest in and to the Lock Boxes, Blocked Account and all sums now or
hereafter on deposit in or payable or withdrawal from said account and any
interest accrued or payable thereon. You shall have full and irrevocable
right, power and authority, to demand, collect, withdraw, receipt for or
sue for all amounts due or to become due and payable under the Blocked
Account and at your discretion may take other action, including the
transfer of said account to your own name, which you deem necessary or
appropriate to preserve or protect your security interest in the Blocked
Account.
<PAGE>
i. Bank hereby acknowledges notice of and consent to the assignment of a
security interest in the Blocked Account to you as aforesaid and agrees
that at all times it will make distribution from said account only to you
in accordance with Paragraph 3 hereof or as specifically otherwise directed
by you in writing.
a)
ii. Bank shall be fully protected in acting on any order or direction by you
respecting the Blocked Account without making any inquiry whatsoever as to
your right or authority to give such order or direction or as to the
application of any payable made pursuant thereto.
a)
iii The Blocked Account and the Lock Boxes cannot be changed without the prior
written consent of Citicorp USA, Inc.
a)
iv. This Agreement or the Blocked Account cannot be amended or terminated
without the written consent of Citicorp USA.
a)
v. Monthly statement will be mailed directly to: The Citibank Private Bank,
153 East 53rd Street, 5th Floor/Zone 3, New York, NY 10043, Attn: Mitch
Palminteri.
*Other than as a result of gross negligence of Bank
CoreStates Bank, N.A.
FC 1-3- 19-15
1500 Market Street - West Tower
Philadelphia, PA 19101
By:____________________________________________________
Title/Vice President Date
Safety Components International, Inc., Automotive Safety Components
International, Inc., Galion, Inc. and Valentec Systems, Inc.
- ------------------------------------------------------
Borrowers Date
By:____________________________________________________
Title Date
The foregoing is hereby accepted and agreed to:
CITICORP USA, Inc.
By:____________________________________________________
Title Date
<PAGE>
EXHIBIT D
PLEDGE AND SECURITY AGREEMENT
MADE BY
SAFETY COMPONENTS INTERNATIONAL, INC.,
AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL, INC.,
GALION, INC.
AND
VALENTEC SYSTEMS, INC.,
AS DEBTORS
IN FAVOR OF
CITICORP USA, INC.,
AS SECURED PARTY
DATED AS OF MARCH 15, 1996
<PAGE>
TABLE OF CONTENTS
SECTION 1. Definitions.................................................. 2
-----------
SECTION 2. Grant of Security Interest................................... 6
--------------------------
SECTION 3. Rights of Debtor and Secured Party;
-----------------------------------
Limitations on Debtor Obligations............................ 7
---------------------------------
SECTION 4. Delivery of Security Collateral and Account Collateral....... 8
------------------------------------------------------
SECTION 5. Collections.................................................. 8
-----------
SECTION 6. Representations and Warranties............................... 9
------------------------------
SECTION 7. Further Assurances........................................... 11
------------------
SECTION 8. As to Equipment and Inventory................................ 12
-----------------------------
SECTION 9. Collection of Receivables.................................... 13
-------------------------
SECTION 10. Other Covenants.............................................. 13
---------------
SECTION 11. Voting Rights, Dividends, Etc................................ 15
-----------------------------
SECTION 12. Secured Party's Appointment as Attorney-in-Fact.............. 16
-----------------------------------------------
SECTION 13. Performance by Secured Party of the Debtors' Obligations..... 18
--------------------------------------------------------
SECTION 14. Remedies..................................................... 18
--------
SECTION 15. Limitation on the Secured Party's Duty Regarding
------------------------------------------------
Preservation of Collateral................................... 20
--------------------------
SECTION 16. Powers Coupled With an Interest.............................. 20
-------------------------------
SECTION 17. No Subrogation............................................... 20
--------------
SECTION 18. Amendments with Respect to the Secured Obligations........... 20
--------------------------------------------------
<PAGE>
Page
----
SECTION 19. No Waiver; Cumulative Remedies................................ 21
------------------------------
SECTION 20. Continuing Security Interest; Successors and Assigns.......... 21
----------------------------------------------------
SECTION 21. Severability.................................................. 21
------------
SECTION 22. Headings...................................................... 21
--------
SECTION 23. Governing Law................................................. 21
-------------
SECTION 24. Notices....................................................... 21
-------
SECTION 25. Judicial Proceedings.......................................... 22
--------------------
SECTION 26. Counterparts.................................................. 22
------------
SECTION 27. Mortgage...................................................... 22
--------
Schedule 6(e): Pledged Shares..............................................
Schedule 6(j): Patents and Trademarks......................................
Schedule 6(l): Permits and Licenses........................................
Schedule 6(f)(i): Location of Inventory....................................
Schedule 6(f)(ii): Location of Equipment...................................
Schedule 6(g): Places of Business; Location of Books and Records...........
Schedule 6(h): Legal Names.................................................
Schedule 6(k): Government Obligors.........................................
<PAGE>
PLEDGE AND SECURITY AGREEMENT, dated as of March 15, 1996, made by SAFETY
COMPONENTS INTERNATIONAL, INC., AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL,
INC., GALION, INC. and VALENTEC SYSTEMS, INC. (collectively, the "Debtors") in
favor of CITICORP USA, INC., a Delaware corporation (the "Secured Party"), with
offices located at 153 East 53rd Street, New York, New York 10043.
R E C I T A L S :
- - - - - - - -
A. The Debtors, the Secured Party and the Guarantors (as defined
therein) have entered into a Credit Agreement of even date herewith (as amended,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
pursuant to which the Secured Party has agreed to make Loans to the Debtors,
upon the terms and subject to the conditions set forth therein.
B. Each Debtor is the owner of the shares of stock, and of the
warrants, rights and options to acquire the shares of stock (collectively, the
"Pledged Shares"), described opposite such Debtor's name on Part A of Schedule
6(e) hereto and issued by the corporations named therein.
C. Pursuant to the Credit Agreement, it is a condition precedent to the
obligation of the Secured Party to make the Loans that the Debtors shall have
executed and delivered this Agreement to the Secured Party and shall have
granted the assignment and security interest and made the pledge and assignment
contemplated hereby.
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements, provisions and covenants herein contained, and to induce the Secured
Party to enter into and to make the Loans under the Credit Agreement, the
Debtors hereby agree with the Secured Party as follows:
SECTION 1. Definitions.
-----------
(a) General Definitions. Capitalized terms used herein and not otherwise
-------------------
defined herein shall have the meaning ascribed to them in the Credit Agreement.
For the purposes of this Agreement, the following terms shall have the following
meanings:
Account Collateral means (i) all deposit accounts, all funds held therein
------------------
and all certificates and instruments, if any, from time to time representing
or evidencing such deposit accounts, (ii) all notes, certificates of deposit,
deposit accounts, checks and other instruments from time to time hereafter
delivered to or otherwise possessed by the Secured Party for or on behalf of
any Debtor in substitution for or in addition to any or all of the then
existing Account Collateral, and (iii) all interest, dividends, cash,
instruments and other property and assets from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or
all of the then existing Account Collateral.
Agreement means this pledge and security agreement, as the same may be
---------
amended, supplemented or otherwise modified from time to time with the prior
written consent of the Debtors and the Secured Party.
1
<PAGE>
Blocked Account Agreement means the Blocked Account Agreement dated March
-------------------------
15, 1996 substantially in the form of Exhibit C to the Credit Agreement.
Books and Records means all books, documents, files and records
-----------------
pertaining to the Collateral, wherever located, and all correspondence, ledger
sheets, computer files and programs, tapes, discs, cards, accounting records,
customer lists, credit files, marketing materials and data and all equipment
containing any of the foregoing.
Collateral is defined in Section 2.
----------
Collateral Interests is defined in the Assignment Agreement.
--------------------
Credit Agreement is defined in the first recital of this Agreement.
----------------
Debtors is defined in the first paragraph of this Agreement.
-------
Equipment means all equipment in all of its forms, all machinery,
---------
furniture, furnishings, spare parts and supplies, all fixtures, attachments,
components, parts, equipment and accessories, and any and all accessions
thereto and additions, substitutions and replacements thereof, in each case
wherever located and whether now or hereafter existing.
General Intangibles means all general intangibles, intellectual property,
-------------------
goodwill, Patents, Patent Licenses, Permits and Licenses, Trademarks,
Trademark Licenses, tradenames, service marks, trade secrets and copyrights
now or hereafter acquired.
Governmental Authority means any nation or government, any state or other
----------------------
political subdivision thereof and any officer, agency, department or other
entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to any of the foregoing.
Inventory means inventory in all of its forms, now or hereafter existing
---------
(including, but not limited to, all (i) raw materials and work in process
therefor, finished goods thereof and materials used or consumed in the
manufacture or production thereof, (ii) goods in which the relevant Person has
an interest in mass or a joint or other interest or right of any kind
(including, without limitation, goods in which such Person has an interest or
right as consignee) and (iii) goods that are returned to or repossessed by
such Person), and all accessions thereto and products and documents therefor.
Lockboxes are defined in Section 5.
---------
Net Cash Proceeds with respect to any sale or other disposition of any
-----------------
asset of the Debtors, means (a) the gross amount of cash or cash equivalents
received by the Debtors or by the Secured Party in connection with such
transaction minus (b) the amount, if any, of all taxes (including the amount,
if any estimated by the Debtors or the Secured Party in good faith at the time
of such sale or other disposition for taxes payable by the Debtors on or
measured by net income or gain resulting from such transaction), fees,
commissions, costs and other expenses which are incurred
2
<PAGE>
by the Debtors or the Secured Party in connection with such transaction, but
only to the extent such amounts are included in the amount referred to in
clause (a) above.
Patent Licenses means all agreements, whether written or oral, providing
---------------
for the grant by or to any Debtor of any right to manufacture, use or sell any
invention covered by a Patent, including, without limitation, any thereof
referred to in Schedule 6(j) hereto.
Patents means (a) all letters patent of the United States or any other
-------
country and all reissues and extensions thereof, including, without
limitation, any thereof referred to in Schedule 6(j) hereto, (b) all
applications for letters patent of the United States or any other country and
all divisions, continuations and continuations-in-part thereof, including,
without limitation, any thereof referred to in such Schedule 6(j) hereto and
(c) all letters patent of the United States or any other country and all
renewals and extensions thereof used by the Debtors or licensed to the
Debtors.
Permits and Licenses means (a) all applicable authorizations, consents,
--------------------
certificates, rights of way permits, approvals, waivers, exemptions,
encroachment agreements, variances, franchises, permissions, and permits of
any Governmental Authority held by any Debtor and all documents and
applications filed in connection therewith, including, without limitation, any
thereof referred to in Schedule 6(l), and (b) all renewals thereof.
Person means an individual, a partnership, a joint venture, a
------
corporation, a limited liability company, a trust, an unincorporated
organization and a Governmental Authority.
Pledged Shares is defined in the second recital of this Agreement.
--------------
Proceeds means proceeds of Account Collateral, Books and Records,
--------
Equipment, General Intangibles, Inventory, Receivables and Security
Collateral (including, without limitation, proceeds that constitute any of
the foregoing and all accessions and additions to, all substitutions for and
all proceeds, products, substitutions and replacements of any and all of the
foregoing), and, to the extent not otherwise included, all proceeds of any and
all of the foregoing Collateral in the form of (a) payments and proceeds of
any insurance, indemnity, warranty or guaranty payable to any Debtor from time
to time with respect to any of the Collateral, whether by reason of loss or
damage or otherwise, (b) payments (in any form whatsoever) made or due and
payable to the Debtors from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any Governmental Authority (or any person acting under color of
Governmental Authority), (c) whatever is received upon any collection,
exchange, sale or other disposition of any of the Collateral and any property
into which any of the Collateral is converted, whether cash or non-cash
proceeds, and (d) any and all other products of, or any rents, profits or
other amounts from time to time paid or payable under or in connection with
any of the Collateral.
Receivables means all accounts, chattel paper, instruments, general
-----------
intangibles, book debts, notes, drafts, documents, acceptances and other
obligations or indebtedness of any kind, now or hereafter existing, whether or
not arising out of or in connection with the sale, lease or
3
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exchange of goods or other property or the rendering of services (including
the extension of credit).
Requirement of Law means as to any Person, the charter and by-laws or
------------------
other organizational or governing documents of such Person, and any law,
treaty, rule or regulation or determination of an arbitrator or a court or
other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property
is subject.
Secured Obligations means all obligations and liabilities (direct or
-------------------
indirect, absolute or contingent, due or to become due or now existing or
hereafter incurred), whether for principal, interest, premium, fees,
indemnity, costs, expenses or otherwise, of the Debtors under the Credit
Agreement, this Agreement and the other Credit Documents.
Secured Party means Citicorp USA, Inc. and its successors and assigns.
-------------
Security Collateral means:
-------------------
(i) the Pledged Shares and the certificates representing the
Pledged Shares, and all dividends, cash, instruments and other
property and assets from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of
the Pledged Shares (as more fully described on Schedule 6(e) hereto)
and made a part hereof;
(ii) all additional shares of stock (preferred and common) and
all additional warrants, rights or options to acquire shares of stock,
from time to time acquired by any Debtor in any manner and whether in
substitution of or exchange for any of the Pledged Shares, and the
certificates representing such additional shares and such additional
warrants, rights or options and all dividends, cash, instruments and
other property and assets from time to time received, receivable or
otherwise distributed in respect of or in substitution or exchange for
any or all of such additional shares or such additional warrants,
rights or options;
(iii) all additional indebtedness and notes from time to time
held by any Debtor in any manner and the instruments evidencing such
additional indebtedness, and all interest, cash, installments and
other property and assets from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all such
additional promissory notes and debt instruments; and
(iv) the Collateral Interests and all other property and assets
from time to time received in respect of the Collateral Interests.
Trademark Licenses means all agreements, whether written or oral,
------------------
providing for the grant by or to any Debtor of any right to use any Trademark,
including, without limitation, any thereof referred to in Schedule 6(j)
hereto.
4
<PAGE>
Trademarks means, except with respect to the name "Debtors," (a) all
----------
trademarks, trade names, corporate names, company names, business names,
fictitious business names, trade styles, service marks, logos and other source
or business identifiers used, owned or applied for by the Debtors, and the
goodwill associated therewith, now existing or hereafter adopted or acquired,
all registrations and recordings thereof (except in the case of any Trademark
License in which case "Trademarks" shall include only the Debtors' interest
therein), and all applications in connection therewith, whether in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof or any other country or any political
subdivision thereof, or otherwise, including, without limitation, any thereof
referred to in Schedule 6(j), and (b) all renewals thereof.
UCC means the Uniform Commercial Code as in effect in the State of New
---
York; provided, however, that if by reason of any mandatory provision of law,
-------- -------
the perfection or the effect of perfection or non-perfection of the security
interest in any Collateral is governed by the Uniform Commercial Code as in
effect in a jurisdiction other than New York, "UCC" means the Uniform
Commercial Code as in effect in such other jurisdiction solely for purposes of
the provisions hereof relating to such perfection or effect of perfection or
non-perfection.
(b) Other Definitional Terms. Terms not otherwise defined herein (either
------------------------
directly or by reference) that are defined in the UCC shall have the meanings
given them in the UCC. The words "hereof", "herein" and "hereunder" and words
of similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and references to
Article, Section, Annex, Schedule, Exhibit and like references are references to
this Agreement unless otherwise specified. All terms defined in this Agreement
in the singular shall have comparable meanings when used in the plural, and vice
----
versa, unless otherwise specified.
- -----
SECTION 2. Grant of Security Interest. As collateral security for
--------------------------
the prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the Secured Obligations, the Debtors
hereby pledge, assign, transfer and grant to the Secured Party a continuing
first priority a security interest in the right, title and interest of each
Debtor in, to, under and in connection with all of the following property
(including, without limitation, whether now owned or at any time hereafter
acquired by any or all of the Debtors or in which any of them now has or at any
time in the future may acquire any right, title or interest) (collectively, the
"Collateral"):
(1) all Account Collateral;
(2) all Books and Records;
(3) all Equipment;
(4) all General Intangibles;
(5) all Inventory;
5
<PAGE>
(6) all Permits and Licenses;
(7) all Receivables;
(8) all Security Collateral; and
(9) all Proceeds.
SECTION 3. Rights of Debtor and Secured Party; Limitations on Debtor
---------------------------------------------------------
Obligations.
- -----------
(a) Debtors Remain Liable Under Receivables. Anything herein to the
---------------------------------------
contrary notwithstanding, (a) each Debtor shall remain liable for all duties and
obligations under each Receivable to the extent set forth therein to observe and
perform all the conditions and obligations to be observed and performed by it
thereunder, all in accordance with the terms of each such Receivable included in
the Collateral, (b) the exercise by the Secured Party of any of the rights
hereunder shall not release any Debtor from any of its duties or obligations
under the Receivables (or any agreement giving rise thereto) and (c) the Secured
Party shall not have any obligation or liability under or in connection with any
Receivable (or any agreement giving rise thereto) by reason of or arising out of
this Agreement or the receipt by the Secured Party of any payment relating to
any of the foregoing, nor shall the Secured Party be obligated in any manner to
perform any of the obligations of any Debtor under or pursuant to any Receivable
(or any agreement giving rise thereto), to make any payment, to make any inquiry
as to the nature or the sufficiency of any payment received by it or as to the
sufficiency of any performance by any party under any Receivable (or any
agreement giving rise thereto), to present or file any claim, to take any action
to enforce any performance or to collect the payment of any amounts which may
have been assigned to it or to which it may be entitled at any time or times.
(b) Notice to Account Debtors. Upon the request of the Secured Party,
-------------------------
after an Event of Default, the Debtors shall notify the account debtors on the
Receivables that the Receivables have been assigned to the Secured Party, and
that payments in respect thereof shall be made directly to the Secured Party.
The Secured Party may in its own name or in the name of others communicate, with
account debtors on the Receivables, to verify with them to its satisfaction the
existence, amount and terms of any Receivables and/or to notify them of an Event
of Default or to issue payment instructions. In order to facilitate the
communication by the Secured Party described in the immediately preceding
sentence, the Debtors shall provide a schedule of the account debtors on the
Receivables on the Closing Date and the Secured Party may rely upon such
schedule in undertaking such communications, provided, that the Debtors shall at
any time upon the reasonable request of the Secured Party update such schedule
of account debtors on the Closing Date and, if later acquired, upon receipt
thereof by any Debtor.
SECTION 4. Delivery of Security Collateral and Account Collateral.
------------------------------------------------------
All certificates and instruments representing or evidencing Security Collateral
or Account Collateral shall be delivered to and held by or on behalf of the
Secured Party pursuant hereto and shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to the Secured
Party. The Secured Party shall have
6
<PAGE>
the right, if an Event of Default shall have occurred and be continuing, to
transfer to or register in the name of the Secured Party or any of its nominees
any or all of the Security Collateral and the Account Collateral. In addition,
the Secured Party shall have the right at any time to exchange certificates or
instruments representing or evidencing Security Collateral or Account Collateral
for certificates or instruments of smaller or larger denominations.
SECTION 5. Collections.
-----------
(a) (i) The Debtors shall maintain a deposit account (the "Blocked
Account"), other than the accounts used by such Debtor solely to pay the
salaries and bonuses of its employees in the ordinary course of business (such
other accounts being the "Payroll Accounts"), with a bank (the "Blocked Bank")
that has entered into a Blocked Account Agreement in respect of the Blocked
Account.
(ii) Each Debtor shall maintain a lockbox at the Blocked Bank (the
"Lockbox") and shall immediately deposit all monies received for any reason from
each Person obligated at any time to make any payment to such Debtor for any
reason into such Lockbox. Upon receipt of any funds into any Lockbox such funds
shall be immediately transferred to the Blocked Account by the Blocked Bank.
(b) Upon any termination of any Blocked Account or Lockbox or other
agreement with respect to the maintenance of a Blocked Account or Lockbox by any
Debtor or any Blocked Bank, the Debtors shall immediately notify all of the
persons referred to in section 5(a)(ii) herein that were making payments to such
Blocked Account or Lockbox to make all future payments to another Blocked
Account or Lockbox. Upon an Event of Default, the Borrower agrees to terminate
Blocked Accounts upon request by the Secured Party.
(c) All Proceeds which are not paid directly into a Lockbox when
collected by or on behalf of any Debtor (whether consisting of checks, notes,
drafts, bills of exchange, money orders, commercial paper of any kind whatsoever
or other documents), shall promptly be deposited by the Debtors in precisely the
form received, except for such Debtors' endorsement when required, in a Lockbox
or directly into the Blocked Account, and until so turned over, shall be deemed
to be held in trust by the Debtors for and as the property of the Secured Party
and shall not be commingled with any funds of any Debtor. Pursuant to the
Blocked Account Agreement, all payments and other amounts collected in the
Lockboxes shall be transferred by the Blocked Banks into the Blocked Account.
All Proceeds and interest thereon in the Blocked Account shall continue to be
collateral security for all of the Secured Obligations and shall not constitute
payment thereof until applied as hereinafter provided. Pursuant to the Blocked
Account Agreement, the Secured Party shall apply all of the funds on deposit in
the Blocked Account and interest thereon to the Secured Obligations in the
manner set forth in Section 14 herein. In no event shall any checks, drafts or
other instruments which are deposited into a Lockbox or the Blocked Account
constitute final payment unless and until such checks, drafts and other
instruments have been collected.
7
<PAGE>
SECTION 6. Representations and Warranties. SCI on behalf of the
------------------------------
Debtors hereby, or as applicable, the Debtors hereby jointly and severally
represent and warrant to the Secured Party that as of the date hereof:
(a) Title; No Other Liens. The Debtors are the legal and beneficial
---------------------
owners of and have good and marketable title to each item of Collateral free and
clear of any and all Liens (other than Permitted Encumbrances) and claims and
full right to pledge and assign the Collateral. No security agreement,
financing statement or similar public notice with respect to all or any part of
the Collateral is on file or of record in any public office, except (A) such as
may have been filed in favor of the Secured Party pursuant to this Agreement or
the other Collateral Documents, (B) Permitted Encumbrances, and (C) for which
the Secured Party has received termination statements (Form UCC-3), duly
executed and in proper form for filing, which termination statements shall be
properly filed on or immediately following the date of the initial borrowing
under the Credit Agreement.
(b) Perfected First Priority Liens. The Liens granted to the Secured
------------------------------
Party pursuant to this Agreement will, upon the filing of UCC financing
statements in the filing offices for the relevant jurisdictions constitute and
will continue to constitute valid, perfected and continuing Liens on the
Collateral (other than the Security Collateral and the Account Collateral) in
favor of the Secured Party, which are and shall be prior to all other Liens
(other than the Permitted Encumbrances), and which are enforceable as such
against all creditors of and purchasers from each Debtor (except purchasers of
goods in the ordinary course of business). The delivery to the Secured Party of
the Security Collateral and the Account Collateral along with executed and
undated stock powers or other indicia of ownership and transfer is effective to
create a valid, perfected, first priority security interest in such Collateral.
No other registration, recordation or filing with any Governmental Authority or
any other party is necessary for the validity, perfection or enforceability of
the Liens or this Agreement insofar as such registration, recordation or filing
relates to the Collateral being pledged, assigned or hypothecated hereunder. No
Collateral or any Proceeds thereof on the date hereof is evidenced by promissory
notes or other instruments which has not been delivered to the Secured Party.
(c) Receivables. The amount represented by the Debtors to the Secured
-----------
Party from time to time as owing by all account debtors in respect of the
Receivables will be materially correct at all times. None of the Receivables is
represented or evidenced by a promissory note, chattel paper or other instrument
which has not been delivered to the Secured Party. No Debtor nor (to the best
of the Debtors' knowledge) any account debtor in respect of the Receivables is
in default or is likely to become in default in the performance or observance of
any of the terms thereof which could reasonably be expected to materially
adversely affect the value of the Receivables (as Collateral) taken as a whole.
The right, title and interest of the Debtors in, to and under each Receivable is
not subject to any default, offset, counterclaim, defense or claim that could
reasonably be expected to materially adversely affect the value of the
Receivables (as Collateral) taken as a whole, nor have any of the foregoing been
asserted or alleged against any Debtor.
(d) Consents. No authorization, approval or other action by, and no
--------
notice to or filing with, any Governmental Authority or any other third party is
required for (i) the grant by the Debtors of the assignment and security
interest granted hereby, the pledge by the Debtors of the Security
8
<PAGE>
Collateral pursuant hereto or the execution, delivery or performance of this
Agreement by the Debtors, (ii) the perfection or maintenance of the pledge,
assignment and security interest created hereby (including the first priority
nature of such pledge, assignment or security interest) or (iii) the exercise by
the Secured Party of its voting or other rights provided for in this Agreement
or the remedies in respect of the Collateral pursuant to this Agreement (except
as may be required in connection with the disposition of any portion of the
Security Collateral by laws affecting the offering and sale of securities
generally), in each case other than the filing of financing and continuation
statements under the UCC, which financing statements will have been duly filed
within three Business Days of the date hereof, and the filing of termination
statements under the UCC, which termination statements shall be filed on or
immediately after the date of the initial Loan. No Debtor has performed or
failed to perform any acts which might prevent the Secured Party from enforcing
any of the terms and conditions of this Agreement or which could reasonably be
expected to limit the Secured Party in any such enforcement.
(e) Pledged Shares. The Pledged Shares have been duly authorized and
--------------
validly issued and are fully paid and nonassessable. SCI is the legal and
beneficial owners of the Pledged Shares free and clear of any lien, security
interest, option or other charge or encumbrance except for the security interest
created by this Agreement and except for Permitted Encumbrances. No effective
financing statement or other instrument similar in effect covering all or any
part of the Pledged Shares is on file in any recording office. SCI shall not
authorize or issue, or cause to be authorized or issued, any shares of stocks
and/or warrants, rights or options in addition to or in substitution for any of
the Pledged Shares. The Pledged Shares constitute the percentage of the issued
and outstanding shares of stock and/or warrants, rights or options to acquire
shares of stock of the issuers thereof indicated on Schedule 6(e) hereto. SCI
shall cause the relevant Subsidiary to reflect on the applicable Books and
Records the transfer of the Pledged Shares as and when required by this
Agreement.
(f) Location of Inventory, Equipment. All of the Inventory of each
--------------------------------
Debtor is kept at one or more of the locations listed beneath such Debtor's name
on Schedule 6(f)(i) hereto. All of the Equipment of each Debtor is kept at one
or more of the locations listed beneath such Debtor's name on Schedule 6(f)(ii)
hereto. Each Debtor has exclusive possession and control of all of its
Equipment and Inventory.
(g) Chief Executive Office; Places of Business. Schedule 6(g) sets forth
------------------------------------------
for each Debtor (i) its correct corporate name, its chief executive office and
its principal place of business, (ii) the places where it has any place of
business, (iii) the place where it maintains its Books and Records, including
its records regarding the Receivables, and (iv) the place where it maintains its
chattel paper. No Debtor has any place of business other than those set forth in
such Schedule 6(g) and there are no locations in which any Debtor has any
Collateral other than those locations as identified to the Secured Party
pursuant to the terms hereof.
(h) Legal Name. No Debtor has used any corporate or fictitious name or
----------
trade name other than the corporate name shown on such Debtor's charter
documents other than those set forth in Schedule 6(h) hereto.
9
<PAGE>
(i) Farm Products. None of the Collateral constitutes, or is the
-------------
Proceeds of, Farm Products.
(j) Patents and Trademarks. No Debtor has any interest whatsoever in any
----------------------
Patent, Patent License, Trademark or Trademark License other than as listed in
Schedule 6(j).
(k) Governmental Obligors. Except as set forth on Schedule 6(k), none of
---------------------
the obligors on any Receivable is a Governmental Authority, and no Governmental
Authority is a counterparty to any Contract of any Debtor.
(l) Permits and Licenses. Schedule 6(l) attached hereto contains a
--------------------
complete and correct list of all Permits and Licenses necessary to the conduct
of the Debtors' businesses and, labelled accordingly, all such Permits and
Licenses sought but not yet obtained by the Debtors. Each Permit and License
listed on such Schedule (other than those identified as sought but not yet
obtained by the Debtors and than those the non-possession of which would not
have a Material Adverse Effect) is valid, subsisting, unexpired and enforceable,
and such Permits and Licenses are the only Permits and Licenses that are
necessary or desirable for the operation of the Debtors' businesses. No
holding, decision or judgment has been rendered by any Governmental Authority
which could reasonably be expected to limit, cancel, question or otherwise
affect the validity of any such necessary Permit or License. No action or
proceeding is pending or, to the best of the Debtors' knowledge, threatened (i)
seeking to limit, cancel, question or otherwise affect the validity of any such
Permit or License or (ii) which, if adversely determined, could reasonably be
expected to have a Material Adverse Effect.
SECTION 7. Further Assurances. The Debtors jointly and severally
------------------
covenant and agree with the Secured Party that, from and after the date of this
Agreement until the Secured Obligations are paid in full and the Commitment is
terminated:
(a) Further Documentation; Pledge of Instruments. At any time and from
--------------------------------------------
time to time, upon the request of the Secured Party and at the sole expense of
the Debtors, each Debtor will promptly and duly execute and deliver such further
instruments, agreements and documents and take such further action as the
Secured Party may deem desirable and may request for the purpose of obtaining or
preserving the full benefits of this Agreement and of the rights and powers
herein granted, including, without limitation, in order to perfect and protect
any pledge, assignment or security interest granted or purported to be granted
hereunder or hereby (including, without limitation, the first priority nature
thereof), or to enable the Secured Party to exercise and enforce its rights and
remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, each Debtor shall promptly: (i) upon the request
of the Secured Party, mark conspicuously each document included in the
Inventory, each chattel paper included in the Receivables, and, each of the
records pertaining to the Collateral with a legend, in form and substance
reasonably satisfactory to the Secured Party, indicating that such Collateral is
subject to the security interest granted or purported to be granted hereby; (ii)
if any Collateral shall be represented or evidenced by a promissory note or
other instrument or chattel paper, deliver and pledge to the Secured Party
within five days of such Debtor's receipt thereof such note, instrument or
chattel paper duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to the Secured
Party; and (iii) execute and file such mortgages or financing or
10
<PAGE>
continuation statements, or amendments thereto, and such other instruments or
notices, as may be necessary or as the Secured Party may deem desirable.
(b) Each Debtor hereby authorizes the Secured Party to file one or more
financing or continuation statements, and amendments thereto, relating to all or
any part of the Collateral without the signature of any or all of the Debtors to
the extent permitted by applicable law. A carbon, photographic or other
reproduction of this Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement for
filing in any jurisdiction to the extent permitted by applicable law.
SECTION 8. As to Equipment and Inventory. The Debtors jointly and
-----------------------------
severally covenant and agree with the Secured Party that, from and after the
date of this Agreement until the Secured Obligations are paid in full and the
Commitment is terminated:
(a) The Debtors shall promptly furnish to the Secured Party a statement
respecting any loss or damage to any of the Equipment that would be reasonably
likely to impair the value of the Collateral in any material respect.
(b) Each Debtor shall pay promptly when due all property and other
taxes, assessments and governmental charges or levies imposed upon, and all
claims (including, without limitation, claims for labor, materials and supplies)
against, the Equipment and Inventory, other than to the extent not required to
be paid under Section 6.11 of the Credit Agreement. In producing the Inventory,
each Debtor shall comply in all material repsects with all applicable
requirements of the Fair Labor Standards Act.
(c) Each Debtor shall furnish to the Secured Party promptly after
request therefor a report detailing changes in the amount and condition of the
Equipment, including purchases, depreciation, sales and losses.
(d) Each Debtor shall deliver to the Secured Party promptly after
request therefor such warehouse receipts, bills of lading and other documents of
title with respect to Inventory and Equipment as are requested, together with
copies of all invoices with respect to the Inventory and Equipment.
SECTION 9. Collection of Receivables. Except as otherwise provided in
-------------------------
Section 5 the Debtors shall continue to collect, at their own expense, all
amounts due or to become due them in respect of the Receivables. In connection
with such collections, the Debtors may take (and, at the Secured Party's
direction, shall take) such action as the Debtors or the Secured Party may
reasonably deem necessary or advisable to enforce collection of the Receivables;
provided, however, that the Secured Party shall have the right at any time, upon
- -------- -------
the occurrence and during the continuance of an Event of Default and upon notice
to the Debtors of its intention to do so, to notify the account debtors under
any Receivables of the assignment of such Receivables to the Secured Party and
to direct such account debtors to make payment of all amounts due or to become
due to the Debtor thereunder directly to the Secured Party and, upon such
notification and at the expense of the Debtors, to enforce collection of any
such Receivables, and to adjust, settle or compromise the amount or payment
11
<PAGE>
thereof, in the same manner and to the same extent as the Debtors might have
done. After receipt by any Debtor of the notice from the Secured Party referred
to in the proviso to the immediately preceding sentence, (i) all amounts and
-------
proceeds (including instruments) received by any Debtor in respect of the
Receivables shall be received in trust for the benefit of the Secured Party,
shall be segregated from all funds or other property or assets of each Debtor
and shall be forthwith paid over to the Secured Party in the same form as so
received (with any necessary endorsement or assignment), and (ii) no Debtor
shall adjust, settle or compromise the amount or payment of any Receivable,
release any account debtor thereof, in whole or in part, or allow any credit or
discount thereon.
SECTION 10. Other Covenants. The Debtors jointly and severally
---------------
covenant and agree with the Secured Party that, from and after the date of this
Agreement until the Secured Obligations are paid in full and the Commitment is
terminated:
(a) Maintenance of Records. The Debtors will keep and maintain at their
----------------------
own cost and expense, records of the Collateral that are true, complete and
correct in all material respects, including, without limitation, a record of all
payments received and all credits granted with respect to the Collateral and all
other dealings with the Collateral and a record of the Secured Party's security
interest in the Collateral. The Debtors at their own expense shall deliver to
the Secured Party from time to time upon the Secured Party's request such
records of the Collateral. After the occurrence and during the continuation of
an Event of Default, the Debtors, upon a request of the Secured Party, shall
turn over all such records and all Books and Records related to the Collateral
to the Secured Party or to its representatives.
(b) Right of Inspection. Upon reasonable notice to the Debtors from the
-------------------
Secured Party, the Secured Party shall have full and free access, at any
reasonable time and as often as may reasonably be requested, to each Debtor's
place of business and all the Books and Records of any Debtors, and the Secured
Party and its representatives or agents may examine the same, take extracts
therefrom and make photocopies thereof, and the Debtors agree to render to the
Secured Party, at the Debtors' cost and expense, such clerical and other
assistance as may be reasonably requested with regard thereto. Upon reasonable
notice to the Debtors from the Secured Party, the Secured Party and its
representatives shall, at any reasonable time and as often as may be reasonably
requested, also have the right to enter into and upon any premises where any of
the Collateral is located for the purpose of inspecting the same, observing its
use or otherwise protecting their interests therein.
(c) Limitation on Disposition of Collateral. The Debtors will not sell,
---------------------------------------
transfer, lease or otherwise dispose of any of the Collateral, or attempt, offer
or contract to do so, to the extent prohibited by the Credit Agreement.
(d) Limitations on Discounts, Compromises, Extension of Receivables. The
---------------------------------------------------------------
Debtors will not grant any extension of the time of payment of any of the
Receivables, compromise, compound or settle the same for less than the full
amount thereof, release, wholly or partially, any Person liable for the payment
thereof, or allow any credit or discount whatsoever thereon in any manner which
could reasonably be expected to materially adversely affect the value of the
Collateral as a whole.
12
<PAGE>
(e) Further Identification of Collateral. The Debtors will furnish to
------------------------------------
the Secured Party from time to time statements and schedules further identifying
and describing the Collateral and such other reports in connection with the
Collateral as the Secured Party may request, all in detail, form and substance
reasonably acceptable to the Secured Party.
(f) Notices. The Debtors will advise the Secured Party promptly of (i)
-------
any Lien (other than Liens created hereby or permitted under the Credit
Agreement) on, or claim asserted against, any of the Collateral, and (ii) the
occurrence of any other event which could reasonably be expected to have a
material adverse effect on the Collateral, the value of the Collateral or the
interest of the Secured Party in the Collateral or in the Liens created
hereunder.
(g) Changes in Location, Name, Etc. No Debtor will (i) change the
------------------------------
location of its chief executive office, its principal place of business or the
places where it currently keeps its Books and Records from those specified in
Section 6(g), (ii) permit any of the Inventory or Equipment to be kept at a
location other than those listed on Schedules 6(f)(i) and 6(f)(ii) respectively,
or (iii) change its name, identity or corporate structure in any manner which
might make any financing statement filed by the Secured Party in connection with
this Agreement materially misleading, unless, in each case, it shall have given
the Secured Party at least 30 days prior written notice thereof and at least 10
days prior to effecting any such change shall have taken all such steps as the
Secured Party may deem necessary or desirable to continue the perfection and
priority of the pledge, assignment and security interest granted pursuant
hereto, including, without limitation, properly amending all financing
statements and properly executing and filing additional financing statements
necessary to maintain at all times the perfection and priority of the security
13
<PAGE>
interest granted or purported to be granted hereby, shall have provided the
Secured Party with an officer's certificate certifying that such steps have been
taken.
(h) Patents and Trademarks. The Debtors shall report within five days
----------------------
thereafter each filing of an application for the registration of any Patent or
Trademark with the United States Patent and Trademark Office or any similar
office or agency in any other country or any political subdivision thereof
(whether filed by a Debtor or through any agent, employee, licensee, designee or
any other Person). Upon request of the Secured Party, the Debtors shall
promptly execute and deliver any and all agreements, instruments, documents and
papers as the Secured Party may request to evidence the Secured Party's security
interest in any Patent, Patent License, Trademark or Trademark License and the
goodwill and General Intangibles of the Debtors relating thereto or represented
thereby. Each Debtor hereby constitutes the Secured Party its attorney-in-fact
to execute and file all such writings for the foregoing purposes if not
previously executed by Debtors in a timely manner, all acts of such attorney
being hereby ratified and confirmed; such power being coupled with an interest
is irrevocable until the Secured Obligations are paid in full and the Commitment
is terminated.
SECTION 11. Voting Rights, Dividends, Etc. (a) So long as no Event
-----------------------------
of Default shall have occurred and be continuing:
(i) The Debtors shall be entitled to exercise or refrain from
exercising any and all voting and other consensual rights pertaining to the
Security Collateral or any part thereof for any purpose not expressly
prohibited by the terms of this Agreement, or the other Credit Documents;
provided, however, that no Debtor shall exercise or refrain from exercising
-------- -------
any such right if such action or inaction, as the case may be, could
reasonably be expected to have a Material Adverse Effect.
(ii) The relevant Debtor shall be entitled to receive and retain
any and all dividends, distributions and interest paid in respect of the
Security Collateral; provided, however, that any and all
-------- -------
(1) dividends and interest paid or payable other than in
cash in respect of, and instruments and other property and assets
received or otherwise distributed in respect of, or in exchange for,
any Security Collateral,
(2) dividends and other distributions paid in cash in
respect of any Security Collateral in connection with a partial or
total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus, and
(3) cash paid, payable or otherwise distributed in respect
of principal of, or in redemption of, or in exchange for, any Security
Collateral
shall be, and shall be forthwith delivered to the Secured Party to hold as,
Security Collateral and, if received by any Debtor, shall be received in
trust for the benefit of the Secured Party, shall be segregated from all
property and assets or funds of each Debtor and shall be forthwith
delivered to the Secured Party as Security Collateral in the same form as
so received (with any
14
<PAGE>
necessary endorsement or assignment). Promptly upon the request of the
Secured Party, each Debtor shall execute such documents and do such acts as
may be necessary or desirable in the reasonable judgment of the Secured
Party to give effect to this clause (ii). Any and all money and other
property paid over to or received by the Secured Party pursuant to the
provisions of this Section 11(a) shall be retained by the Secured Party as
additional Security Collateral hereunder and applied in accordance with the
provisions hereof.
(iii) The Secured Party shall, if required at any time, execute
and deliver (or cause to be executed and delivered) to the relevant Debtor
all such proxies and other instruments as such Debtor may reasonably
request for the purpose of enabling such Debtor to exercise the voting and
other consensual rights that it is entitled to exercise pursuant to clause
(i) of this Section 11(a) and to receive the dividends, distributions or
interest payments that it is authorized to receive and retain pursuant to
clause (ii) of this Section 11(a).
(b) If an Event of Default shall have occurred and be continuing:
(i) All rights of each Debtor to (A) exercise or refrain from
exercising the voting and other consensual rights that it would otherwise
be entitled to exercise pursuant to Section 11 shall be suspended, and in
the event such Event of Default is not cured, cease and (B) receive the
dividends, interest payments and other distributions that it would
otherwise be authorized to receive and retain pursuant to Section 11(a)(ii)
shall be suspended, and all such rights shall thereupon become vested in
the Secured Party, which shall thereupon have the sole right to exercise or
refrain from exercising such voting and other consensual rights and to
receive and retain as Security Collateral such dividends, interest payments
and other distributions.
(ii) All dividends, interest payments and other distributions
that are received by any Debtor contrary to the provisions of clause (i) of
this Section 11(b) shall be received in trust for the benefit of the
Secured Party, shall be segregated from all property and assets or funds of
each Debtor and shall be forthwith paid over to the Secured Party as
Security Collateral in the same form as so received (with any necessary
endorsement or assignment). Any and all money and other property paid over
to or received by the Secured Party pursuant to the provisions of this
Section 11(b) shall be retained by the Secured Party as additional Security
Collateral hereunder and applied in accordance with the provisions hereof.
SECTION 12. Secured Party's Appointment as Attorney-in-Fact.
-----------------------------------------------
(a) Powers. Each Debtor hereby irrevocably constitutes and appoints
------
the Secured Party and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of such Debtor and in the name of
such Debtor or in its own name, for the purpose of carrying out the terms of
this Agreement, to take any and all appropriate action and to execute any and
all documents and instruments which the Secured Party may deem necessary or
desirable to accomplish the purposes of this Agreement, and, without limiting
the generality of the foregoing, each Debtor hereby gives the Secured Party the
15
<PAGE>
power and right, on behalf of such Debtor, without notice to or assent by any
Debtor, to the extent permitted by applicable law as from time to time in
effect, to do the following:
(i) to pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, to effect any repairs or any
insurance called for by the terms of this Agreement and to pay all or
any part of the premiums therefor and the costs thereof, if not
previously paid, discharged or effected as the case may be, by the
Debtors in a timely manner; and
(ii) upon the occurrence and during the continuance of any Event
of Default: (A) to direct any party liable for any payment under any
of the Collateral to make payment of any and all moneys due or to
become due thereunder directly to the Secured Party or as the Secured
Party shall direct; (B) to ask for, demand, collect, sue for, recover,
compromise, receive payment of and give receipt for any and all
moneys, claims and other amounts due or to become due at any time in
respect of or arising out of any Collateral, and to receive, endorse
and collect any checks, drafts, notes, acceptances, instruments,
chattel paper and other documents in connection therewith and to give
full discharge for the same; (C) to sign and endorse any invoices,
freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications, notices
and other documents in connection with any of the Collateral; (D) to
file any claims, to commence and/or prosecute any suits, actions or
proceedings at law or in equity and to take any other action, in each
case which the Secured Party may deem necessary or desirable, to
collect the Collateral or any thereof and to enforce any other right
in respect of any such Collateral; (E) to defend any suit, action or
proceeding brought against the Debtors or any of them with respect to
any Collateral; (F) to settle, compromise or adjust any suit, action
or proceeding described in the preceding clauses and any threatened
suit, action or proceeding and, in connection therewith, to give such
discharges or releases as the Secured Party may deem appropriate; (G)
to assign or license any Patent or Trademark (along with the goodwill
of the business to which any such Trademark pertains), throughout the
world for such term or terms, on such conditions, and in such manner,
as the Secured Party shall in its sole discretion determine; and (H)
generally, to sell, transfer, pledge and make any agreement with
respect to or otherwise deal with any of the Collateral as fully and
completely as though the Secured Party were the absolute owner thereof
for all purposes, and to do, at the Secured Party's option and the
Debtors' expense, at any time, or from time to time, all acts and
things which the Secured Party deems necessary or desirable to
protect, preserve or realize upon the Collateral and the Liens of the
Secured Party to effect the intent of this Agreement, all as fully and
effectively as the Debtors might do.
Each Debtor hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable.
(b) Other Powers. Each Debtor also authorizes the Secured Party, at
------------
any time and from time to time, to execute, in connection with the sale provided
for in Section 14 hereof, any
16
<PAGE>
endorsements, assignments or other instruments of conveyance or transfer with
respect to the Collateral.
(c) No Duty on the Part of the Debtors or Secured Party. The powers
---------------------------------------------------
conferred on the Secured Party hereunder are solely to protect its interests in
the Collateral and shall not impose any duty upon it to exercise any such
powers. Except for accounting for moneys actually received by the Secured Party
as a result of the exercise of such powers, neither the Secured Party nor any of
its officers, directors, employees, agents, shareholders, counsel, accountants
or other professionals has or shall have any duty as to any Collateral or as to
the taking of any steps to preserve rights against prior parties or other rights
pertaining to any Collateral and none of them shall be responsible to any Debtor
or any other Person for any act or failure to act hereunder, except for their
own gross negligence or willful misconduct.
SECTION 13. Performance by Secured Party of the Debtors'
--------------------------------------------
Obligations. If any Debtor fails to perform or comply with any of its
- -----------
agreements contained herein and the Secured Party, as provided for by the terms
of this Agreement, shall itself perform or comply, or otherwise cause
performance or compliance, with such agreement, the fees and expenses of the
Secured Party incurred in connection therewith, together with interest thereon
at the Base Rate plus two percent (2%) per annum, shall be payable jointly and
severally by the Debtors to the Secured Party on demand and shall constitute
Secured Obligations secured hereby.
SECTION 14. Remedies. If an Event of Default shall have occurred
--------
and be continuing:
(a) The Secured Party may exercise, in addition to all other rights
and remedies granted to it in this Agreement and otherwise available to it, all
the rights and remedies of a secured party upon default under the UCC, all of
which rights shall be cumulative and non-exclusive. Without limiting the
generality of the foregoing, the Secured Party, without demand of performance or
other demand, presentment, protest, advertisement or notice of any kind (except
any notice required by law referred to below) to or upon any Debtor or any other
Person (all and each of which demands, defenses, advertisements and notices are
hereby expressly waived), may in such circumstances forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, lease, assign, give an option or options to purchase, or
otherwise dispose of and deliver the Collateral or any part thereof (or contract
to do any of the foregoing), in one or more parcels at public or private sale or
sales, at any exchange, broker's board or office of the Secured Party or
elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. The Secured Party shall have the right upon any
such public sale or sales, and, to the extent permitted by law, upon any such
private sale or sales, to purchase the whole or any part of the Collateral so
sold, free of any right or equity of redemption in the Debtors, which right or
equity is hereby waived or released. Each Debtor further agrees, at the Secured
Party's request and at the Debtors' sole expense, to assemble the Collateral and
make it available to the Secured Party at places which the Secured Party shall
reasonably select, whether at the premises of the Debtors or elsewhere. The
Secured Party shall apply the Net Cash Proceeds of any of the Collateral in the
Blocked Account to the payment in whole or in part of the Secured Obligations,
and only after such application and
17
<PAGE>
after the payment by the Secured Party of any other amount required by any
provision of law, including, without limitation, Section 9-504(l)(c) of the UCC,
need the Secured Party account for the surplus, if any, to the Debtors. To the
extent permitted by applicable law, each Debtor waives all claims, damages and
demands it may acquire against the Secured Party arising out of the exercise by
the Secured Party of any rights hereunder, except for acts or failures to act
constituting gross negligence or willful misconduct. Each Debtor agrees that, to
the extent notice of any sale shall be required by law, at least ten days'
notice to the Debtors of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
The Secured Party shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Secured Party may adjourn
any public or private sale from time to time by announcement at the time and
place fixed therefor, and such sale, without further notice, may be made at the
time and place to which it was so adjourned. The Debtors shall remain jointly
and severally liable for any deficiency if the proceeds of any sale or other
disposition of the Collateral are insufficient to pay the Secured Obligations
and the fees and disbursements of any attorneys employed by the Secured Party to
collect such deficiency. The Debtors further agree that, to enforce the
provisions of this Section 14, the Secured Party is empowered to request the
appointment of a receiver from any court of competent jurisdiction. The Debtors
hereby agree to consent to such appointment and to authorize such an involuntary
transfer of control upon the request of a receiver so appointed.
(b) The Secured Party may exercise any and all rights and remedies of
any Debtor in respect of the Collateral, including, without limitation, any and
all rights of any Debtor to demand or otherwise require payment of any amount
under, or performance of any provision of, any Collateral.
(c) All Proceeds and other amounts and collections received by any
Debtor in respect of the Collateral shall be received in trust for the benefit
of the Secured Party, shall be segregated from the funds and other assets and
property of each Debtor and shall be forthwith paid over to the Secured Party in
the same form as so received (with any necessary endorsement or assignment).
(d) Any and all Proceeds and other amounts and collections received by
the Secured Party (whether from any Debtor or otherwise) shall be deposited in
the Blocked Account and shall be applied against the Secured Obligations
(whether matured or unmatured). Any balance of such Proceeds remaining after
the payment of all Secured Obligations shall be paid over to the Debtors or to
whomsoever may be lawfully entitled to receive the same.
SECTION 15. Limitation on the Secured Party's Duty Regarding
------------------------------------------------
Preservation of Collateral. The Secured Party's sole duty with respect to the
- --------------------------
custody, safekeeping and physical pre servation of the Collateral in its
possession, under Section 9-207 of the UCC or otherwise, shall be to deal with
it in the same manner as the Secured Party deals with similar property for its
own account. Neither the Secured Party nor any of its directors, officers,
employees, agents or professionals shall be liable for failure to demand,
collect or realize upon all or any part of the Collateral or for any delay in
doing so; nor shall any of them be under any obligation to sell or otherwise
dispose of any Collateral upon the request of the Debtors or otherwise.
18
<PAGE>
SECTION 16. Powers Coupled With an Interest. All authorizations
-------------------------------
and agencies in favor of the Secured Party herein contained with respect to the
Collateral are powers coupled with an interest and are irrevocable.
SECTION 17. No Subrogation. Notwithstanding any payment or
--------------
payments made by the Debtors hereunder, any setoff or application of funds of
the Debtors by the Secured Party or the receipt of any amounts by the Secured
Party with respect to any of the Collateral, the Debtors shall not be entitled,
and each Debtor hereby waives any right it might otherwise have, to be
subrogated to any of the rights of the Secured Party against any Person or
against any other collateral security held by the Secured Party for the payment
of the Secured Obligations, and no Debtor shall seek, and each Debtor hereby
waives, any right it might otherwise have to, any reimbursement or contribution
from any Person in respect of payments made by the Debtors in connection with
the Collateral, or amounts realized by the Secured Party in connection with the
Collateral.
SECTION 18. Amendments with Respect to the Secured Obligations.
--------------------------------------------------
The Debtors shall remain obligated hereunder, and all of the Collateral shall
remain subject to the Liens granted hereby, notwithstanding that (without any
reservation of rights against the Debtors, and without notice to or further
assent by the Debtors) any demand for payment of any of the Secured Obligations
made by the Secured Party may be rescinded by the Secured Party, and any of the
Secured Obligations, or the liability of any other Person upon or for any part
thereof, or any collateral security or guarantee therefor or right of offset
with respect thereto, may, from time to time, in whole or in part, be renewed,
extended, amended, modified, accelerated, compromised, waived, surrendered, or
released by the Secured Party, and the Credit Agreement, any other Credit
Document and any other documents executed and delivered in connection therewith
may be amended, modified, supplemented or terminated, in whole or in part, as
the Secured Party may deem advisable from time to time in accordance with the
provisions thereof, and any guarantee, right of offset or other collateral
security at any time held by the Secured Party for the payment of the Secured
Obligations may be sold, exchanged, waived, surrendered or released. The
Secured Party shall not have any obligation to protect, secure, perfect or
insure any other Lien at any time held by it as security for the Secured
Obligations or any property subject thereto. The Debtors waive any and all
notices of the creation, renewal, extension or accrual of any of the Secured
Obligations and notice of or proof of reliance by the Secured Party upon this
Agreement; the Secured Obligations shall conclusively be deemed to have been
created, contracted or incurred in reliance upon this Agreement; and all
dealings between the Debtors and the Secured Party shall likewise be
conclusively presumed to have been had or consummated in reliance upon this
Agreement. The Debtors waive diligence, presentment, protest, demand for
payment and notice of default or nonpayment to or upon the Debtors, or any other
Person with respect to the Secured Obligations.
SECTION 19. No Waiver; Cumulative Remedies. The Secured Party
------------------------------
shall not by any act, delay, indulgence, omission or otherwise, be deemed to
have waived any right or remedy hereunder or under any of the other Credit
Documents or under applicable law or to have acquiesced in any Event of Default
or in any breach of any of the terms and conditions hereof or thereof, and no
waiver shall be valid unless in writing and signed by the Secured Party, and
then only to the extent set forth therein. No failure to exercise, nor any
delay in exercising, on the part of the Secured Party, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or partial
19
<PAGE>
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
A waiver by the Secured Party of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the
Secured Party would otherwise have on any future occasion. The rights and
remedies herein provided are cumulative, may be exercised singly or concurrently
and are not exclusive of any rights or remedies provided by law. This Agreement
may not be waived, amended, supplemented or otherwise modified except in writing
signed by the Debtors and the Secured Party.
SECTION 20. Continuing Security Interest; Successors and Assigns.
----------------------------------------------------
This Agreement shall create a continuing security interest in the Collateral and
shall (a) remain in full force and effect until the later of (i) the cash
payment in full of the Secured Obligations and (ii) the Maturity Date, (b) be
binding upon each Debtor and its respective successors and assigns, provided
that none of the Debtors may assign any of their rights or obligations
hereunder, and (c) inure, together with the rights and remedies of the Secured
Party hereunder, to the benefit of, and be enforceable by, the Secured Party and
its successors, transferees and assigns.
SECTION 21. Severability. If any provision of this Agreement is
------------
found or held invalid, illegal or unenforceable in any jurisdiction, such
provision shall be ineffective solely in such jurisdiction and solely to the
extent of such invalidity, illegality or unenforceability, and the validity,
legality and enforceability of the remaining provisions, or of such provision in
any other jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 22. Headings. The section and subsection headings used in
--------
this Agreement are for convenience of reference only and shall not in any way
affect the construction or meaning hereof or be taken into consideration in the
interpretation hereof.
SECTION 23. Governing Law. THE VALIDITY, INTERPRETATION AND
-------------
ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAW PRINCIPLES THEREOF.
SECTION 24. Notices. Any notice or request hereunder shall be in
-------
writing and shall be given to (i) the Debtors at their addresses set forth on
the signature pages hereof and (ii) the Secured Party at its address set forth
in the first paragraph of this Agreement (or, in each case, such other address
as may be specified by such party in a notice) by registered or certified mail,
return receipt requested, by overnight mail or by telecopy (confirmed by mail).
Notices and requests shall be deemed to have been given five days after deposit
in the mail, two days after deposit with the overnight mail carrier, and, in the
case of a telecopy, when confirmed.
SECTION 25. Judicial Proceedings. The Debtors hereby irrevocably
--------------------
submit to the jurisdiction of, and agree to commence suit only before, the
Courts of the State of New York, New York County, and the United States District
Court for the Southern District of New York, for the purpose of any suit, action
or other proceeding arising out of, or relating to, this Agreement or the
subject matter hereof, and hereby waive, and agree not to assert, by way of
motion, as a defense or otherwise, in any such suit, action or proceedings, (i)
any claim that they are not personally subject to
20
<PAGE>
the jurisdiction of the above-named courts for any reason whatsoever, that such
suit, action or proceeding is brought in an inconvenient forum or that the venue
of such suit, action or proceeding is improper and (ii) any right which they may
have to a trial by a jury. Any and all service of process and any other notice
in any such action, suit or proceeding shall be effective against the Debtors if
given by registered or certified mail, return receipt requested, or by any other
means or mail which requires a signed receipt, postage prepaid, mailed to such
parties as herein provided in Section 24.
The Debtors hereby agree that the submission to jurisdiction referred
to in this Section 25 shall not limit in any manner the rights of the Secured
Party to take proceedings against the Debtors in some other court of competent
jurisdiction whether within or outside the United States.
SECTION 26. Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which when so executed and delivered shall be deemed an
original, but all of which shall constitute one and the same instrument.
SECTION 27. Mortgage. In the event that any of the Collateral
--------
hereunder is also subject to a valid and enforceable Lien under the terms of the
Mortgage and the terms of the Mortgage are inconsistent with the terms of this
Agreement, then, with respect to such Collateral, the terms of such Mortgage
shall be controlling in the case of fixtures and leases, letting and licenses
of, and contracts and agreements relating to, the real property, and the terms
of this Agreement shall be controlling in the case of all other Collateral.
21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their duly authorized officers as of the date
and year above first written.
CITICORP USA, INC.
By:___________________________
Name:
Title:
Address:
SAFETY COMPONENTS
INTERNATIONAL, INC.
By:___________________________
Name:
Title:
Address:
AUTOMOTIVE SAFETY COMPONENTS
INTERNATIONAL, INC.
By:___________________________
Name:
Title:
Address:
GALION, INC.
By:___________________________
Name:
Title:
Address:
VALENTEC SYSTEMS, INC.
By:___________________________
Name:
Title:
Address:
22
<PAGE>
Schedule 6(e)
--------------
Pledged Shares
--------------
<TABLE>
<CAPTION>
Name of Corporation % of Total
Whose
Shares are Type of Such Shares Issued No. of Shares Pledgor: Pledged
------- -------
Corporation and Outstanding Pledged
----------- --------------- -------
<S> <C> <C> <C> <C>
SCI Automotive SCI U.K. plc 65%
SCI Automotive SCI Czech llc (s.r.o.) 65% (See Assignment Agreement)
SCI Automotive SCI Mexico S.A. de C.V. 65%
SCI SCI Automotive incorporated 100%
SCI Galion incorporated 100%
SCI SCI Valentec incorporated 100%
</TABLE>
23
<PAGE>
Schedule 6(j)
Patents & Trademarks
--------------------
None
24
<PAGE>
EXHIBIT E
LETTERHEAD OF
[SHEREFF, FRIEDMAN, ET AL.]
March 15, 1996
Citicorp USA, Inc.
153 East 53rd Street
New York, N.Y. 10043
Attention: Mr. Stephen Goetschius
Re: Safety Components International, Inc., et al.
---------------------------------------------
Dear Sirs and Madams:
We have acted as special New York counsel for Safety Components
International, Inc. ("SCI"), Automotive Safety Components International, Inc.
("ASCI"), Galion, Inc. ("Galion"), and Valentec Systems Inc. ("Systems"), each
of such entities in their capacity as borrower and guarantor, as applicable
(each a "Borrower," and collectively, the "Borrowers"), in connection with (1)
the execution and delivery by the Borrowers and Citicorp USA, Inc. (the
"Lender") of the Credit Agreement, dated as of March 15, 1996 (the "Credit
Agreement"); (2) the execution and delivery by the Borrowers of the Note (the
"Note"); (3) the Open-End Mortgage, Assignment of Rents and Leases and Security
Agreement, dated March 15, 1996, made by Galion in favor of Lender in the
principal amount of $3,500,000 (the "Mortgage"); (4) the execution and delivery
by the Borrowers of the Pledge and Security Agreement, dated as of March 15,
1996 (the "Pledge and Security Agreement"), in favor of the Lender; (5) the
Blocked Account Agreement (together with the Credit Agreement, the Note, the
Pledge and Security Agreement and the Mortgage, collectively referred to herein
as the "Financing Agreements"). Capitalized terms not otherwise defined herein
shall have the meanings given them in the Credit Agreement.
<PAGE>
Citicorp USA, Inc.
March 15, 1996
Page
This opinion is being furnished to the Lender pursuant to Section 2.1
of the Credit Agreement. In connection with rendering this opinion, we have
read copies of the Financing Agreements, and have also examined originals or
copies, certified or otherwise identified to our satisfaction, of the
certificate of incorporation, by-laws and corporate minute books of each
Borrower and such other documents, records, certificates and instruments as in
our judgment are necessary as the basis for the opinions expressed below. As to
various questions of fact material to this opinion, we have relied upon
representations, statements or certificates of officers and representatives of
the Borrowers, public officials and others, including representations of the
Borrowers contained in the Financing Agreements. As used herein, the term
"Pledged Shares" shall have the meaning set forth in the Pledge and Security
Agreement.
In addition, we have assumed, without investigation, verification or
inquiry, (i) the genuineness of the signatures of all persons signing the
Financing Agreements other than those of the Borrowers, (ii) the legal capacity
of all natural persons, (iii) the authenticity of all documents submitted to us
as originals or execution copies and (iv) the conformity to original documents
of all documents submitted to us as certified, conformed, photostatic or
facsimile copies and the authenticity of the originals of such documents. We
have also assumed the valid authorization, execution and delivery of each of the
Financing Agreements by each party thereto other than the Borrowers and we have
assumed that each of such other parties has been duly organized and is validly
existing and in good standing under its jurisdiction of incorporation with the
corporate or other organizational power to perform its obligations thereunder,
and that each of the Financing Agreements is the valid, binding and enforceable
obligation of each such other party.
We note that we are not general counsel to the Borrowers and would not
ordinarily be familiar with or aware of matters relating to the Borrowers unless
they are brought to our attention by representatives of the Borrowers.
Accordingly, our examination in connection herewith has been limited to the
documents identified to us by the Borrowers as material to the business or
financial condition of the Borrowers or otherwise relevant to the transactions
contemplated by the Financing Agreements.
We note that we are members of the Bar of the State of New York and do
not represent ourselves to be expert in, or express any opinion concerning, the
laws of any jurisdiction other than the laws of the State of New York and,
except as described in the next paragraph, the federal laws of the United
States. To the extent the opinions expressed herein involve the law of the
State of Delaware, our opinion is based solely on our reading of the Delaware
General Corporation Law. Insofar as our opinion in paragraph 1 below relates to
the valid existence and good standing of the Borrowers in the State of Delaware,
we have
<PAGE>
Citicorp USA, Inc.
March 15, 1996
Page
relied solely upon good standing certificates issued by the Secretary of State
of the State of Delaware.
Insofar as the opinions expressed below could be read to subsume
governmental regulation of the ownership or operation of Galion or Systems
arising from defense-related operations of Galion or Systems, or contracts with
the United States or any governmental agency or instrumentality or contracts
with any prime contractor or subcontractor of the United States or any
governmental agency or instrumentality, we exclude all such matters from the
opinions expressed herein, including all matters related to the compliance with
the Assignment of Claims Act. We understand you will be relying upon the
opinion of Patton Boggs, L.L.P. with respect to these matters.
Our opinion in paragraph 6 with respect to the percentage of
outstanding capital of the respective issuers represented by the Pledged Shares
is based solely on our review of the stock certificates (if applicable) of the
Pledged Shares and an officer's certificate of the Borrowers. Our opinion as to
the valid nature and perfection of the security interests in paragraphs 7
through 9 is based solely upon the Financing Agreements and compliance with the
applicable provisions of the Uniform Commercial Code. In that regard, insofar
as the opinions in paragraphs 7 through 9 relate to the Uniform Commercial Code
of jurisdictions other than the State of New York, we have assumed, without
further investigation, that such legal provisions are identical to the Uniform
Commercial Code as currently in effect in the State of New York (the "Uniform
Commercial Code"). In addition, we understand that you will be relying upon the
opinion of Calfee, Halter & Griswold with respect to the valid nature and
perfection of the security interest which may be created (x) by the Mortgage and
(y) with respect to other collateral located in Ohio, and no opinion is being
rendered herein with respect to such matters.
The opinions set forth herein are subject to (i) the limitations on
perfection of security interests in proceeds resulting from the operation of
Section 9-306 of the Uniform Commercial Code, and (ii) the limitations with
respect to documents, instruments and securities imposed by Section 9-309 of the
Uniform Commercial Code relating to the time of attachment and perfection of a
security interest in the items of collateral in which the corporation purporting
to grant the lien does not now have rights and of which it does not now have
possession, i.e., dividends or other distributions in respect of the Pledged
Shares.
With respect to the security interests created under the Pledge and
Security Agreement, we have assumed with your permission and without independent
investigation that as of the date of this opinion and at all relevant times
thereafter:
<PAGE>
Citicorp USA, Inc.
March 15, 1996
Page
(i) all items of Collateral (as that term is defined in the Pledge
and Security Agreement) for which possession must be taken by a
secured party in order to perfect its security interest under Sections
9-103 and 9-304 of the Uniform Commercial Code will be delivered to
the Lender on the Closing Date and will remain in the possession of
the Lender;
(ii) except with respect to the Pledged Shares, none of any Debtor's
chattel paper, instruments, or securities bear any endorsement or
legend indicating an ownership or other interests therein other than
that of such Debtor; and
(iii) none of the Collateral consists of equipment used in farming
operations, consumer goods, farm products, crops, timber, minerals or
the like (including oil and gas) or accounts resulting from the sale
thereof, beneficial interests in a trust or a decedent's estate,
letters of credit, uncertificated securities, interest in or claims in
or under any policy of insurance, or items which are subject to a
requirement of any jurisdiction that provides for a registration or
certificate of title or a filing other than under the Uniform
Commercial Code, or any item to which Article 9 of the Uniform
Commercial Code does not apply, including, without limitation, the
items set forth in Section 9-104 of the Uniform Commercial Code.
The phrase "to our knowledge" or "known to us" as used in this opinion
shall mean the actual knowledge of attorneys within our firm based on (i) work
performed on substantive aspects of this transaction, (ii) consultations with
officers of the Borrowers and (iii) our review of the documents and agreements
set forth herein, and does not include matters as to which such attorneys could
be deemed to have constructive knowledge.
Based upon the foregoing and in reliance thereon and subject to the
assumptions, limitations and qualifications set forth herein, including
specifically the limitations and qualifications set forth in paragraphs (a)
through (d) below and in the last paragraph of this letter, we are of the
opinion that:
(1) Each of the Borrowers is duly organized, validly existing and in
good standing under the laws of the state of Delaware.
(2) Each of the Borrowers has full corporate power and authority to
execute and deliver the Financing Agreements to which it is
party, and to consummate the transactions contemplated thereby,
including, without limitation, borrowing the Loans. No other
corporate proceedings on the
<PAGE>
Citicorp USA, Inc.
March 15, 1996
Page
part of any Borrower are necessary to execute and deliver the
Financing Agreements to which it is party or to consummate the
transactions contemplated thereby. The Financing Agreements have
been duly executed and delivered by each Borrower that is party
thereto.
(3) The execution, delivery and performance by the Borrowers of the
Financing Agreements to which they are parties and compliance by
them with the provisions thereof do not (a) conflict with, and do
not result in a breach or violation of the terms of, or
constitute a default under, or result in the creation or
imposition of any lien pursuant to the certificate of
incorporation and by-laws of any such Borrowers or (b) violate or
conflict with (i) any present statute, rule or regulation known
to us to be applicable to any of the Borrowers or (ii) any order,
judgment or decree of any domestic court or agency known to us
which is binding on any Borrower.
(4) Each Financing Agreement is the legal, valid and binding
obligation of each Borrower party thereto, and, subject to the
qualifications and limitations set forth herein, enforceable
against each such Borrower in accordance with its terms.
(5) No authorization, approval or other action by, and no notice to
or filing with, any governmental authority, regulatory body or
other person is required for the due execution, delivery and
performance by each Borrower of the Financing Agreements to which
it is a party, except in each case those contemplated in the
Financing Agreements and those which, if not obtained or made,
would not have a Material Adverse Effect (as defined in the
Credit Agreement).
(6) The Pledged Shares issued by ASCI, Galion and Systems have been
duly authorized and validly issued, and are fully paid and non-
assessable. The Pledged Shares constitute the respective
percentages of outstanding capital as of the date hereof of each
issuer thereof as are set forth in Schedule I hereto.
(7) The Pledge and Security Agreement creates a valid security
interest under the Uniform Commercial Code in favor of the Lender
in all of the applicable Borrower's right, title and interest in
and to all Collateral (other than securities which are not
Pledged Shares), to the extent that
<PAGE>
Citicorp USA, Inc.
March 15, 1996
Page
the creation of a security interest in any such Collateral is
governed by the Uniform Commercial Code, as security for the
obligations and liabilities of the Borrowers under the Financing
Agreements to which they are a party.
(8) The financing statements prepared pursuant to the Pledge and
Security Agreement ("Financing Statements") are in appropriate
form for filings under the Uniform Commercial Code, and the
filing of the Financing Statements in the offices and in the
States (the "Specified States") listed in Schedule II attached
hereto will result in the perfection of the security interest in
favor of the Lender in the Collateral, to the extent that a
security interest therein may be perfected by a filing of
Financing Statements under the Uniform Commercial Code and, to
such extent, no filing or recording of any other document or
instrument or other action is required, on the date hereof, to
perfect such security interest under the Uniform Commercial Code;
except that appropriate continuation statements with respect to
such Financing Statements shall be required to be filed from time
to time after the date hereof to maintain the perfection of such
security interests.
(9) Upon the delivery of the Pledged Shares (with undated stock
powers, duly executed in blank) on the date hereof in the State
of New York, and assuming (x) continuous possession of the
Pledged Shares by the Lender, in the State of New York, and (y)
the Lender has no notice (as such term is defined in Section 8-
304 of the Uniform Commercial Code) prior to or on the date of
the delivery of such Pledged Shares of any adverse claim within
the meaning of Section 8-302 of the Uniform Commercial Code, the
Lender will have a valid and perfected security interest in the
Pledged Shares.
The foregoing opinion is further subject to the following
qualifications and limitations:
(a) The enforceability of the Financing Agreements may be
subject to or limited by bankruptcy, insolvency, reorganization, fraudulent
conveyance or transfer, moratorium or other laws and court decisions, now
or hereafter in effect, relating to or affecting the rights of creditors
generally and by general principles of equity (regardless of whether
considered in a proceeding in equity or at law);
<PAGE>
Citicorp USA, Inc.
March 15, 1996
Page
(b) We express no opinion as to the legality, binding nature or
enforceability of (i) any guarantee by any Borrower of the Obligations of
any other Borrower which is not controlled by such guaranteeing Borrower,
(ii) provisions contained in the Financing Agreements restricting access to
legal or equitable remedies, (iii) provisions contained in the Financing
Agreements that purport to establish (or may be construed to establish)
evidentiary standards, (iv) provisions relating to waivers, severability,
indemnity, submissions to jurisdiction, set off, delay or omission of
enforcement of rights or remedies and (v) provisions in the Financing
Agreements purporting to preserve and maintain the liability of a guarantor
despite any lack of validity or enforceability of any Financing Agreement
or any agreement or instrument relating thereto;
(c) We express no opinion as to the enforceability of the
payment of interest provided in the Financing Agreements if the rate
provided for therein would constitute usury under the laws of the State of
New York; and
(d) We express no opinion as to the priority of any security
interest created by any Financing Agreement or, except as specifically set
forth in paragraphs 8 and 9, the perfection of any security interest
created by any Financing Agreements.
This opinion has been rendered solely for the benefit of the Lender,
and no other person or entity shall be entitled to rely hereon. This opinion
shall not be quoted, and copies of this opinion shall not be delivered to any
other person or entity, without the prior written consent of the undersigned.
This opinion is limited to the matters expressly set forth herein as of the date
hereof, no opinion is implied or may be inferred beyond the matters expressly so
stated and we disclaim any obligation to update this opinion.
Very truly yours,
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
SFH&G,LLP:RAG:JSH:ESW
<PAGE>
Schedule I
Outstanding Capital
-------------------
Percentage of Outstanding
Capital Represented by the
--------------------------
Issuer
- ------
Pledged Shares
--------------
ASCI
100%
Galion
100%
Systems
100%
Automotive Safety Components
International, S.A. de C.V.
65.9%
Automotive Safety Components
International, Limited
66%
Automotive Safety Components
International, s.r.o.
66%
<PAGE>
Schedule II
Specified States
----------------
Arizona
Secretary of State
Maricopa County
California
Secretary of State
Orange County
New Jersey
Secretary of State
Mount Arlington County
Ohio Secretary of State
Summit County Recorder
Franklin County Recorder
Montgomery County Recorder
Crawford County Record Real Estate Records (Fixture Filing
Richland County Recorder
Cuyohuga County Recorder
Tennessee
Secretary of State
Gibson County Clerk
<PAGE>
EXHIBIT F
March 15, 1996
Citicorp USA, Inc.
153 East 53rd Street
New York, NY 10043
Attention: Messrs. Andrew Stock & Stephen Goetschius
Dear Sirs:
We have acted as special Government Contracts counsel for Galion, Inc.
("Galion") and Valentec Systems Inc. (each a Defense Borrower and collectively
the "Defense Borrowers") in connection with (1) the execution and delivery by,
among others, the Defense Borrowers and Citicorp USA, Inc. (the "Lender") of the
Credit Agreement, dated as of March 15, 1996 (the "Credit Agreement"); (2) the
execution and delivery by, among other parties, the Defense Borrowers (together
with such other parties, the "Borrowers") of the Pledge and Security Agreement,
dated as of March 15, 1996 in favor of the Lender (the "Pledge and Security
Agreement"); (3) the Lockbox Agreements and Blocked Account Agreement
(collectively the "Lockbox Agreements" and together with the Credit Agreement,
the Pledge and Security Agreement, referred to as the "Agreements" and
individually as an "Agreement").
This opinion is being furnished to the Lender pursuant to Section 2.1(xi)
of the Credit Agreement. In connection with rendering this opinion, we have read
copies of the Agreements and also have examined copies of such other documents,
records, certificates and instruments as in our judgment are necessary as the
basis for the opinions expressed below. As to various questions of fact material
to this opinion, we have relied upon representations, statements or certificates
of officers and representatives of the Defense Borrowers and others, including
representations of the Defense Borrowers contained in the Agreements. As used
herein, any defined terms used but not defined in this opinion shall have the
meanings ascribed thereto in the Credit Agreement or other relevant Agreements.
In addition, we have assumed, without investigation, verification or
inquiry, (i) the genuineness of the signatures of all persons signing the
Agreements or any of them, (ii) the legal capacity of all natural persons, (iii)
the authenticity of all documents submitted to us as copies, and (iv) the
conformity to original documents of all documents submitted to us as photostatic
or facsimile copies and the authenticity of the originals of such documents. We
have also assumed the valid authorization, execution and delivery of each of the
Agreements by each party thereto other than the Obligors and we have assumed
that each of such other parties has been duly organized and is validly existing
and in good standing under its jurisdiction of incorporation with
<PAGE>
EXHIBIT F
Citibank USA, Inc.
March 15, 1996
Page 2
the corporate or other organizational power to perform its obligations
thereunder, and that each of the Agreements is the valid, binding and
enforceable obligation of each such other party.
We note that we are not general counsel to the Borrower and would not
ordinarily be familiar with or aware of matters relating to the Borrower unless
they are brought to our attention by representatives of the Borrower.
Accordingly, our examination in connection herewith has been limited to the
documents identified to us by the Borrower or otherwise relevant to the
transactions contemplated by the Loan Documents.
Furthermore, in connection with the opinions set forth below, we have made
such investigations of fact and law as we believe are necessary or appropriate
to enable us to render the opinions expressed below. We reviewed the
requirements of the Federal Acquisition Regulation ("FAR"), as well as any
pertinent federal statutes pertaining to the defense-related operations of
Defense Borrowers performed pursuant to U.S. Government contracts and
subcontracts. In this regard, we were informed that Defense Borrowers currently
have firm fixed-price U.S. Government contracts and firm fixed-price
subcontracts under U.S. Government prime contracts, but to progress payments,
only Valentec Systems, Inc. has received progress payments under its contract
with the United States Army Industrial Operations Command for production of
120mm mortar ammunition. Pursuant to the standard Progress Payments Clause of
the FAR, the Government has acquired title to all materials, work in-process,
finished goods and other property as described in the Progress Payment clause of
the contract as of the date when such property is or should have been allocable
to the contract or; with respect to property acquired or produced prior to that
date for use in connection with that contract, immediately upon the date of the
contract. FAR 52.232-16(d).
With respect to Defense Borrowers' security obligations under the
Agreements, for your information, the Assignment of Claims Act of 1940, as
amended, 31 U.S.C. (S) 3727, 41 U.S.C. (S) 15 and FAR 32.8000 et seq., covers
------
the transfer or assignment of a contractor's right to be paid by the U.S.
Government for contract performance and provides that a contractor may assign
monies due or to become due under a contract if certain conditions are met.
These conditions are as follows: (a) the contract specifies payments aggregating
$1,000 or more; (b) the assignment is made to a bank, trust company or other
financing institution, including any Federal lending agency, (c) the contract
does not prohibit the assignment, (d) unless otherwise expressly permitted in
the contract, the assignment (1) covers all unpaid amounts payable under the
contract, (2) is made only to one party, except that any assignment may be made
to one party as agent or trustee for two or more parties participating in the
financing of the contract, and (3) is not subject to further assignment (except
that assignment or reassignment to another financing institution may be made by
financing institutions to whom contract rights have been assigned by a
<PAGE>
EXHIBIT F
Citibank USA, Inc.
March 15, 1996
Page 3
contractor, provided that the requirements of clause (e) are met); and (e) the
assignee sends written notice of assignment together with a true copy of the
assignment instrument to the appropriate government officer.
The opinions expressed below are subject to the following qualifications:
(i) Whenever we have rendered an opinion "to our knowledge" or concerning
an item "known to us," or similar language used herein, it is based solely upon
an inquiry of attorneys within this firm who perform legal services for the
Defense Borrowers, or, as to factual matters only, upon the receipt of
information from or on behalf of the Defense Borrowers.
(ii) This opinion is given as of the date first set forth above.
(iii) The opinions expressed herein are given only with respect to the
federal laws which relate to the defense-related operations of Defense Borrowers
performed pursuant to their respective U.S. Government contacts and subcontracts
specifically referred to. We express no opinion as to the matters governed by
any other laws, and we express no opinion with respect to any conflict of laws
questions, if any.
(iv) We are not passing upon and do not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in or
incorporated by reference in any of the Agreements.
(v) We express no opinion as to whether any of the Agreements contains or
incorporates by reference any untrue statement of material fact or omits to
state a material fact necessary in order to make the statements contained or
incorporated by reference therein, in light of the circumstances under which
they were made, not misleading, and we express no opinion as to the truth of any
statement of material fact contained or incorporated by reference in the
Agreements.
(vi) We express no opinion as to the security interests created under the
Agreements.
Based upon the foregoing and in reliance thereon and subject to the
assumptions, limitations and qualifications set forth herein, including
specifically in the last two paragraphs of this letter, we are of the opinion
that:
(i) Each Agreement is the legal, valid and binding obligation of each
Defense Borrower party thereto, and subject to the qualifications and
limitations set forth
<PAGE>
EXHIBIT F
Citibank USA, Inc.
March 15, 1996
Page 4
herein, enforceable against each such Defense Borrower in accordance with its
terms.
(ii) With respect to the defense-related operations of Defense Borrowers
performed pursuant to their respective U.S. Government contracts and
subcontracts and, except, with respect to any obligations owing by the United
States Government that may be assignable to the Lender pursuant to the
Agreements, for such consents, approvals or authorizations of the United States
Government which are necessary for such assignment pursuant to the Federal
Assignment of Claims Act (31 U.S.C. (S) 3727; 41 U.S.C. (S) 15), no
authorization, approval or other action by, and no notice to or filing with, any
governmental authority, regulatory body or other person is required for the due
execution, delivery and performance by each Defense Borrower of the Agreements
to which it is a party except in each case those contemplated in the Agreements
and those which, if not obtained or made, would not have a Material Adverse
Effect on the Borrowers.
(iii) The form of written Notice of Assignment of Valentec Systems, Inc.'s
Defense Contract Proceeds complies with the requirements of the Assignment of
Claims Act of 1940.
Our opinions are limited to the specific issues addressed and are limited
in all respects to the laws existing on the date hereof. By rendering our
opinions, we do not undertake to advise you of changes in the law which may
occur after the date hereof.
This opinion has been rendered solely for the benefit of the addressees
hereof, and no other person or entity shall be entitled to rely hereon. This
opinion shall not be quoted, and copies of this opinion shall not be delivered
to any other person or entity, without our prior written consent. This opinion
is limited to the matters expressly set forth herein as of the date hereof, and
no opinion is implied or may be inferred beyond the matters expressly so stated.
Very truly yours,
PATTON, BOGGS, L.L.P.
<PAGE>
EXHIBIT G
[Letterhead of Calfee, Halter & Griswold]
March 15, 1996
Citicorp USA, Inc.
153 East 53rd Street
New York, NY 10043
Ladies and Gentlemen:
We have acted as special counsel in the State of Ohio to Galion, Inc.
(the "Mortgagor"), and Safety Components International, Inc. ("SCI"), Automotive
Safety Components International, Inc., and Valentec Systems, Inc. (collectively,
and with the Mortgagor and SCI, the "Borrowers" and individually, a "Borrower"),
in connection with the execution and delivery of the Credit Agreement, dated of
even date herewith (the "Credit Agreement") between and among the Borrowers,
each in its capacity as a Borrower and, other than SCI, as a Guarantor (as
defined in the Credit Agreement), and Citicorp USA, Inc. (the "Bank").
Capitalized terms used, but not otherwise defined, herein shall have the
meanings ascribed to such terms in the Credit Agreement.
In connection with this opinion, we have examined photocopies of
executed originals of the following documents, each dated March 15, 1996, except
for the Financing Statements and Fixture Financing Statement, photocopies of
which are attached:
1. The Credit Agreement executed and delivered by the Borrowers;
2. The Note (the "Note"), in original principal amount of
$10,000,000, executed and delivered by the Borrowers and payable to the
order of the Bank;
3. The Open-End Mortgage, Assignment of Rents and Leases and
Security Agreement (the "Mortgage"), with a stated maximum principal amount
of $3,500,000, executed and delivered by the Mortgagor in favor of the
Bank;
4. The Pledge and Security Agreement executed and delivered by the
Borrowers in favor of the Bank (the "Pledge Agreement");
5. UCC-1 Financing Statements (the "Financing Statements"), executed
and delivered by the Mortgagor as Debtor naming the Bank as Secured Party
and describing certain personal property; and
<PAGE>
CALFEE, HALTER & GRISWOLD
Citicorp USA, Inc.
Page 2
March 15, 1996
6. UCC-1 Fixture Financing Statement (the "Fixture Financing
Statement"), executed and delivered by the Mortgagor as Debtor naming the
Bank as Secured Party and describing certain fixtures.
The Credit Agreement, the Note, the Mortgage, and the Pledge Agreement
are hereinafter referred to as the Loan Documents. The office of the Ohio
Secretary of State and the office of the County Recorder for each of Crawford
County, Cuyahoga County, Franklin County, Montgomery County, Richland County and
Summit County, each in the State of Ohio, are collectively hereinafter referred
to as the "Filing Office".
In connection with rendering the opinions set forth herein, we have
assumed, without independent investigation, that (i) the Mortgagor is the only
Borrower that has property located in the State of Ohio, (ii) the Premises (as
defined in the Mortgage, herein "Premises") is located only in Crawford County,
Ohio, (iii) the Mortgagor's property other than the Premises located in the
State of Ohio is located only in Crawford County, Cuyahoga County, Franklin
County, Montgomery County, Richland County and Summit County (each a "Designated
County"), (iv) the Mortgagor does not have a place of business in the State of
Ohio other than in Crawford County and (v) each of the Financing Statements and
the Fixture Financing Statement gives an address of the Bank as secured party
thereunder from which information concerning the security interest may be
obtained and gives a mailing address of the Mortgagor as debtor thereunder.
Except with respect to our opinions set forth in paragraphs 1 and 8
below, we have assumed, without independent investigation, that the Lender has
complied, and will continue to comply, with all laws, rules and regulations of
the State applicable to it as a corporation or other entity doing business in
the State.
In rendering the opinions set forth herein, we have not conducted any
investigation into the types of businesses and activities in which any of the
Borrowers, as Borrowers and as Guarantors, engages or the manner in which any of
them conducts its businesses as would enable us to render any opinion (and,
accordingly, we express no opinion) as to the applicability to any of the
Borrowers, as Borrowers and/or as Guarantors, of any law or regulation of the
State of Ohio not of general applicability to business corporations.
For purposes of this opinion, we have assumed, with your approval and
without independent investigation, the following:
a. Each of the Borrowers is a corporation duly incorporated, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own
and operate its properties, to carry on its
<PAGE>
CALFEE, HALTER & GRISWOLD
Citicorp USA, Inc.
Page 3
March 15, 1996
business as now conducted and proposed to be conducted, to enter into the
Loan Documents to which it is a party and to carry out the transactions
contemplated thereby;
b. The execution, delivery and performance by each of the Borrowers
of the Loan Documents and the Financing Statements and Fixture Financing
Statement to which each is a party do not and will not (i) violate an
provision of law (except that we make no such assumption with regard to the
laws of the state of Ohio) applicable to any of the Borrowers, or the
Certificate of Incorporation, Charter or Bylaws (or similar organizational
document) of any of the Borrowers, as the case may be, or any order,
judgment or decree of any court or other agency of government binding on
any of the Borrowers, as the case may be, or (ii) constitute a tortious
interference with any contractual obligation or conflict with result in a
beach of, constitute (with or without notice or lapse of time or both) a
default under, or require the termination of any contractual obligation of
any of the Borrowers;
c. The executed Loan Documents and the Financing Statements and
Fixture Financing Statement are in the forms that we have examined, have
been properly authorized, executed and delivered by the appropriate
parties, and have the correct exhibits attached thereto;
d. The Loan Documents and all other documents executed in connection
therewith or as security therefor constitute the legal, valid and binding
obligations of the parties thereto under the laws of the jurisdiction
chosen to govern the enforcement thereof (except that we make no such
assumption with regard to the laws of the State of Ohio);
e. The description of the real property to be attached to the
Mortgage, the Fixture Financing Statement and the other Loan Documents
accurately describes the real property intended to be encumbered thereby;
f. None of the Premises is "Registered Land", as such term is
defined in Chapter 5309 of the Ohio Revised Code; and
g. None of the property described in the Mortgage, the Financing
Statements or the Fixture Financing Statement consists or will consist of
certificated securities, uncertificated securities, consumer goods,
equipment used in farm operations, farm products, crops, timber, minerals
or the like (including oil and gas), or accounts resulting from the sale
thereof, trademarks, patents, copyrights, beneficial interests in a trust
or a decedent's estate or letters of credit.
We have also assumed that (1) funds have been advanced by the Bank
pursuant to, and in connection with the execution, delivery and performance of,
the Loan Documents; and
<PAGE>
CALFEE, HALTER & GRISWOLD
Citicorp USA, Inc.
Page 4
March 15, 1996
(2) the Mortgagor has rights in the property with respect to which it has
granted a security interest and mortgage interest under the Mortgage and the
Pledge Agreement.
Based on the foregoing and upon such legal considerations as we have
deemed necessary, and subject to the assumptions, exceptions, qualifications and
limitations set forth herein, we express the following opinions:
1. The Bank is not subject to taxation by the State of Ohio by
virtue of making the Loan, taking a lien on property in the State of Ohio or
enforcing its rights under the Mortgage.
2. Each of the Mortgage and the other Loan Documents constitutes the
legal, valid and binding obligation of each of the Borrowers, as Borrowers and
as Guarantors, that is a party thereto, enforceable in accordance with its
terms.
3. The laws of the State of Ohio do not impair the Bank's rights to
secure a deficiency judgment or realize on any other mortgages or collateral for
the Loan located in the State of Ohio whether prior to, concurrently with or
after realizing upon the Mortgage and do not impair the right of the Bank to
proceed whether prior to, concurrently with or after realizing upon the
Mortgage, against any guarantors of the Loan.
4. Neither the execution and delivery by the Borrowers of the Loan
Documents, the Financing Statements and Fixture Financing Statement (to which
they are a party) nor the performance by the Borrowers of their respective
obligations thereunder conflict with or violate or constitute a breach of the
provisions of, or a default under, any provision of applicable law of the State
of Ohio.
5. Upon filing of the Financing Statements in the Filing Office, all
filings, registrations and recordings necessary or appropriate in the State of
Ohio to create, maintain, preserve, protect and perfect the security interests
granted by the Mortgagor to the Bank under the Mortgage and Pledge Agreement
with respect to personal property that is described in the Financing Statements
and located in a Designated County with respect to which a security interest may
be perfected by the filing of a financing statement under Chapter 1309 (the
"Sate Article 9") of the Ohio Revised Code (the "Perfected Personal Property")
--------------
will have been accomplished and the security interests granted to the Bank will
constitute perfected security interests in the Perfected Personal Property.
6. The Mortgage is in proper form for recording in the office of the
County Recorder for Crawford County, Ohio and in form sufficient to create liens
against the Premises comprised of real property (including fixtures), without
further action to secure the indebtedness described therein, and the office of
the County Recorder for Crawford County, Ohio is the
<PAGE>
CALFEE, HALTER & GRISWOLD
Citicorp USA, Inc.
Page 5
March 15, 1996
appropriate real property recording office for recording of the Mortgage as to
real property located in Crawford County.
7. Upon filing of the Fixture Financing Statement in the real estate
records of the office of the County Recorder for Crawford County, Ohio, all
filings, registrations and recordings necessary or appropriate in the State of
Ohio to create, maintain, preserve, protect and perfect the security interests
granted by the Mortgagor to the Bank under the Mortgage and Pledge Agreement
with respect to property that constitutes fixtures and is described in the
Fixture Financing Statement and located in Crawford County in the State of Ohio
with respect to which a security interest may be perfected by the filing of a
financing statement under the State Article 9 (the "Perfected Fixture Property")
will have been accomplished and the security interests granted by the Mortgagor
to the Bank will constitute perfected security interests in the Perfected
Fixture Property.
8. The Bank, solely by virtue of making the Loan, taking a lien
and/or a security interest under the Mortgage and the Pledge Agreement on
property in the State of Ohio or enforcing its rights under the Loan Documents,
is not required to comply with any statutory or regulatory requirements
applicable only to financial institutions chartered or qualified or required to
be chartered or qualified to do business in the State of Ohio or be qualified to
do business or file any designation for service of process or file any reports
in the State of Ohio, and no authorization, consent or approval or other action
by, and no notice to or filing with, any governmental authority or regulatory
body in the State of Ohio is required for the exercise of rights and remedies by
the Bank requiring notice to or filing with any court or any prior court
approval.
9. To the extent that there is no attempt to collect interest
thereon at a rate exceeding twenty-five percent (25%) computed annually, the
interest rates applicable to the obligations of the Borrowers, as Borrowers and
a Guarantors, under the Loan Documents do not violate any law, rule or
regulation prescribing a maximum rate of interest.
The foregoing opinions are subject to the following further
assumptions, limitations, qualifications and exceptions:
(a) Our opinions are subject to and affected by (i) applicable
bankruptcy, insolvency, avoidance, reorganization, bulk transfer, moratorium or
similar laws affecting the rights of creditors generally including, without
limitation, statutory and other laws regarding fraudulent transfers and (ii)
general principles of equity (regardless of whether considered in a proceeding
in equity or at law) which may affect the specific performance of the rights and
remedies set forth in the Loan Documents. Moreover, the exercise of the rights
and remedies under the Loan Documents could be subject to limitation if (i) the
enforcement of such rights and
<PAGE>
CALFEE, HALTER & GRISWOLD
Citicorp USA, Inc.
Page 6
March 15, 1996
remedies by the Bank is not reasonably necessary for the protection of the Bank,
(ii) the penalties imposed bear no reasonable relation to the damages suffered
by the Bank, (iii) the enforcement of the rights and remedies violates the
obligations of the Bank of fair dealing and to act in good faith, or would be
commercially unreasonable, (iv) the Events of Default (as defined in the
Mortgage) are deemed by a court not to be material or (v) a court having
jurisdiction finds that such remedies, covenants or provisions were, at the time
made, or are in application, unconscionable as a matter of law or contrary to
public policy.
(b) Certain of the remedial provisions in the Loan Documents may be
limited or rendered unenforceable under laws of the State of Ohio. We express
no opinion as to the validity, binding effect or enforceability of any provision
in the Loan Documents which (i) purports to give the Bank the right to act as
attorney in fact and thereupon sign documents and take actions in the name of
any of the Borrowers, (ii) attempts to grant to the Bank a power of sale or to
modify or waive any requirements of judicial foreclosure including, but not
limited to, those relating to appraisement, valuation or redemption,
modifications or waivers of stays, extensions, moratorium or homestead rights or
exemptions, (iii) provides a right of possession, dominion or control (other
than by judicial action) of collateral or other self-help remedies, (iv)
purports to secure any indebtedness or obligations other than those within the
contemplation of the parties as evidenced by the execution and delivery of the
Credit Agreement and satisfying any applicable "relatedness" test, (v) purports
to grant the right to have a receiver appointed, (vi) purports to obligate the
Mortgagor to pay for any documentary stamp or other taxes not currently in
existence unless at the time such charges are required to be paid it is lawful
for the Mortgagor so to pay the same, (vii) purports to assign rights to the
Bank as to the proceeds of any insurance policy without compliance with the
requirements of such policy regarding the assignment of any part thereof, (viii)
purports to make any existing lease subordinate to the Mortgage, (ix) purports
to modify the Bank's obligations under 1309.18 of the Ohio Revised Code (UCC (S)
9-207), (x) purports to grant to the Bank a right to foreclose on other than a
currently existing tax parcel except pursuant to and after having obtained any
necessary governmental split or subdivision approvals for dividing the real
property that is the subject of the Mortgage into new parcels, (xi) purports to
require lessees under leases subordinate to the lien of the Mortgage to attorn
to the Bank after foreclosure, except to the extent that such lessees have
entered into enforceable nondisturbance and attornment agreements for the
benefit of the Bank or such other purchasers, (xii) purports to make any
existing lease subordinate to the Mortgage, purports to make any subordinate
lease continue in existence following foreclosure or purports to prohibit any
existing lease from being terminated by the lessee in accordance with its terms,
(xiii) purports to prevent the Bank from being deemed a mortgage in possession
or held liable under any lease of real property after the exercise by the Bank
of any rights or remedies under the Mortgage, (xiv) purports to grant to the
Bank the right to acquire the Premises at a foreclosure sale without paying all
real estate taxes and assessments and all costs and expenses associated with
such foreclosure action and such sale, or (xv) purports to grant to the Bank the
<PAGE>
CALFEE, HALTER & GRISWOLD
Citicorp USA, Inc.
Page 7
March 15, 1996
right to retain possession and control of the Premises after the appointment of
a receiver, liquidator or trustee. We express no opinion with respect to whether
the assignment of leases set forth in the Mortgage would be construed to be an
absolute assignment as compared to a lien on rents and the underlying leases.
Notwithstanding the qualifications set forth in paragraph (a) above, this
paragraph (b) and paragraph (d) below as to enforceability of the provisions
referenced in paragraph (a), this paragraph (b) and paragraph (d) below, in our
opinion and subject to the other assumptions, limitations, qualifications and
exceptions hereof, the unenforceability of such provisions does not render the
Mortgage invalid as a whole and, in the event of a material breach of a material
convenant in the Mortgage, the Bank may exercise remedies that would be normally
available to a mortgagee in the State of Ohio.
(c) We express no opinion with respect to any provision in the Loan
Documents purporting to allow the collection of attorneys' fees.
(d) We express no opinion as to the validity, binding effect or
enforceability of any provision in the Loan Documents to the extent that such
provision (i) purports to waive any requirement of diligent performance or other
care on the Bank's part with respect to the recognition or preservation of the
rights of the Borrowers to or interest in any property subject to any security
interest o lien granted thereby, (ii) provides that delays or course of dealing
by the Bank will not operate as a waiver, (iii) purports to exculpate the Bank
from its own negligent acts and limit the Bank from certain liabilities, (iv)
attempts to modify or waive any requirements of commercial reasonableness,
notice, or other requirements of the State Article 9, (v) provides that a waiver
must be in writing, (vi) provides for the establishment of evidentiary
standards, (vii) provides for the waiver of objections to venue, or (viii)
purports to waive any right to notice or consent with respect to extensions or
increases of the obligations owing the Bank or any surrender or release of
collateral securing such obligations.
(e) We have made no examination of the condition of title to or liens
on or with respect to any property affected by the Mortgage, the Financing
Statement or the Fixture Financing Statement, and, accordingly, we express no
opinion as to the title to, condition of title to or ownership of the property
(including without limitation, any portion of the Premises contemplated as
security by the Loan Documents), nor the priority of the liens and encumbrances
to be created on any property by the Mortgage, nor, except as set forth in
paragraphs 6 and 7 above, the attachment or perfection of any security interest
in fixtures, nor, except as set forth in paragraph 5 above, the perfection of
the security interest in any personal property. We express no opinion
concerning the validity or enforceability of any lien purportedly granted to the
Bank under the Mortgage and the Fixture Financing Statement in real property not
specifically described therein or in the adequacy of any legal description set
forth therein.
<PAGE>
CALFEE, HALTER & GRISWOLD
Citicorp USA, Inc.
Page 8
March 15, 1996
(f) Continuation statements with respect to each of the Financing
Statement and the Fixture Financing Statement must be filed within the period of
six (6) months prior to the expiration of five (5) years from the date of the
initial filing thereof or the appropriate filing of any appropriate continuation
statements. The Mortgage must be refiled within twenty-one (21) years after the
date of the Mortgage or within twenty-one (21) years after the stated maturity
date of the principal sum secured by the Mortgage if a stated date of maturity
is provided in the Mortgage, whichever is later, as provided by Ohio Revised
Code (S) 5301.30.
(g) The security interest of the Bank will cease to be perfected as
to any collateral (i) acquired by the Mortgagor more than four (4) months after
such company changes its name, identity or corporate structure so as to make the
then-filed UCC-1 Financing Statements (or Fixture Financing Statement) seriously
misleading, unless new appropriate UCC-1 Financing Statements (and Fixture
Financing Statement) are filed before the expiration of such four (4) month
period, (ii) sold by the Mortgagor to a buyer in the ordinary course of
business, (iii) otherwise disposed of by the Mortgagor, if such disposition is
authorized by the Bank, (iv) moved to another state or jurisdiction (unless such
security interest is perfected under the laws of the state or jurisdiction to
which such collateral is moved); or (v) consisting of accounts, general
intangibles and mobile goods or chattel paper (to the extent the security
interest therein is nonpossessory), four (4) months after the Mortgagor changes
its chief executive office, if applicable, to a new jurisdiction outside of the
State of Ohio (or, if earlier, when perfection under the law of the State of
Ohio would have ceased as set forth in paragraph (f) immediately above) unless
such security interest is perfected in such new jurisdiction before that
termination.
(h) In the case of property which becomes collateral after the date
hereof, Section 552 of the Bankruptcy Code limits the extent to which property
acquired by a debtor after the commencement of a case under the Bankruptcy Code
may be subject to a security interest arising from a security agreement entered
into by the debtor before the commencement of such case.
(i) Our opinion relating to the enforceability of the Loan Documents,
to the extent that the obligations of any of the Borrowers under the Loan
Documents may be characterized as a guaranty by such party of the obligations of
another party, is qualified to the extent that such obligations of any of the
Borrowers: (a) may be subject to a variety of defenses which generally may be
raised by guarantors and (b) may be specifically subject to the limitations of
Sections 1341.03 and 1341.04 of the Ohio Revised Code. In addition, we express
no opinion regarding, and our opinion is qualified in respect of such
obligations to the extent that any of the Loan Documents (A) attempts to modify
or waive any requirements of commercial reasonableness, notice or other
requirements of the law of the State of Ohio relating to the rights and remedies
of guarantors or (B) purports to waive or modify any defenses, offsets or claims
which any guarantors may have either at law or at equity.
<PAGE>
CALFEE, HALTER & GRISWOLD
Citicorp USA, Inc.
Page 9
March 15, 1996
You have asked whether a court of the State of Ohio or a federal court
applying the law of the State would apply the conflict of law principles adopted
under the law of the State of Ohio so as to give effect to the choice of law
provision set forth in the Loan Documents (other than the Mortgage which is
governed by the laws of the State of Ohio) providing that the law of the State
of New York should govern the Loan Documents. After a review of reported and
published decisions applying the law of the State of Ohio, we are unaware of any
reported and published decision by any court of the State of Ohio or federal
court applying the law of the State of Ohio which gives effect to a choice of
law provision set forth in a loan agreement, security agreement or in a note
(other than in the context of usury issues relating to a note, and in connection
with the collection of attorneys' fees and other than as referenced below with
respect to unpublished decisions). Accordingly, the opinion hereinafter set
forth is based solely on a review of analogous case law.
Section 1301.05 of the Ohio Revised Code provides, in relevant part,
that parties to a transaction which bears a reasonable relation to the State of
Ohio and to another state may agree that the laws of the State of Ohio or the
laws of such other state shall govern the rights and duties of said parties.
Other than in connection with the collection of attorney's fees pursuant to the
terms of a security agreement, this provision of the law of the State of Ohio
has not yet been applied to a loan agreement or security agreement or a note.
However, courts of other states and federal courts interpreting state law of
other states have applied Section 1-105 of the Uniform Commercial Code to uphold
a choice of law provision set forth in notes or loan agreements in cases
involving conflicting state usury laws. See, e.g., Woods - Tucker Leasing Corp.
----------------------------
of Georgia v. Hutcheson-Ingram Development Co., 642 F.2d 744 (5th Cir. 1981).
- -----------------------------------------------
Hammel v. Ziegler Financing Corp., 113 Wis. 2d 73, 334 N.W. 2d 913 (Wis. Ct.
- ----------------------------------
App. 1983). State of Ohio courts generally defer to decisions by other state
courts regarding the interpretation of identical UCC provisions. Mack Financial
--------------
Corporation v. Kenworth of Cincinnati, Inc., No. C-790740, slip op. at 3 (Ohio
- --------------------------------------------
Ct., App. June 3, 1981).
The only reported and published Ohio decision addressing a choice of
law provision contained in a loan document since the adoption of the Uniform
Commercial Code as enacted in the State of Ohio concerns choice of law relating
to the collection of attorney's fees. In Clarklift of Northwest Ohio, Inc. v.
------------------------------------
Clark Equipment Company, 869 F.Supp. 533 (N.D. Ohio 1994), the court refused to
- ------------------------
honor the parties' choice of Michigan law in connection with the recovery of
attorneys' fees. Each of the two security agreements between the parties
contained a provision stating that such agreements were to be "construed in
accordance with and governed by the laws of the State of Michigan". The court
cited Schulke Radio Prod. v. Midwestern Broadcast, 6 Ohio Citicorp USA, Inc. St.
--------------------------------------------
3d 436, 453 N.E.2d 683 (Ohio 1983), in determining that the laws of the state
chosen by the parties to a loan document such as a security agreement would be
applied unless (i) the chosen state has no substantial relationship to the
parties or the transaction and there is no other reasonable basis for the
parties' choice, or (ii) application of the law of the chosen
<PAGE>
CALFEE, HALTER & GRISWOLD
Citicorp USA, Inc.
Page 10
March 15, 1996
state would be contrary to a fundamental policy of a state having a materially
greater interest in the issue than the chosen state and such state would be the
state of the applicable law in the absence of a choice by the parties.
The court concluded that the choice of Michigan law should not be
upheld because: (i) the secured party relied entirely upon Ohio law in its
foreclosure proceedings, thus effectively waiving its contractual right that
Michigan should apply; and (ii) the recovery of attorney fees is repugnant to
Ohio public policy and, under the facts of Clarklift, Ohio had a greater
---------
material interest in the choice of law issue than Michigan. The court found
that Ohio had a materially greater interest in Clarklift because (a) the
---------
borrower's only place of business was in Ohio; (b) all of the assets of the
borrower were located in Ohio; (c) the secured party filed documents in Ohio to
record its security interest in the borrower's assets; and (d) the secured party
was doing business in the State of Ohio. The court noted that the only
connections to Michigan were the fact that one of the parties was incorporated
in the State of Michigan and the security agreements were deemed to be entered
in the State of Michigan.
Other than Clarklift of Northwest Ohio, Inc. v. Clark Equipment
----------------------------------------------------
Company, the only reported and published Ohio decisions addressing a choice of
- -------
law provision contained in a loan agreement, security agreement or promissory
note concern choice of law issues relating to usury and were decided prior to
the adoption of the Ohio UCC. While ultimately upholding the choice of law
provisions of each subject note, such decisions did not establish a clearly
defined rationale or precedent for doing so. In Kilgore v. Dempsey, 25 Ohio St.
------------------
610 (Ohio 1874), the Supreme Court of Ohio upheld a choice of State of Ohio law
as to the interest rate of a note payable by a maker who was a resident of the
State of Ohio although the interest rate set forth in such note would have been
usurious under Pennsylvania law. The holder of the note was a resident of
Pennsylvania and the note was to be paid in Pennsylvania. The court held that
the parties to the note had a legal right to contract in good faith with
reference to the laws of either the State of Ohio or Commonwealth of
Pennsylvania. In Scott v. Perlee, 39 Ohio St. 63 (Ohio 1883), the Supreme Court
---------------
of Ohio upheld a choice of Illinois law as to the interest rate of a note
payable by a maker who was an Illinois resident to a holder who was a resident
of the State of Ohio although the interest rate would have been usurious under
the law of the State of Ohio. The court stated that:
...it is undoubtedly the law of this state, and indeed it is now well
established almost universally, that where a contract is entered into
in one state, to be performed in another, between citizens of each,
and the rate of interest is different in the two, the parties may, in
good faith, stipulate for the rate of either, and thus expressly
determine with reference to the law of which place that part of the
contract shall be decided.
<PAGE>
CALFEE, HALTER & GRISWOLD
Citicorp USA, Inc.
Page 11
March 15, 1996
In cases relating to commercial contracts other than loan agreements,
security agreements or notes, the Supreme Court of Ohio has adopted the tests
set forth in Section 187(2) of the Restatement (Second) of Conflict of Laws
(1971). However, there is not controlling and published authority under the
laws of the State of Ohio applying Section 187(2) to the enforceability of a
choice of law provision in a loan agreement.
Although the matter is not free from doubt by reason of the absence of
direct and published precedent, if a case were properly presented and argued, we
believe that a court of the State of Ohio or a federal court applying the law of
the State of Ohio would adopt the tests set forth in Section 187(2) of the
Restatement (Second) of Conflict of Laws (1971), under which the law of a state
chosen by the parties to a loan agreement such as the Loan Agreement would be
applied unless:
(a) the chosen state has no substantial relationship to the parties or the
transaction and there is not other reasonable basis for the parties'
choice, or
(b) application of the law of the chosen state would be contrary to a
fundamental policy of a state which has a materially greater interest than
the chosen state in the determination of the particular issue and
which...would be the state of the applicable law in the absence of an
effective choice of law by the parties.
See, Clarklift of Northwest Ohio, Inc. v. Clark Equipment Company, Schulke Radio
---------------------------------------------------------------------------
Prod. v. Midwestern Broadcast, 6 Ohio St. 3d 436, 453 N.E.2d 683 (Ohio 1983),
- -----------------------------
and Jarvis v. Ashland Oil, Inc., 17 Ohio St. 3d 189, 478 N.E.2d 786 (Ohio 1985).
----------------------------
Although of limited value as a precedent by reason of its unpublished
nature, we have found one relevant unpublished decision, Michigan Bank -
---------------
Midsouth v. James R. Strohl, 1986 WL 11425 (Ohio App.). Therein, in upholding
- ----------------------------
the parties' choice of Michigan law, the court applied Section 187(2) of the
Restatement (Second) of Conflict of Laws (1971) to a promissory note. The case
is unclear concerning whether the note contained an express choice of Michigan
law. In discussing Section 187(2), however, the court states that a reasonable
basis for the parties' choice of law exists where a borrower chooses the law of
the state where the bank advancing the funds is located.
In applying such Restatement tests, the Supreme Court of Ohio in
Jarvis v. Ashland Oil, Inc. stated that, even where the law of the chosen state
- ---------------------------
is concededly repugnant to and in violation of the public policy of the State of
Ohio, the law of the State of Ohio will "only be applied when it can be shown
that the state has a materially greater interest than the chosen state."
<PAGE>
CALFEE, HALTER & GRISWOLD
Citicorp USA, Inc.
Page 12
March 15, 1996
In Sekeres v. Arbaugh, 31 Ohio St. 3d 24, 508 N.E.2d 941 (Ohio 1987),
-------------------
the Supreme Court of Ohio upheld an award of attorneys' fees based on a
provision in a commodity futures trading agreement providing that New York law
would govern the agreement. As a result of its finding that the State of Ohio
did not have a materially greater interest than New York, the Court found it
unnecessary to decide whether the contract's provision for the collection of
attorneys' fees would violate State of Ohio public policy. Determining that the
State of Ohio did not have a materially greater interest, the Court noted that
(i) the performance of the contract was not located principally in either New
York or the State of Ohio, (ii) the transaction was approved in New York and one
of the parties was incorporated n New York, and (iii) neither the State of Ohio
residence of the other party to the contract nor the execution of the contract
in the State of Ohio was determinative.
Other than the Clarklift case, there is no reported decision applying
---------
the law of the State of Ohio which suggests (i) whether the tests of Section
1301.05 of the Ohio Revised Code or Section 187(2) of the Restatement as adopted
by the Supreme Court of Ohio would supersede or otherwise alter the earlier
State of Ohio cases referenced above regarding "good faith" enforceability of
choice of law provisions in notes as related to usury or any other particular
issue or (ii) whether a choice of law provision as it relates to usury,
attorney's fees in connection with collections, or waivers of equitable or legal
defenses are matters of fundamental public policy of the State of Ohio or are
concededly repugnant to and in violation of the public policy of the State of
Ohio.
In the present case, it is our understanding that (i) negotiations of
the Loan Documents have occurred in New York and telephonically between
representatives located in New York and California, (ii) the Mortgagor is a
Delaware corporation with its principal place of business and chief executive
office in 515 Northeast Street, Galion, Ohio 44833, (iii) the Bank has its chief
executive office in New York, (iv) the funding of Loan, the payment of the
Bank's fees and the repayment of the Loan will be made or received in New York
and (v) the Loan Documents will be executed and delivered in New York.
Although the matter is not free from doubt because (i) there is no
controlling published authority in the State of Ohio with regard to a loan
agreement, security agreement, note agreement, notes (other than in the usury
context and in connection with the collection of attorneys' fees), (ii) other
than the Clarklift case, there is no controlling published authority in the
---------
State of Ohio with regard to the effect of the adoption of either Section
1301.05 of the Ohio Revised Code or Section 187(2) of the Restatement with
regard to a note agreement, loan agreement, security agreement or note, (iii) in
the Clarklift case, the court held that a choice of law provision is not
---------
enforceable with respect to the collection of attorneys' fees, (iv) the
application of facts to controlling legal principles will be determined
ultimately by a trier-of-fact based on its view of the facts, and (v) the split
decision in Sekeres and the decision in Clarklift
------- ---------
<PAGE>
CALFEE, HALTER & GRISWOLD
Citicorp USA, Inc.
Page 13
March 15, 1996
demonstrate the potential for contradictory analysis and/or emphasis of facts
related to choice of law issues, we re of the opinion, based upon the understood
facts set forth above and a reasoned analysis of analogous case law, that, if
the case were properly presented and argued, a court of the State of Ohio or a
federal court applying the law of the State of Ohio should give effect to the
choice of New York law as the governing law with respect to the interpretation
and enforceability of the Loan Documents (other than the Mortgage which is
governed by the laws of the State of Ohio). The foregoing opinion does not
express any opinion with respect to the enforceabiity of the choice of law
provision with respect to usury or the collection of attorneys' fees in any
situation in which the State of Ohio has a materially greater interest than the
State of New York.
We are licensed to practice law in the State of Ohio and the foregoing
opinions are limited to the laws of the State of Ohio. We do not hold ourselves
out to be experts on the laws of any jurisdiction other than the State of Ohio
and United States federal law. Further, we note that the Loan Documents (other
than the Mortgage) are stated to be governed by the laws of the State of New
York. to the extent the laws of the State of New York (or any other state)
govern the matters as to which the opinions expressed herein are rendered, you
may rely upon our opinions as opinions with respect to the laws of the State of
New York (or any other state) to the extent such laws are construed and applied
with the same effect as the laws of the State of Ohio. We express no opinion as
to whether the laws of the State of New York (or any other state) are construed
or applied with the same effect as the laws of the State of Ohio.
The opinions set forth herein are rendered as of the date hereof. We
undertake no obligation, and disclaim all obligation, to advise you of any
subsequent changes or developments in any law or facts which might affect any
matters or opinions set forth herein. We express no opinion with regard to any
matter which may be governed by the laws of any other jurisdiction.
This opinion is limited to the matters expressly stated herein. No
implied opinion may be inferred to extend this opinion beyond the matters
expressly stated herein. The opinions expressed herein are expressed solely to
you and your counsel and, without the express written consent of the
undersigned, may not be reproduced, filed publicly or relied upon by any other
persons (except assignees, transferees or participants of the Bank) for any
reason.
Very truly yours,
Calfee, Halter & Griswold
<PAGE>
EXHIBIT H
ASSIGNMENT OF MONIES DUE AND TO BECOME DUE
Know all men by these presents that VALENTEC SYSTEMS, INC., a Delaware
corporation (hereinafter called the "Assignor"), with its principal executive
office at 200 Valley Road, Suite 101, Mt. Arlington, New Jersey 07856 for
valuable consideration, the receipt of which is hereby acknowledged, hereby
sells, assigns and transfers (under the Assignment of Claims Act, 31 U.S.C.
Section 3727 and 41 U.S.C. Section 15) to, CITICORP USA, INC., a Delaware
corporation and it successors and assigns (hereinafter called the "Assignee"),
with a place of business at 153 East 53rd Street, New York, New York 10043, all
monies due and to become due from the United States of America, together with
all rights to receive the same, under contract DAAA09-94-C-0532, between the
United States of America acting through the Department of the Army and Assignor,
for the manufacture, test, packaging, and shipment of the 120MM H.E. Cartridge
M933.
Assignor hereby irrevocably authorizes and directs the United States of America
to make all payments due under said formal contracts and any and all amendments
thereof and supplements thereto directly to Assignee by checks or other orders,
payable solely to the order of Assignee. Assignor hereby irrevocably constitutes
and appoints Assignee and its designees, its true and lawful attorney,
irrevocably with full power of substitution for it and in its name or in the
name of Assignor or otherwise, to ask, require, demand and receive and give
acquittance for any and all said monies due or to become due, and to endorse the
name of Assignor to any checks, drafts or other orders for the payment of money
payable to Assignor in payment thereof.
Assignor warrants that it is the lawful owner of all rights under said formal
contracts and any and all amendments thereof and supplements thereto; that it
has not previously sold, assigned, transferred or otherwise disposed of or
encumbered the same; that it has good right to assign same; that its rights
thereunder are free from all liens and encumbrances and that it will warrant and
defend the same against the lawful claims and demands of all persons. Assignor
agrees (1) that, if any payments under said formal contracts or any amendment
thereof or supplement thereto shall be made to Assignor, it will receive and
hold the same in trust for Assignee and will forthwith upon receipt deliver the
same to Assignee in the identical form of payment received by Assignor; and (2)
that it will execute and deliver all such further instruments and do all such
further acts and things as Assignee may reasonably request or as shall be
necessary or desirable to further and more perfectly assure to Assignee its
rights under said formal contracts or any amendments thereof or supplements
thereto.
Assignor and Assignee agree and acknowledge that this assignment is not subject
to further assignment, except that assignment or re-assignment to another
financial institution may be made by Assignee.
<PAGE>
IN WITNESS WHEREOF, Assignor has caused this instrument to be signed, sealed,
and delivered by its proper officer thereunto duly authorized this _____ day of
____________, 1996.
Attest: VALENTEC SYSTEMS, INC.
By: ________________________________
Title: _____________________________
[Corporate Seal]
STATE OF __________________________)
) SS.:
COUNTY OF _________________________)
Before me personally appeared _________________ to me know, who being by me
dully sworn, did say that, as of the above written date,(s)he is the
_________________ of the corporation named in and which executed the foregoing
Assignment; that (s)he knows the seal of said corporation; that the seal affixed
to said Assignment is the corporate seal of said corporation; that it was so
affixed by order of the Board of Directors of said corporation; and that (s)he
signed his/her name thereto by like order and by his/her-free act and deed and
acknowledged the said Assignment to be the free act and deed of said corporation
and that the Assignment was completely explained to him/her.
____________________________
Notary Public
<PAGE>
EXHIBIT I
ASSIGNMENT AGREEMENT
--------------------
ASSIGNMENT OF INTERESTS, PROCEEDS AND
DISTRIBUTIONS ARISING FROM MEMBERSHIP
INTEREST IN LIMITED LIABILITY COMPANY
--------------------------------------
KNOW ALL MEN BY THESE PRESENTS, that on the date hereof the
undersigned AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL, INC., a Delaware
corporation (herein called "Assignor"), for good and valuable consideration
received, hereby assigns, transfers and sets over to CITICORP USA, INC., a
Delaware corporation, with offices at 153 East 53rd Street, New York, New York
10043, and its successors, endorsees and assigns (herein called "Assignee"), and
grants to Assignee a first security interest in sixty five percent (65%) of
Assignor's rights and interest in and to xxx .xxx Defined terms used herein and
not otherwise defined shall have the meanings ascribed thereto in the Credit
Agreement.
On the date hereof no Operating or other similar agreement has been
entered into by the Assignor or the Company and no Capital Interests have been
evidenced by any certificates of ownership or other equivalent. All such
Collateral Interests together with any Capital Interests which may hereafter
come into the possession or be under the control of Assignor, with respect to
the Collateral Interests, shall forthwith be delivered by Assignor to Assignee
in precisely the form received, except for endorsement, transfer or assignment
by Assignor, in the name and in favor of Assignee or its nominee or designee.
The Assignee upon the occurrence of an Event of Default shall have the right to
transfer to or register in the name of the Assignee the Collateral Interests.
Notwithstanding the foregoing, the rights to the Collateral Interests shall,
prior to the occurrence and during the continuance of an Event of Default under
the Credit Agreement dated March __, 1996, between the Company, the Assignee and
certain Subsidiaries of Assignee (the "Credit Agreement"), be retained by
Assignor in the first instance, subject to the requirements of said Credit
Agreement.
It is specifically understood that under no circumstances whatsoever
does Assignee assume any responsibility of or obligation with respect to, any of
the terms, covenants, conditions, obligations or liabilities of the Assignor
under or with respect to the Operating Documents and Assignor shall hold
Assignee harmless from and with respect to any and all claims arising therefrom
or relating thereto other than gross negligence or willful misconduct of a party
other than the Assignor.
The Assignor hereby represents, warrants and covenants to and with
Assignee as follows:
1. The Assignor is a member of the Company and holds the Collateral
Interests free and clear of any and all liens and encumbrances whatsoever,
except pursuant to this Assignment Agreement and the Permitted Encumbrances.
Said Collateral Interests constitute, and are entitled to 65% of the benefits
of the allocation of profits and losses, as set forth in the Operating Documents
and the distributions with respect thereto.
<PAGE>
2. The Company is in good standing and the Operating Documents is
presently in full force and effect in accordance with its terms, without change
or modification, and all payments or monies payable thereunder are or will be
payable in accordance with the terms thereof without offset, counterclaim or
defense against the same, and the Assignors have not heretofore assigned,
hypothecated or pledged any interests or rights thereunder.
3. Assignor has full right, title and authority to execute and
deliver this instrument of assignment and will defend Assignee's title against
the claims of all persons whomsoever.
4. The execution, delivery and performance of this Assignment
Agreement will not violate any agreement, law, regulation, or the Operating
Documents of the Assignor, or any order or decree of any court or governmental
instrumentality, and will not conflict with, or result in the breach of, or
constitute a default under, any material indenture, mortgage, deed of trust,
agreement or other instrument to which the Assignor is a party or by which it is
bound, and will not result in the creation or imposition of any lien, charge or
encumbrance upon any of the material property of the Assignor pursuant to the
provisions of any of the foregoing, except for the Lien granted hereunder.
5. The Assignor is a Delaware corporation and the Company is a
limited liability company duly organized under the laws of the Czech Republic
and each such entity is validly existing and in good standing under the laws of
its place of incorporation without limitation on the duration of its existence.
6. Assignor will not release, change, modify, vary or amend any of
the terms of the Operating Documents of the Company in any respect which may
adversely affect the rights or benefits of the Assignee hereunder without the
prior written consent of Assignee (which consent shall not be unreasonably
withheld) and shall not issue or authorize any certificates of ownership or
other equivalent evidencing the Capital Interests or otherwise.
7. Assignor and/or the Company will perform and observe each and
every term, covenant, condition, warranty and obligation to be performed or
observed by Assignor in connection with the Operating Documents, and will permit
no default to take place or occur thereunder except where failure would not have
Material Adverse Effect.
8. Assignor will make, execute and deliver to Assignee or any
designee nominee, representative or agent of Assignee, any and all further
instruments, documents or writings deemed necessary or appropriate by Assignee
in connection with or in confirmation of this instrument of assignment, as
Assignee may request.
9. This Assignment Agreement constitutes the legal, valid and
binding obligation of the Assignor, enforceable in accordance with its terms.
10. Upon the occurrence of and during the continuance of an Event of
Default, Assignor hereby designates Assignee and authorizes and empowers
Assignee to demand from any person, firm or corporation or otherwise, at such
time or times as Assignee shall elect,
<PAGE>
proceeds, monies or other property assigned hereunder and which may be payable
to Assignor or to which Assignor presently or may in the future be entitled.
Assignee shall have the full and unqualified right, from time to time, to notify
any and all persons having an interest in the Company or the Collateral
Interests, of this Assignment Agreement and to require payments or delivery
directly to Assignee of any payments, compensation, proceeds, monies or other
property which are or may at any time be payable or deliverable to Assignor
hereunder.
11. Assignor hereby makes, constitutes and appoints Assignee or any
representative, designee or agent authorized by Assignee as its true and lawful
attorney irrevocably with full power of substitution or revocation, in its name
or otherwise, to make, execute and deliver any endorsements, assignments,
transfers and/or financing statements to effectuate the intent or purposes of
this instrument of assignment, in the event that the Assignor fails to so do in
a timely manner, and acknowledges that the power of attorney granted pursuant
hereto is irrevocable and coupled with an interest.
12. This Assignment Agreement and the obligations and undertakings of
Assignor as provided for in this instrument of assignment shall be and
constitute collateral security for all Obligations.
13. Notwithstanding the terms of Section 6 hereunder, in the event
that any certificates evidencing any Collateral Interests are issued by the
Assignor, such certificates shall be forthwith delivered to the Assignee. In
addition, the Assignor shall deliver on the Closing Date an executed but undated
Transfer Certificate in the form of Exhibit A attached hereto in respect of any
such certificates hereafter issued.
14. Assignor has consented to this Assignment Agreement as indicated
in the resolution approving this Assignment Agreement.
15. This Assignment Agreement shall be binding upon and inure to the
benefit of Assignor, Assignee and their respective successors and assigns and
shall be governed by and construed under the law of the State of New York
without reference to the laws on conflicts of law. No modification, amendment
or waiver of any of the provisions hereof shall be effective unless in writing,
signed by Assignor and Assignee. This Assignment Agreement can be signed in
counterpart.
IN WITNESS WHEREOF, Assignor has executed this Assignment Agreement as
of the __ day of March, 1996.
AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL, INC.
By:_______________________________________
Name:
Title:
-3-
<PAGE>
CITICORP USA, INC.
By:_______________________________________
Name:
Title:
Acknowledged and Agreed
AUTOMOTIVE SAFETY COMPONENTS
INTERNATIONAL, s.r.o.
By__________________________________
Name:
Title:
Date:
-4-
<PAGE>
EXHIBIT A
---------
TRANSFER CERTIFICATE OF MEMBER'S INTEREST
FOR VALUED RECEIVED, AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL, INC.
PLEASE _______ SOCIAL SECURITY OR OTHER
______________
-----------------
hereby collaterally sell, assign and transfer unto ---- ----------------- ------
CITICORP USA, INC.
________________________________________________________________________________
(____________) Certificate(s) representing 65% of the Member Interests in
AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL s.r.o. standing in my (our) name(s)
on the books of said Company represented by Member Certificate(s) No(s)
____________________________________ herewith, and do hereby irrevocably
constitute and appoint _________________________________________________________
attorney to transfer the said Capital Interests on the books of said Company
with full power of substitution in the premises.
Dated March __, 1996
___________________________________
___________________________________
In presence of
____________________________
-5-
<PAGE>
EXHIBIT 10.3
AMENDMENT NO. 1 TO LOAN AGREEMENT
This Amendment No. 1 to Loan Agreement (this "Amendment") dated as of
September 30, 1996 is entered into with reference to the Loan Agreement dated as
of August 1, 1996 among 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 Bank (the "Loan Agreement"). Capitalized terms used but not
defined herein are used with the meanings set forth for those terms in the Loan
Agreement.
RECITALS
A. As of the Closing Date, Borrowers and Bank contemplated that the
Lockbox Agreements described in the Loan Agreement would be entered
into within 30 days following the Closing Date, that the lockbox
agreement with BofA Frankfurt (or another institution acceptable to
the Bank), the U.K. Facilities and the German Overdraft Facility
described in the Loan Agreement would be entered into within 60 days
following the Closing Date. Borrowers also entered into a letter
agreement providing for the fulfillment of certain conditions
precedent to the Closing Date in the period following the Closing Date
(the "Letter Agreement").
B. As of the date of this Amendment, such lockbox agreements, the U.K.
Facilities and the German Overdraft Facility have not been finalized
and certain of the obligations of Borrowers under the Letter Agreement
have not been satisfied.
C. Borrowers and the Bank desire to extend the time available for the
execution of such lockbox agreements, consummation of the U.K.
Facilities and the German Overdraft Facility and the period for
satisfaction of the obligations described in the Letter Agreement to
October 31, 1996.
D. Borrowers and the Bank wish to amend certain definitions contained in
the Loan Agreement.
-1-
<PAGE>
NOW, THEREFORE, Borrowers and the Bank, hereby agree as follows:
1. Amended Definitions. The following definitions set forth in
-------------------
Section 1.1 of the Loan Agreement are hereby amended to read in full as follows:
"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, (b) as of the last day of each calendar month
ending during the period from March 1, 1997 through July 31, 1997, 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, and (c) as
of the last day of each subsequent calendar month, the ratio of (i) Net
Cash Flow for the twelve month period ending on that date, to (ii) Fixed
Charges for the same period.
"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 Loans (but not any Letters of Credit) 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.
2. Amendment to Section 3.2. Section 3.2 of the Loan Agreement is
------------------------
hereby amended to read in full as follows:
"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
-2-
<PAGE>
been consummated prior to October 31, 1996, unless such failure is due to
no fault of Bank."
3. Amendment to Section 6.22. Section 6.22 of the Loan Agreement is
-------------------------
hereby amended to read in full as follows:
"Post Closing Items. Fail to cause each of the following to occur prior to
------------------
October 31, 1996:
(a) termination of the Midland Facilities and all Liens and
Contingent Obligations associated therewith and consummation of the U.K.
Facilities with BofA London pursuant to documentation between ASCL and BofA
London (which documentation shall be solely acceptable to Bank);
(b) Consummation of the German Overdraft Facility with BofA
Frankfurt pursuant to documentation between Co. KG and BofA Frankfurt
(which documentation shall be solely acceptable to Bank);
(c) Consummation of Lockbox Agreements in form and substance
acceptable to Bank, and the sending of notice to all account debtors to
make their remittances to the related Lockboxes; and
(d) Consummation by Co. KG and BofA Frankfurt of a lockbox
agreement in form and substance acceptable to BofA Frankfurt with BofA
Frankfurt (or another institution acceptable to Bank), and the sending of
notice to each of Co. K.G.'s account debtors to make their remittances to
such Lockbox."
4. Extension of Time Periods Under the Letter Agreement. The period
----------------------------------------------------
for satisfaction of Borrowers' remaining obligations under the Letter Agreement
is hereby extended until October 31, 1996.
5. Counterparts. This Amendment may be executed in counterparts in
------------
accordance with Section 11.7 of the Loan Agreement.
----
-3-
<PAGE>
6. Confirmation. In all other respects, the Loan Agreement is
------------
confirmed.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
SAFETY COMPONENTS INTERNATIONAL, INC., a Delaware corporation
By: /s/ W. Hardy Myers
---------------------------
Title: Chief Financial Officer
AUTOMOTIVE SAFETY COMPONENTS
INTERNATIONAL, INC., a Delaware corporation
By: /s/ W. Hardy Myers
---------------------------
Title: Chief Financial Officer
ASCI HOLDINGS GERMANY (DE), INC.,
a Delaware corporation
By: /s/ W. Hardy Myers
---------------------------
Title: Chief Financial Officer
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Administrative Agent
By:
---------------------------
Elizabeth Amendt, Vice President
-4-
<PAGE>
The following consent to the execution, delivery and performance of the
foregoing Amendment No. 1., and confirms that its guaranty of the obligations of
Borrowers remains in full force and effect, and without defense, counterclaim or
offset.
VALENTEC SYSTEMS, INC.
By: /s/ W. Hardy Myers
---------------------------
Title: Chief Financial Officer
GALION, INC.
By: /s/ W. Hardy Myers
---------------------------
Title: Chief Financial Officer
ASCI HOLDINGS U.K., INC.
By: /s/ W. Hardy Myers
---------------------------
Title: Chief Financial Officer
ASCI HOLDINGS CZECH (DE), INC.
By: /s/ W. Hardy Myers
---------------------------
Title: Chief Financial Officer
ASCI HOLDINGS MEXICO (DE), INC.
By: /s/ W. Hardy Myers
---------------------------
Title: Chief Financial Officer
-5-
<PAGE>
EXHIBIT 10.4
AMENDMENT NO. 2 TO LOAN AGREEMENT
This Amendment No. 2 to Loan Agreement (this "Amendment") dated as of
October 31, 1996 is entered into with reference to the Loan Agreement dated as
of August 1, 1996 among 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 Bank (as previously amended by an Amendment No. 1 thereto dated
as of September 30, 1996, the "Loan Agreement"). Capitalized terms used but not
defined herein are used with the meanings set forth for those terms in the Loan
Agreement.
RECITALS
A. Pursuant to Amendment No. 1, Borrowers and Bank extended the date upon
which certain lockbox agreements and the U.K. Facilities and the
German Overdraft Facility described in the Loan Agreement would be
entered into until October 31, 1996. Certain other closing conditions
referred to in the closing letter executed in connection with the Loan
Agreement (the "Letter Agreement") were similarly deferred.
B. As of the date of this Amendment, such lockbox agreements, the U.K.
Facilities and the German Overdraft Facility have not been finalized
and certain of the obligations of Borrowers under the Letter Agreement
have not been satisfied.
C Borrowers and the Bank desire to extend the time available for the
execution of such lockbox agreements, consummation of the U.K.
Facilities and the German Overdraft Facility and the period for
satisfaction of the obligations described in the Letter Agreement to
December 6, 1996, and to make certain other technical corrections to
the Loan Agreement.
NOW, THEREFORE, Borrowers and the Bank, hereby agree as follows:
1. Audited Balance Sheet of Co. K.G. - Amendment to Section 3.1.
------------------------------------------------------------
Bank hereby agrees to accept the audited closing balance sheet of Co. K.G.
prepared by Price Waterhouse and delivered to Bank by Borrowers in lieu of an
audited opening balance sheet of Co. K.G. required by Section 7.1(o) of the Loan
Agreement. In furtherance of this agreement, Section 3.1(d)(v) of the Loan
Agreement is hereby
-1-
<PAGE>
amended to read in full as follows (with the changed text underscored below for
the convenience of the reader):
" (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 unaudited opening balance sheet of Co. KG as of August 5, 1996
-- -----------------------------------------------------
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."
2. Amendment to Section 3.2. Section 3.2 of the Loan Agreement is
------------------------
hereby amended to read in full as follows:
"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
prior to December 6, 1996, unless such failure is due to no fault of Bank."
3. Amendment to Section 6.22. Section 6.22 of the Loan Agreement is
-------------------------
hereby amended to read in full as follows:
"Post Closing Items. Fail to cause each of the following to occur prior to
------------------
December 6, 1996:
-2-
<PAGE>
(a) termination of the Midland Facilities and all Liens and
Contingent Obligations associated therewith and consummation of the U.K.
Facilities with BofA London pursuant to documentation between ASCL and BofA
London (which documentation shall be solely acceptable to Bank);
(b) Consummation of the German Overdraft Facility with BofA
Frankfurt pursuant to documentation between Co. KG and BofA Frankfurt
(which documentation shall be solely acceptable to Bank); and
(c) Consummation by Co. KG and BofA Frankfurt of a lockbox
agreement in form and substance acceptable to BofA Frankfurt with BofA
Frankfurt (or another institution acceptable to Bank), and the sending of
notice to each of Co. K.G.'s account debtors to make their remittances to
such Lockbox."
4. Amendment to Section 7.1(n). Section 7.1(n) of the Loan
---------------------------
Agreement is hereby amended to read in full as follows:
"(n) concurrently with the delivery of the financial statements
referred to in Section 7.1(a), a Compliance Certificate signed by a Senior
Officer of Borrowers;"
5. Extension of Time Periods Under the Letter Agreement. The period
----------------------------------------------------
for satisfaction of Borrowers' remaining obligations under the Letter Agreement
is hereby extended until December 6, 1996.
6. Counterparts. This Amendment may be executed in counterparts in
------------
accordance with Section 11.7 of the Loan Agreement.
----
-3-
<PAGE>
7. Confirmation. In all other respects, the Loan Agreement is
------------
confirmed.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
SAFETY COMPONENTS INTERNATIONAL, INC.,
a Delaware corporation
By: /s/ W. Hardy Myers
___________________________
Title: Chief Financial Officer
________________________
AUTOMOTIVE SAFETY COMPONENTS
INTERNATIONAL, INC.,
a Delaware corporation
By: /s/ W. Hardy Myers
___________________________
Title: Chief Financial Officer
________________________
ASCI HOLDINGS GERMANY (DE), INC.,
a Delaware corporation
By: /s/ W. Hardy Myers
___________________________
Title: Chief Financial Officer
________________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Administrative Agent
By: /s/ Elizabeth Amendt
__________________________________
Elizabeth Amendt, Vice President
-4-
<PAGE>
The following consent to the execution, delivery and performance of the
foregoing Amendment No. 2., and confirm that their guarantees of the obligations
of Borrowers remain in full force and effect, and without defense, counterclaim
or offset.
VALENTEC SYSTEMS, INC.
By: /s/ W. Hardy Myers
___________________________
Title: Chief Financial Officer
________________________
GALION, INC.
By: /s/ W. Hardy Myers
___________________________
Title: Chief Financial Officer
________________________
ASCI HOLDINGS U.K., INC.
By: /s/ W. Hardy Myers
___________________________
Title: Chief Financial Officer
________________________
ASCI HOLDINGS CZECH (DE), INC.
By: /s/ W. Hardy Myers
___________________________
Title: Chief Financial Officer
________________________
ASCI HOLDINGS MEXICO (DE), INC.
By: /s/ W. Hardy Myers
___________________________
Title: Chief Financial Officer
________________________
-5-
<PAGE>
EXHIBIT 10.5
AMENDMENT NO. 3 TO LOAN AGREEMENT
This Amendment No. 3 to Loan Agreement (this "Amendment") dated as of
December ___, 1996 is entered into with reference to the Loan Agreement dated as
of August 1, 1996 among 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 Bank (as previously amended by an Amendment No. 1 thereto dated
as of September 30, 1996, and by an Amendment No. 2 thereto dated as of October
31, 1996, the "Loan Agreement"). Capitalized terms used but not defined herein
are used with the meanings set forth for those terms in the Loan Agreement.
RECITALS
A. Pursuant to Amendment No. 1 and Amendment No. 2, Borrowers and Bank
extended the date upon which certain lockbox agreements and the U.K.
Facilities and the German Overdraft Facility described in the Loan
Agreement would be entered into until December 6, 1996. Certain other
closing conditions referred to in the closing letter executed in
connection with the Loan Agreement (the "Letter Agreement") were
similarly deferred.
B. As of the date of this Amendment, such lockbox agreements, the U.K.
Facilities and the German Overdraft Facility have not been finalized
and certain of the obligations of Borrowers under the Letter Agreement
have not been satisfied.
C. Borrowers and the Bank desire to further extend the time available for
the execution of such lockbox agreements, consummation of the U.K.
Facilities and the German Overdraft Facility and the period for
satisfaction of the obligations described in the Letter Agreement to
December 20, 1996.
-1-
<PAGE>
NOW, THEREFORE, Borrowers and the Bank, hereby agree as follows:
1. Amendment to Section 3.2. Section 3.2 of the Loan Agreement is
------------------------
hereby amended to read in full as follows:
"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
prior to December 20, 1996, unless such failure is due to no fault of
Bank."
2. Amendment to Section 6.22. Section 6.22 of the Loan Agreement is
-------------------------
hereby amended to read in full as follows:
"Post Closing Items. Fail to cause each of the following to occur on or
------------------
prior to December 20, 1996:
(a) Termination of the Midland Facilities and all Liens and
Contingent Obligations associated therewith and consummation of the U.K.
Facilities with BofA London pursuant to documentation between ASCL and BofA
London (which documentation shall be solely acceptable to Bank);
(b) Consummation of the German Overdraft Facility with BofA
Frankfurt pursuant to documentation between Co. KG and BofA Frankfurt
(which documentation shall be solely acceptable to Bank); and
(c) Consummation by Co. KG and BofA Frankfurt of a lockbox
agreement in form and substance acceptable to BofA Frankfurt with BofA
Frankfurt (or another institution acceptable to Bank), and the sending of
notice to each of Co. K.G.'s account debtors to make their remittances to
such Lockbox."
-2-
<PAGE>
3. Extension of Time Periods Under the Letter Agreement. The period
----------------------------------------------------
for satisfaction of Borrowers' remaining obligations under the Letter Agreement
is hereby extended until December 20, 1996.
4. Counterparts. This Amendment may be executed in counterparts in
------------
accordance with Section 11.7 of the Loan Agreement.
----
5. Confirmation. In all other respects, the Loan Agreement is
------------
confirmed.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
SAFETY COMPONENTS INTERNATIONAL, INC., a Delaware corporation
By: /s/ W. Hardy Myers
---------------------------
Title: Chief Financial Officer
AUTOMOTIVE SAFETY COMPONENTS
INTERNATIONAL, INC., a Delaware corporation
By: /s/ W. Hardy Myers
---------------------------
Title: Chief Financial Officer
ASCI HOLDINGS GERMANY (DE), INC.,
a Delaware corporation
By: /s/ W. Hardy Myers
---------------------------
Title: Chief Financial Officer
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Administrative Agent
By: /s/ Elizabeth Amendt
---------------------------
Elizabeth Amendt, Vice President
-3-
<PAGE>
The following consent to the execution, delivery and performance of the
foregoing Amendment No. 3, and confirm that their guarantees of the obligations
of Borrowers remain in full force and effect, and without defense, counterclaim
or offset.
VALENTEC SYSTEMS, INC.
By: /s/ W. Hardy Myers
---------------------------
Title: Chief Financial Officer
GALION, INC.
By: /s/ W. Hardy Myers
---------------------------
Title: Chief Financial Officer
ASCI HOLDINGS U.K., INC.
By: /s/ W. Hardy Myers
---------------------------
Title: Chief Financial Officer
ASCI HOLDINGS CZECH (DE), INC.
By: /s/ W. Hardy Myers
---------------------------
Title: Chief Financial Officer
ASCI HOLDINGS MEXICO (DE), INC.
By: /s/ W. Hardy Myers
---------------------------
Title: Chief Financial Officer
-4-
<PAGE>
EXHIBIT 11.1
SAFETY COMPONENTS INTERNATIONAL, INC.
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
ended ended ended ended
December 31, December 31, December 31, December 31,
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 1,297 $ 1,420 $ 3,687 $ 3,421
========== ========== ========== ==========
Primary
- -------
Common stock
Shares outstanding from beginning of period... 5,138,500 5,025,008 4,060,000 5,048,500
Pro rata shares
Sale of stock..................................... 334 761,031 112
Purchase of treasury stock. . . . . . . . . . . . (1,206) (403) (21,743)
Assumed exercise of warrants using the treasury stock
method........................................... 24,616 27,839
Assumed exercise of stock options using the
treasury stock method............................. 78,229 27,275 82,937 29,821
---------- ---------- ---------- ----------
Weighted average common and common equivalent
shares outstanding................................ 5,240,139 5,052,617 4,931,404 5,056,690
========== ========== ========== ==========
Earnings per common and common equivalent share.... $0.25 $ 0.28 $0.75 $ 0.68
========== ========== ========== ==========
Fully Diluted
- -------------
Common stock
Shares outstanding from beginning of period... 5,138,500 5,025,008 4,060,000 5,048,500
Pro rata shares
Sale of stock..................................... 334 761,031 112
Purchase of treasury stock........................ (1,206) (403) (21,743)
Assumed exercise of warrants using the treasury
stock method.............................. 24,616 29,806
Assumed exercise of stock options using the
treasury stock method.......................... 78,229 27,275 86,211 33,464
---------- ---------- ---------- ----------
Fully diluted weighted average common and common
equivalent shares outstanding..................... 5,240,139 5,052,617 4,936,645 5,060,333
========== ========== ========== ==========
Fully diluted earnings per common and common
equivalent share.................................. $0.25 $ 0.28 $0.75 $ 0.68
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 10,060
<SECURITIES> 0
<RECEIVABLES> 13,571
<ALLOWANCES> 8
<INVENTORY> 7,430
<CURRENT-ASSETS> 32,552
<PP&E> 31,893
<DEPRECIATION> 3,617
<TOTAL-ASSETS> 82,915
<CURRENT-LIABILITIES> 18,953
<BONDS> 18,665
0
0
<COMMON> 51
<OTHER-SE> 38,479
<TOTAL-LIABILITY-AND-EQUITY> 82,915
<SALES> 59,711
<TOTAL-REVENUES> 59,711
<CGS> 48,063
<TOTAL-COSTS> 52,867
<OTHER-EXPENSES> 9
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 961
<INCOME-PRETAX> 5,957
<INCOME-TAX> 2,536
<INCOME-CONTINUING> 3,421
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,421
<EPS-PRIMARY> .68
<EPS-DILUTED> .68
</TABLE>
