UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE
REQUIRED] For the transition period
from to
Commission File Number 0-23938
SAFETY COMPONENTS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
3190 Pullman Street
Costa Mesa, California
(Address of principal
executive offices)
33-0596831
(I.R.S. Employer
Identification No.)
92626
(Zip Code)
Registrant's telephone number, including area code (714) 662-7756
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [ ].
The aggregate market value of the common stock held by persons other
than affiliates of the registrant, as of June 19, 1997, was approximately
$52,661,522.
The number of shares outstanding of the registrant's common stock, as
of June 19, 1996, is as follows:
Class Number of Shares
- - -------------------------------------------------------------------------------
Common Stock, par value $.01 per share 5,015,383
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement in connection with its
1997 annual meeting of shareholders (the "Proxy Statement") are incorporated by
reference into Part III.
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PART I
ITEM 1. BUSINESS
THE COMPANY
Safety Components International, Inc. (the "Company" or "Safety
Components"), a Delaware corporation which was formed on January 12, 1994 as a
wholly-owned subsidiary of Valentec International Corporation, a Delaware
corporation ("Valentec"), is a leading, low cost independent supplier of
automotive airbag cushions with operations in North America, Europe and Asia.
The Company sells airbag cushions worldwide to most of the major airbag module
integrators that outsource for such products. In addition to the Company's
airbags products, the Company also produces defense related products, primarily
projectiles and other metal components for small to medium caliber training and
tactical ammunition, which account for $15.1 million or 18% of the Company's
consolidated fiscal 1997 net sales.
SIGNIFICANT TRANSACTIONS
The JPS Acquisition. On June 30, 1997, the Company entered into a
definitive agreement to acquire the air restraints and technical products
division (the "Business") of JPS Automotive L.P. ("JPS Automotive") for $56.3
million (including 18 looms scheduled for delivery prior to closing) plus the
assumption of $797,000 in indebtedness, subject to a post-closing adjustment
(the "JPS Acquisition"). The JPS Acquisition is subject to certain conditions,
including the ability of the Company to obtain financing for such acquisition.
The Company expects to finance the JPS Acquisition with a portion of the
proceeds of a private placement (the "Offering") of $80,000,000 of its Senior
Subordinated Notes. Such Senior Subordinated Notes will not be registered under
the Securities Act of 1933, as amended, and may not be offered or sold in the
United States absent registration or an applicable exemption from registration.
There can be no assurance that such financing will be consummated. JPS
Automotive is a leading, low cost supplier of airbag fabric in North America and
is also a leading manufacturer of value-added synthetic fabrics used in a
variety of niche industrial and commercial applications. The Company believes
the acquisition of JPS Automotive represents an important step in its airbag
growth strategy because it will enable the Company to: (i) combine strong market
positions in fabric and cushions; (ii) integrate low-cost manufacturing
capabilities in airbag fabric and cushions to exploit the continued demand for
airbag modules; (iii) interchange airbag and specialty industrial fabrics using
the same equipment and manufacturing processes thereby allowing the Company to
effectively utilize manufacturing assets and (iv) enhance and expand its
customer base.
The Valentec Acquisition. Pursuant to a definitive Stock Purchase
Agreement, dated as of May 22, 1997, the Company acquired in a stock for stock
transaction all of the outstanding capital stock of Valentec (the "Valentec
Acquisition"). Valentec is a high-volume manufacturer of stamped and precision
machined products for the automotive, commercial and defense industries. The
Company believes that Valentec's machining capabilities and relationships with
airbag module producers will enable the Company to increase the amount of
content per airbag module supplied by the Company. Pursuant to this strategy,
the Company has begun producing end caps and retainer brackets for two of its
larger airbag module customers. In addition, the Company believes that it will
be able to eliminate certain duplicative corporate functions at Valentec,
resulting in improved efficiencies and cost savings.
The foregoing contains forward-looking statements. There are certain
important factors that could cause results to materially differ from those
anticipated from the statements made above. These factors include, but are not
limited to: the ability of Safety Components to consummate the financing
necessary for the JPS Acquisition and the continued performance by JPS
Automotive at historical levels; the ability to realize anticipated cost
savings; the ability to achieve earnings projected by Valentec; the continuation
of favorable trends in the metal stamping business; world-wide automotive sales;
automotive labor strikes or business interruptions; fluctuation in world-wide
economic conditions; dependence of revenues upon several major module suppliers
and pricing pressures.
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The Credit Agreement with KeyBank - As of May 21, 1997, the Company,
Phoenix Airbag GmbH ("Phoenix") and Automotive Safety Components International
Limited entered into a Credit Agreement with KeyBank National Association, as
administrative agent, and the lending institutions named therein (the "Credit
Agreement"). The Credit Agreement provides for (i) a term loan in the principal
amount of $15.0 million and (ii) a revolving credit facility in the aggregate
principal amount of up to $12.0 million (including letter of credit facilities).
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
AIRBAG RELATED PRODUCTS
AIRBAG INDUSTRY
Airbag Module Growth. The worldwide market for airbag modules has grown rapidly
in recent years from approximately 3.6 million installed units in 1991 to
approximately 57.2 million installed units in 1996. According to automotive
research firm Tier One, Inc., installed module sales are projected to more than
double from approximately 57.2 million in 1996 to 123.1 million in 2000 as a
result of increasing penetration in Europe and Asia, growth in demand for side
and rear-impact bags and growth in automotive demand within developing
countries. National Highway Transportation Safety Administration (" NHTSA")
regulations require installation of driver-side and passenger-side airbags in
all U.S. passenger cars beginning in model year 1998 and on light trucks in
model year 1999. Canadian-produced cars are also being built to these standards,
as are all Mexican-built vehicles that are exported to the United States, Canada
and Europe. The adoption of airbags in Europe is consumer demand driven rather
than governmentally mandated. The European market is quickly moving towards 100%
installation of driver-side and passenger-side airbags as a result of declining
unit costs and safety consciousness of Europeans. Approximately 21.7% of the
Company's net sales in fiscal year 1997 were from Europe and the Company
believes its three European facilities provide ample capacity to service the
projected increase in demand for airbag units in the region. Installation rates
on Japanese vehicles are expected to approach those of the United States by the
year 2000. The Company currently sells directly to KIA Motors Corp. ("KIA") and
the Company's airbag cushions are currently sold for installation in Toyota,
Nissan and Mazda automobile models. The Company has recently entered into a
Chinese joint venture to meet the increasing requirements of Asian automakers.
The foregoing contains forward-looking statements. There are certain
important factors that could cause results to materially differ from those
anticipated form the statements made above. These factors include, but are not
limited to: the Company's ability to maintain or increase its market share; the
growth in demand for airbags in Europe and Asia; and the growth in automotive
demand within developing countries.
Structure of the Airbag Industry. Airbag systems consist of an airbag module and
an electronic control module, which are currently integrated by automakers into
their respective vehicles. Airbag modules consist of inflators, cushions,
housing and trim covers and are assembled by module integrators, of which there
are currently seven. All but one of these module integrators produce all of the
components required for a complete module. However, as the industry has evolved,
all but one also outsource a portion of their cushion requirements from Tier 2
suppliers such as the Company.
AUTOMOTIVE PRODUCTS
The Company's automotive products include passenger, driver side and
side impact airbags manufactured for installation in 35 different car and truck
models sold worldwide (including models manufactured by General Motors, Ford,
Chrysler, Toyota, Mazda, Nissan, KIA, Mercedes, BMW, Volkswagen, Rover and
Audi); and stamped and machined components used in airbag systems, including
passenger airbag retainers that attach the airbag cushion to the module's
reaction can, as well as driver side module products and components used in
airbag inflators.
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The Company also manufactures computer peripheral devices and
anti-theft devices for the garment and retail industries.
CUSTOMERS
Sales of airbag related products to TRW Vehicle Safety Systems, Inc.
("TRW") and Petri accounted for approximately 47% and 23%, respectively, of the
Company's consolidated fiscal 1997 net sales.
The Company sells its airbag cushions to airbag module integrators for
inclusion in specified model cars generally pursuant to requirements contracts.
Certain of these customers also manufacture airbag cushions to be used in their
production of airbag modules.
The following describes the Company's contractual relationship with its
significant customers.
TRW. The Company has one requirements contract with TRW with respect to
TRW's North American airbag cushion requirements and another requirements
contract with TRW with respect to TRW's European airbag cushion requirements.
Under these contracts, TRW has agreed to purchase its requirements for airbag
cushions for specific models of automobiles at prices to be agreed upon prior to
the beginning of each model year. Each agreement provides that cost reductions
of the Company will result in price reductions to TRW. Neither agreement
requires the customer to purchase a specified number of airbag cushions. Each
agreement is terminable by the customer on 90 days' prior written notice. The
North American requirements agreement is for driver and passenger side airbag
cushions for specified models in model years 1996 through 1999 and requires the
Company to maintain capacity to manufacture and ship 25% more airbag cushions
than actual quantity estimates provided by TRW. The European requirements
agreement contains penalty payments in the event that the Company is delayed in
delivering the airbag cushion quantities required.
Petri. The Company's "evergreen" agreement with Petri provides that
prior to commencement of each calendar year the parties will negotiate price,
quantity and other relevant terms of the airbag cushion supply contract for such
calendar year. Petri is under no contractual obligation to enter into such
annual supply agreements with the Company. The Company's current agreement with
Petri provides for the supply of all of Petri's airbag requirements, which were
3.0 million airbag cushions during calendar year 1997.
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SUPPLIERS
The Company's principal airbag cushion customers generally approve all
suppliers of major airbag components. These suppliers are approved after
undergoing a rigorous qualification process on their products and manufacturing
capabilities. In many cases, only one approved source of supply exists for
certain airbag components. In the event that a sole source supplier experiences
prolonged delays in product shipments or no longer qualifies as a supplier, the
Company would work together with its customers to identify another qualified
source of supply. Although alternative sources of supply exist, a prolonged
delay in the approval by the Company's customers of any such alternative sources
of supply could adversely affect the Company's operating results. Under the
Company's agreements with its customers, any changes in the cost of major
components are passed through to the customers.
CAPACITY
The Company's Mexican facility has a current capacity to manufacture
5.0 million airbag cushions per year and manufactured 5.0 million passenger side
and driver side airbag cushions in fiscal year 1997. The Company's United
Kingdom facility has current capacity to manufacture approximately 440,000
airbag cushions per year and manufactured 350,000 driver side airbags in fiscal
1997. The Company's German facility manufactured approximately 3.0 million
driver side and side impact airbags in fiscal 1997 and is at or near full
capacity. The Company's Czech Republic facility which began production in 1997,
has a current capacity of 4.0 million airbags per year and is expected to
produce 1.2 million passenger side and driver side airbags in fiscal 1998. The
Company believes that its present capacity is sufficient to meet its currently
forecasted expansion in production for the foreseeable future.
The Company has recently entered into a joint venture agreement which
establishes a joint venture for the production of airbag cushions in China. The
Company owns an 80% interest in the joint venture. The plant and labor for the
joint venture is provided by the Company's joint venture partner. The joint
venture has the capacity to produce approximately 2.0 million airbag cushions
per year and operations are expected to commence in June 1998. The Company is
contemplating the introduction of weaving capabilities at this facility through
the JPS Acquisition.
Since 1993, the Business has invested $19.4 million in capacity
expansion, significant modernization of its manufacturing facilities and
equipment upgrades. In addition, pursuant to the JPS Acquisition, the Company
will acquire 18 additional looms which is expected to further enhance the
Company's manufacturing capacity and flexibility.
SALES AND MARKETING
The Company markets and sells airbag cushions through a direct sales
force based in Costa Mesa, California. Prior to 1996, the Company conducted its
airbag cushion sales and marketing through the efforts of its management and
through Champion Sales & Service Co. ("Champion"), an outside marketing firm
engaged by the Company since May 1992. Champion and Mr. Zummo, the Company's
Chief Executive Officer, were instrumental in establishing the Company's
relationship with TRW. The Company is obligated to pay Champion a commission of
1.5% and [2%] on all sales of airbags and airbag components, respectively, to
TRW. The Company believes its reputation and existing relationships with airbag
customers diminish the need for an outside marketing firm, and accordingly, the
Company and Champion are in the process of renegotiating the terms of Champion's
Representation Agreement with respect to TRW. Under its current Representation
Agreements with the Company, Champion is restricted from selling or marketing
products of other companies which compete with the products sold by the Company.
The Company's direct sales force includes certain affiliates of Champion.
COMPETITION
The Company competes with several independent suppliers of airbag
cushions in the United States and Europe for sales to airbag module integrators.
The Company also competes with TRW which is an airbag module integrator that
produces a substantial portion of its own airbag cushions for its own
consumption. However, TRW does not generally manufacture airbag cushions for the
same vehicle models that the Company manufactures for TRW. Many airbag module
integrators subcontract a portion of their requirements for airbag cushions. The
Company believes that its good working relationship with its
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customers, the Company's high volume and low cost manufacturing capability,
consistency and level of quality products, the existence of the agreements with
TRW, the lengthy process necessary to qualify as a supplier to an automobile
manufacturer and the desire in the automotive industry to avoid changes in
established suppliers due to substantial costs of such changes create certain
barriers to entry for potential competitors for the airbag business of the
Company's customers.
The automotive airbag cushion and airbag module markets are highly
competitive. Some of the Company's current and potential competitors have
greater financial and other resources than the Company. The Company competes
primarily on the basis of its price, product quality, reliability, and
capability to produce a high volume of many models of passenger side and driver
side airbags. Increased competition, as well as price reductions of airbag
systems, would adversely affect the Company's revenues and profitability.
QUALIFICATION AND QUALITY CONTROL
The Company successfully completed the rigorous process of qualifying
as an airbag supplier to TRW in 1992. Each of the Company's airbags manufactured
for TRW is required to pass design validation and process validation tests
established by the automobile manufacturers and supervised by TRW relating to
the product's design and manufacture. TRW participates in these design and
process validations and must be satisfied with the product's reliability and
performance prior to awarding a production order. The Company satisfies the
QPS-0100 standard set by TRW for design and process validation, which qualifies
it to be a supplier to TRW.
The Company has extensive quality control systems in its airbag
manufacturing facilities, including the inspection and testing of all products.
The Company also undertakes process capability studies to determine that the
Company's manufacturing processes have the capability of producing at the
quality levels required by its customers.
The Company's United Kingdom facility operates under TRW's quality
system which meets or exceeds ISO 9000, an international standard for quality.
The Company's German facility also satisfies ISO 9000 standards. This
qualification has enabled the Company's European operations to manufacture
airbags under the Company's agreement with TRW. As is the case in the United
States, however, the automobile manufacturers may conduct their own design and
process validation tests of the Company's operations.
GOVERNMENTAL REGULATIONS
Airbag systems installed in automobiles sold in the United States must
comply with certain government regulations, including Federal Motor Vehicle
Safety Standard 208, promulgated by the United States Department of
Transportation. The Company's customers are required to self-certify that airbag
systems installed in vehicles sold in the United States satisfy these
requirements. The Company's operations are subject to various environmental,
employee safety and wage and transportation related statutes and regulations.
The Company believes that it is in substantial compliance with existing laws and
regulations and has obtained or applied for the necessary permits to conduct its
business operations.
PRODUCT LIABILITY
The Company is engaged in a business which could expose it to possible
claims for injury resulting from the failure of products sold by it. Recently,
there has been increased public attention to injuries and deaths of children and
small adults due to the force of the inflation of airbags. To date, however, the
Company has not been named as a defendant in any product liability lawsuit nor
threatened with any such lawsuit. The Company maintains product liability
insurance coverage which management believes to be adequate. However, a
successful claim brought against the Company resulting in a final judgment in
excess of its insurance coverage could have a material adverse effect on the
Company.
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DEFENSE RELATED PRODUCTS
The Company is a supplier of military ordnance and other related
products as well as of projectiles and other metal components for small to
medium caliber training and tactical ammunition. Sales of defense related
products accounted for $15.1 million or 18% of the Company's consolidated fiscal
1997 net sales.
SYSTEMS CONTRACT
In September 1994, the Company was awarded Contract DAAA09-94-C-0532
(the "Systems Contract") by the United States Army. The Systems Contract backlog
was $18.6 million at March 31, 1997, and the Company expects to reduce such
backlog to $10.8 million by late fiscal 1998. The mortar cartridges sold by the
Company to the United States Army pursuant to the Systems Contract will be
utilized in free standing, long-range artillery weapons in support of infantry
units. As a systems integrator, the Company does not manufacture the mortar
cartridges itself, but is a prime contractor, coordinating the manufacture and
assembly of the product components by various subcontractors. Accordingly, the
Systems Contract has not necessitated a significant investment in capital
equipment. As the prime contractor, the Company is responsible for conducting
quality control inspections and ensuring that the contract is fulfilled in a
timely and efficient manner.
The deliveries of completed mortar cartridges were initially expected
to begin in September 1995, and the Systems Contract was expected to be
completed by September 1996. Due to a delay by one of its subcontractors, the
Company has experienced delays in the shipment of mortar cartridges against the
original shipment schedule. The delay relates to matters between such
subcontractor and the United States Army. As a result of these issues, the
United States Army has extended the time for delivery under the Systems
Contract, and the Company now anticipates that the initial deliveries of mortar
cartridges will commence in late fiscal 1998.
OTHER
The Company manufactures projectiles and other metal components
primarily for 20 millimeter ammunition and to a lesser extent for 25 and 30
millimeter ammunition used by the United States Armed Forces. This ammunition is
fired from guns mounted on aircraft, naval vessels and armored vehicles. The
metal components manufactured by the Company are shipped to a loading facility,
operated either by the United States Government or a prime defense contractor,
which loads the explosives, assembles the rounds and packages the ammunition for
use. The Company primarily manufactures components that are used in training
rounds, which are similar to tactical rounds but do not contain the same
explosive or incendiary devices contained in tactical rounds. Because of the
continuous use of training ammunition, the majority of the rounds purchased by
the U.S. Armed Forces are training rounds. The U.S. Armed Forces regularly
replenishes its inventory of training ammunition.
MARKETS AND CUSTOMERS
The Company's defense related sales are made to the United States Armed
Forces, certain prime defense contractors for the United States Armed Forces and
foreign governments or contractors for foreign governments. The Company is a
principal or sole source supplier for many of the projectiles and other metal
components it manufactures. There can be no assurance, however, that other
companies will not begin to manufacture such products in the future and replace
part or all of the sales by the Company of these products.
MANUFACTURING AND PRODUCTION
The Company manufactures projectiles and other metal components for
inclusion in small to medium caliber ammunition utilizing primarily
multi-spindle screw machines at its manufacturing facility in Galion, Ohio. The
manufacturing process includes the impact extrusion of steel bars to form the
blank or rough form shape of the metal components, the machining of the inside
and outside of the metal components to form their final shape, various heat and
phosphate treatments and painting. The Company believes that its manufacturing
equipment, machinery and processes are sufficient for its current needs and for
its needs in the foreseeable future, with minimal preventive maintenance.
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SUPPLIERS
The Company believes that adequate supplies of the raw materials used
in the manufacture of its small to medium caliber products are available from
existing and, in most cases, alternative sources, although the Company is
frequently limited to procuring such materials and components from sources
approved by the United States Government.
QUALITY CONTROL
The Company's defense operations employ Statistical Process Controls
extensively throughout its manufacturing process to ensure that required quality
levels are maintained and that products are manufactured in accordance with
specifications. The Company satisfies the United States Government quality
control standard Million-Q-9858A and ISO-9002. Under the Systems Contract, the
Company is responsible for conducting inspections of the subcontractors for the
program to ensure that they meet these same standards.
COMPETITION
The Company competes for contracts with other potential suppliers based
on price and the ability to manufacture superior quality products to required
specifications and tolerances. The Company believes that it has certain
competitive advantages including its high volume, cost-efficient manufacturing
capability, its co-development of new products with its customers, and the
United States Government's inclination to remain with long-term reliable
suppliers. Since the Company's processes do not include a significant amount of
proprietary information, however, there can be no assurance that other companies
will not, in time, be able to duplicate the Company's manufacturing processes.
Many of the Company's competitors have greater financial resources than the
Company.
UNITED STATES GOVERNMENT CONTRACTS
Virtually all of the Company's defense related contracts, including the
Systems Contract, are firm fixed price contracts with the United States
Government or certain of the United States Government's prime contractors. Under
fixed price contracts, the Company agrees to perform certain work for a fixed
price and, accordingly, realizes all of the benefit or detriment resulting from
decreases or increases in the costs of performing the contract.
A majority of the Company's manufacturing agreements with the United
States Armed Forces and its prime defense contractors are for the provision of
components for a one year term (two years in the case of the Systems Contract),
subject, in certain cases, to the right of the United States Government to renew
the contract for an additional term. Renewals of United States Government
contracts depend upon annual Congressional appropriations and the current
requirements of the United States Armed Forces. United States Government
contracts and contracts with defense contractors are, by their terms, subject to
termination by the United States Government for its convenience. Fixed price
contracts provide for payment upon termination for items delivered to and
accepted by the United States 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.
SEASONALITY
The Company's automotive products business is subject to the seasonal
characteristics of the automotive industry in which there are seasonal plant
shutdowns in the third and fourth quarters of each calendar year. Although the
Systems Contract is not seasonal in nature, there have been and will continue to
be variations in revenues from the Systems Contract based upon costs incurred by
the Company in fulfilling the Systems Contract in each quarter. The majority of
the Company's manufacturing under its agreements with the United States
Government and prime defense contractors has historically occurred from January
through September and there is generally a lower level of manufacturing and
sales during the fourth quarter of the calendar year.
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BACKLOG
The Company does not reflect an order for airbags or airbag fabric in
backlog until it has received a purchase order and a material procurement
release which specifies the quantity ordered and specific delivery dates.
Generally, these orders are shipped within four to eight weeks of receipt of the
purchase order and material release. As a result, the Company does not believe
backlog is a reliable measure of future airbag sales.
As of March 31, 1997, the Company had a defense-related backlog of
approximately $24.4 million of which $10.8 million is expected to be completed
before the end of fiscal year 1998.
RISKS OF FOREIGN OPERATIONS
Certain of the Company's consolidated sales are generated outside of
the United States. Foreign operations and exports to foreign markets are subject
to a number of special risks, including, but not limited to, risks with respect
to fluctuations in currency exchange rates, economic and political
destabilization, other disruption of markets, restrictive actions by foreign
governments (such as restrictions on transfer of funds, export duties and
quotas, foreign customs and tariffs and unexpected changes in regulatory
environments), changes in foreign laws regarding trade and investment,
difficulty in obtaining distribution and support, nationalization, the laws and
policies of the United States affecting trade, foreign investment and loans, and
foreign tax laws. There can be no assurance that one or a combination of these
factors will not have a material adverse effect on the Company's ability to
increase or maintain its foreign sales or on its results of operations.
In addition, the Company has significant manufacturing operations in
foreign countries and purchases a portion of its raw materials from foreign
suppliers. The production costs, profit margins and competitive position of the
Company are affected by the strength of the currencies in countries where it
manufactures or purchases goods relative to the strength of the currencies in
countries where its products are sold.
Certain of the Company's operations generate net sales and incur
expenses in foreign currencies. The Company's financial results from
international operations may be affected by fluctuations in currency exchange
rates. Certain exchange rate risks to the Company are limited by contractual
clauses in the Company's agreement with TRW for European supply of airbags.
Future fluctuations in certain currency exchange rates could adversely affect
the Company's financial results.
EMPLOYEES
At March 31, 1997, the Company employed approximately 1,572 employees
with 1,477 of such employees employed with respect to its automotive operations
and 95 employees employed with respect to its defense related operations. The
Company's hourly employees in Mexico are unionized and, in addition, are
entitled to a federally-regulated minimum wage, which is adjusted, at minimum,
every two years. None of the Company's other employees are unionized. The
Company has not experienced any work stoppages related to its work force and
considers its relations with its employees to be good.
ENVIRONMENTAL MATTERS
The Company has identified two areas of underground contamination at
the Company's facility in Galion, Ohio. One area involves a localized plating
solution spill. The second area involves a chlorinated solvent spill in the
vicinity of a former above ground storage area. The Company has retained
environmental consultants to quantify the extent of this problem. Such
environmental consultants estimate that the Company's voluntary plan of
remediation could take three to five years to implement, followed up by annual
maintenance. The consultant also estimates that remediation costs will be
approximately $300,000. However, depending on the actual extent of impact to the
Company or more stringent regulatory criteria, these costs could be higher.In
addition, a site remediation plan has been approved by the Regional Water
Quality Control Board for the Company's Costa Mesa, California facility. Such
plan will take approximately five years to implement at an estimated cost of
approximately $250,000. The remediation plan currently includes
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the simultaneous operation of a groundwater and vapor extraction system. In the
opinion of management, no material expenditures will be required for its
environmental control efforts and the final outcome of these matters will not
have a material adverse effect on the Company's results of operations or
financial position. The Company believes that it currently is in compliance with
applicable environmental regulations in all material respects. See Note 8 to
Notes to Consolidated Financial Statements included elsewhere in this Report.
JPS AUTOMOTIVE
JPS Automotive, through its air restraints and technical products
division (the "Business"), is a leading low cost independent supplier of
automotive airbag fabric in North America and is also a leading manufacturer of
value-added synthetic fabrics used in a variety of niche industrial and
commercial applications. Of the seven current module integrators, only one
weaves airbag fabric; the rest purchase fabric from the Business. See " - Airbag
Related Products - Airbag Industry - Structure of the Airbag Industry."
The Business' largest airbag fabric customers include TRW, AlliedSignal
Inc. ("AlliedSignal"), Delphi Interior and Lighting ("Delphi") and AutoLiv
(Morton) International ("AutoLiv"). The Business also sells to Reeves
Industries, Inc., Bradford, ABC, Mexican Industries of Michigan Inc. ("Mexican
Industries") and BREED Technologies, Inc. Of the four largest module integrators
of systems (which include the airbag and inflator), three use the Business'
airbag fabric and the fourth sources all of its fabrics internally. The Business
sells its fabric either directly to a module integrator or, in some cases, to a
fabricator (such as the Company), which sells a sewn airbag to the module
integrator. Because driver-side fabric historically has been coated (to prevent
the driver's exposure to high temperatures) before fabrication into airbags, the
Business also sells fabric to coating companies, which then resell the coated
fabric to either an airbag fabricator or systems manufacturer. Sales are either
made against purchase orders, to releases on open purchase orders, or pursuant
to short-term supply contracts generally having a duration of up to twelve
months.
The Business has a facility in South Carolina which manufactures airbag
fabric. The Business utilizes rapier weaving machines that are highly versatile
in their ability to produce a broad array of specialty industrial fabrics for
use in a large number of applications. In addition, the Business' machinery and
equipment have the capability to weave all types of yarns specified by air
module integrators. The ability to easily interchange the machines between air
restraint fabric and other specialty industrial fabrics allows the Business to
maximize returns on plant assets.
The Business shares the U.S. airbag fabric market with another major
competitor, Milliken & Co. and three smaller fabric manufacturers. In addition,
Takata Inc. (which is also known as Highland Industries), an airbag module
integrator, produces fabric for its airbag cushions. Barriers to entry into this
market include the substantial capital requirements and lengthy lead-times
required for certification of a new participant's fabrics by buyers.
The Business underwent rigorous design validation and process
validation tests, similar to the tests undergone by the Company in qualifying as
a supplier to TRW, in order to qualify as a supplier to TRW and AutoLiv, which
recently granted a purchase order to the Business. The Business' airbag fabric
operations have been certified as a Quality Assurance Approved Supplier by each
of AlliedSignal, TRW, AutoLiv and Mexican Industries. In addition, the
laboratory of the Business' airbag fabric operations has obtained Accreditation
Against ISO-Guide 25 to ASTM and DIN Test Methods from the American Association
of Laboratory Accreditation and GP-10 certification from General Motors.
The Business also manufactures a wide array of specialty synthetic
fabrics for consumer and industrial uses. These fabrics include: (i) luggage
fabrics, including "ballistics" fabric used in Tumi brand luggage; (ii)
filtration fabrics used in the aluminum, coal, steel, cement, clay and brewing
industries; (iii) woven fabrics for use by manufacturers of coated products;
(iv) specialty fabrics used in police jackets, fuel cells, bomb and cargo
chutes, oil booms, gas diaphragms; and (v) release liners used in tire
manufacturing. Sales are made against purchase orders, releases on open purchase
orders, or pursuant to short-term
10
<PAGE>
supply contracts of up to twelve months. Manufacturing of these products occurs
at the Business' South Carolina facility, using the same machines that weave the
airbag fabrics which enables the Business to take advantage of demand
requirements for the various products with minimal expenditure on production
retooling costs. Manufacture of the industrial products with the same machines
that weave airbag fabric allows the Business to more effectively utilize
capacity at its South Carolina plant and lower per unit overhead costs.
ITEM 2. PROPERTIES
The Company maintains its corporate headquarters in Costa
Mesa, California. The Company manufactures automotive products in five
locations, with total plant area of approximately 519,500 square feet (including
administrative, engineering and research and development areas housed at plant
sites). Below is an overview of the Company's manufacturing and office
facilities:
<TABLE>
<CAPTION>
Floor Area Owned/ Lease Number of
Location (Sq. Ft.) Leased Expiration Employees
---------------------------------------------- ---------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Airbag
Ensenada, Mexico (airbags)..................... 97,000 (1) Leased 1998 (2) 971
Germany (airbags).............................. 55,000 (3) Leased 1998 (4) 248
Czech Republic (airbags)....................... 100,000 (5) Owned N/A 233
Gwent, Wales (airbags)......................... 20,000 (5) Leased 2003 58
Costa Mesa, California (airbags and defense)... 139,000 (6,7) Leased 1999 181
Otay Mesa, California8......................... 7,900 Leased 1998 3
Defense (9)
Mount Arlington, New Jersey
(defense systems).............................. 3,600 (10) Leased 10
Galion, Ohio (defense products)................ 97,000 (6) Owned N/A 75
</TABLE>
- - ------------------------
1 Office, manufacturing and research and development space.
2 Lease is subject to two one-year renewal options.
3 Manufacturing, sales and administration space.
4 The lease with respect to the 40,000 square feet comprising manufacturing
space expires in 1998. The lease with respect to the 15,000 square feet
comprising sales and administrative space expires in 2001.
5 Manufacturing and office space.
6 Manufacturing and administrative space.
7 Consists of two facilities.
8 Finished goods distribution center.
9 Defense related products are also manufactured at the Costa Mesa facility
listed above.
10 Office space.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
11
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock is listed on the Nasdaq National Market (Nasdaq
symbol: ABAG). The following table sets forth the high and low reported sale
prices of the Common Stock for each full quarterly period within the two most
recent fiscal years.
High Low
------- -------
Year Ended March 31, 1997
First Quarter ...................................... $14 3/4 $ 9 1/4
Second Quarter ..................................... $13 1/4 $ 9 1/2
Third Quarter ...................................... $13 $ 8 3/4
Fourth Quarter ..................................... $13 $10
Year Ended March 31, 1996
First Quarter ...................................... $20 3/4 $16 1/2
Second Quarter ..................................... $21 1/4 $15
Third Quarter ...................................... $19 1/2 $13 3/4
Fourth Quarter ..................................... $15 3/4 $12 1/2
As of June 26, 1997, there were approximately 88 holders of record of
the Common Stock.
The Company has, to date, not paid any cash dividends to its
stockholders and presently intends to continue its policy of retaining its
earnings to support the growth and development of its business. The Company's
existing credit agreement restricts the Company's ability to pay dividends.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data as of and for the fiscal years ended March
31, 1997, 1996 and 1995 and for the period from April 28, 1993 through March 31,
1994 are derived from the combined and consolidated financial statements of the
Company and the Automotive and Galion divisions of Valentec (the "Valentec
Divisions") which have been audited by Price Waterhouse LLP, independent
accountants. Subsequent to the management buy-out of Valentec on April 27, 1993
(the "Management Buy-Out"), Valentec and the Company changed their respective
fiscal year ends from December 31 to March 31. The accounting bases of the
Valentec Divisions subsequent to the Valentec Management Buy-Out on April 27,
1993 differs from the historical accounting bases of these divisions.
During the 1997 fiscal year, the Company changed its accounting for
product launch costs from the deferral method to the expense as incurred method.
The Company recorded the cumulative effect of this change in accounting
principle in the amount of $1.3 million, net of income taxes, or $0.25 per
share. During fiscal year 1997 $1.8 million ($1.1 million net of tax benefit of
$704,000) of product launch costs were expensed. In addition, in connection with
a new loan agreement with Bank of America National Trust and Savings
Association, which replaced the revolving credit with Citicorp US, Inc., the
Company recorded an extraordinary loss of $383,000, net of income taxes, or
$0.08 per share, relating to the write-off of deferred financing costs incurred
for the previous credit facility.
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and the notes
thereto, included elsewhere in this Report.
(in thousands, except share and per share data and footnotes)
INCOME STATEMENT DATA
<TABLE>
<CAPTION>
Eleven
Months
April 28,
1993
Years Ended March 31, Through
---------------------------------- March 31,
1997 (1) 1996 (1) 1995 (1) 1994
----------------------------------------------
<S> <C> <C> <C> <C>
Net sales ............................................. $ 83,958 $ 94,942 $ 51,779 $ 22,444
Cost of goods sold .................................... 67,934 81,908 44,553 18,895
Gross profit .......................................... 16,024 13,034 7,226 3,549
Selling, general and administrative expenses .......... 7,420 5,430 4,050 2,738
Non-recurring consulting charge ....................... -- -- -- 1,250
Operating income (loss) ............................... 8,604 7,604 3,176 (439)
Other expense (income) ................................ 208 (807) (484) (83)
Interest expense ...................................... 1,555 381 244 235
Income (loss) before income taxes ..................... 6,841 8,030 3,416 (591)
Income tax provision (benefit) ........................ 2,995 3,116 1,283 (207)
Income (loss) before extraordinary item and cumulative
Effect of accounting change ...................... 3,846 4,914 2,133 (384)
Extraordinary item - deferred financing costs (less tax
Benefit of $255) ................................. (383) - - -
Cumulative effect of change in accounting for deferred
Product launch costs (less tax benefit of $718) . (1,259) - - -
Net income (loss) ..................................... $ 2,204 $ 4,914 $ 2,133 $ (384)
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Eleven
Months
April 28,
1993
March 31, Through
-------------------------------------- March 31,
1997 (1) 1996 (1) 1995 (1) 1994
--------------------------------------------------
PER SHARE DATA (3)
<S> <C> <C> <C> <C>
Income before extraordinary item and cumulative effect of
accounting change ....................................... $0.77 $0.99 $0.53 -
Extraordinary item ......................................... (0.08) - - -
Cumulative effect of change in accounting for deferred
product launch costs .................................... (0.25) - - -
Net income per share ....................................... $0.44 $0.99 $0.53
Weighted average common shares outstanding ................. 5,026,501 4,980,884 4,030,787 -
Pro forma amounts assuming the new accounting method is applied retroactively:
Income before extraordinary item ............................. $3,846 - - -
======
Earnings per common share .................................. $ 0.77 - - -
======
Net Income ................................................... $3,463 $5,017 $ 950 -
====== ====== =====
Earnings per common share .................................. $ 0.69 $ 1.01 $0.24 -
====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
March 31,
-------------------------------------
1997 1996 1995 1994
-------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Working capital .............................................. $11,755 $25,067 $ 8,206 $ 1,504
Total assets ................................................. 73,407 49,831 28,311 12,837
Long-term debt, net of current portion ....................... 21,296 3,087 2,043 4,760
Division equity .............................................. - - - 866
Stockholders' equity ......................................... 35,274 35,344 15,971 -
</TABLE>
- - --------------------------------------------
(1) The Company did not declare dividends during fiscal year 1997, 1996 or
1995.
(2) As more fully described in Note 5 to Notes to the Company's
Consolidated Financial Statements, the Valentec Divisions incurred a
$1.3 million non-recurring, non-cash expense related to the issuance
of shares of Common Stock to certain stockholders and affiliates of
Champion.
(3) The weighted average number of common shares outstanding as of March
31, 1996 and 1995 includes the weighted average of the pro forma
number of shares assumed issued prior to the Company's initial public
offering in May 1994 to retire inter-company and other indebtedness.
The Valentec Divisions did not have a defined capital structure and,
as a result, earnings per share amounts are not presented for the
periods prior to the fiscal year ended March 31, 1995.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Due to the Company's historical and anticipated growth, the Company
believes that period-to-period comparisons of its financial results are not
necessarily meaningful and should not be relied upon as an indication of future
performance. The following discussion should be read in conjunction with the
Company's consolidated financial statements and notes thereto, appearing herein.
The Company is a leading low cost independent supplier of airbag
cushions for a variety of automobiles and light trucks to Tier 1 airbag system
suppliers.
During fiscal year 1997, the Company expanded its production and sales
in Europe through its acquisition of Phoenix Airbag in Germany and construction
of its manufacturing facility in the Czech Republic. The acquisition of Phoenix
Airbag was accounted for as a purchase and, accordingly, the operations of
Phoenix Airbag are included in the historical consolidated financial statements
of the Company from August 6, 1996. In May 1997, the Company acquired all of the
outstanding capital stock of Valentec in a stock for stock exchange, which
enables the Company to manufacture and supply additional airbag system
components. In connection with such acquisition, the Company assumed and/or
caused to be paid off approximately $11.7 million of indebtedness, The
acquisition of Valentec will be accounted for as a purchase and, accordingly,
included in the Company's accounts beginning May 22, 1997. Currently, Valentec
manufactures metal airbag components using machining and stamping processes,
among other commercial and defense products.
On June 30, 1997, the Company entered into a definitive agreement to
acquire the air restraints and technical products division of JPS Automotive for
$56.3 million, which is subject to certain conditions, including the Company's
ability to obtain financing. The Company intends to finance the JPS Acquisition
through a private placement of senior subordinated notes. JPS Automotive is a
leading manufacturer of automotive airbag fabrics, as well as other specialty
fabrics. Currently, the Company is required by certain of its customers to
purchase airbag fabric from other vendors. Should the Company obtain approval
from certain of its vendors to purchase fabric from JPS Automotive, the Company
may improve its overall operating results.
CHANGE IN ACCOUNTING PRINCIPLE AND EXTRAORDINARY ITEM
During the 1997 fiscal year, the Company changed its accounting for
product launch costs from the deferral method to the expense as incurred method.
The Company recorded the cumulative effect of this change in accounting
principle in the amount of $2.0 million effective April 1, 1996, in accordance
with Accounting Principles Board Opinion No. 20. The fiscal 1997 deferred
product launch costs of $1.8 million would have been capitalized under the
previously used accounting method rather than expensed as part of costs of goods
sold. Total product launch costs expensed in fiscal year 1997 was $2.3 million
after income taxes, or $.46 per share. Management believes its new method is
considered the preferable method of accounting.
Additionally, in connection with a loan agreement in August 1996 with
Bank of America National Trust and Savings Association, which replaced the
revolving credit with Citicorp US, Inc., the Company recorded an extraordinary
loss of $383,000 (net of benefit for income taxes of $255,000), or $0.08 per
share, relating to the write-off of deferred financing costs incurred for the
previous credit facility.
15
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain operating results as a
percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
Year ended March 31,
-------------------------------------------
1997 1996 1995
-------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 80.9 86.3 86.0
Gross profit 19.1 13.7 14.0
Selling, general and administrative expense 8.4 5.7 7.8
Income from operations 10.2 8.0 6.1
Interest expense (income), net 1.6 (0.2) .2
Income before extraordinary item and
cummulative effect of change in accounting 4.6 5.2 4.1
Net income 2.6 5.2 4.1
</TABLE>
YEAR ENDED MARCH 31, 1997 COMPARED TO YEAR ENDED MARCH 31, 1996
NET SALES. Net sales decreased by $11.0 million or 11.6% to $84.0
million in fiscal year 1997 compared to fiscal year 1996. The decrease was
primarily attributable to lower revenues in the Company's defense operation
("Defense Operation") partially offset by an increase in the Company's
automotive operation ("Automotive Operation"). The decrease in the Defense
Operation of $30.7 million reflects 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 late fiscal 1998. The reduced sales
under the Systems Contract were partially offset by the increased sales of metal
ordnance products. The increase in the Automotive Operation of $19.7 million was
primarily attributable to the acquisition of Phoenix Airbag, which contributed
approximately $25.4 million, partially offset by lower sales to TRW under the
European requirements agreement. Sales to TRW under the European requirements
agreement decreased as a result of lower unit prices reflecting redesigned
products and lower fabric prices. The Company's sales of passenger and driver
side airbags produced for the North American market decreased by approximately
$242,000, primarily as a result of increased sales to Delphi and increased sales
of driver side bags to TRW under the North American requirements contract,
partially offset by lower sales of passenger side airbags to TRW under the North
American requirements contract.
GROSS PROFIT. Gross profit increased by $3.0 million or 22.9% to $16.0
million in fiscal year 1997 compared to fiscal year 1996. The increase was
primarily attributable to the Automotive Operation, which increased by $5.8
million. The increase was primarily attributable to increased sales volume in
Europe due to the acquisition of Phoenix Airbag, which contributed approximately
$6.9 million to gross profit. This increase was offset by lower margins in North
America and the Defense Operation. The decrease of approximately $996,000 in
North America was primarily the result of the change in accounting principle
discussed above, offset by lower costs due to ongoing cost reduction programs.
The impact of the change in accounting principle was to currently expense
product launch costs, previously deferrable, of $1.8 million. The decrease in
the Defense Operation of $2.8 million was primarily a result of the delays due
to the Systems Contract discussed earlier. See "Defense Related Products -
Systems Contract."
Gross profit as a percentage of sales increased to approximately 19.1%
for fiscal year 1997 from 13.7% for fiscal year 1996. Exclusive of the impact of
the change in accounting principle, gross profit as a percentage of sales would
have been approximately 21.2% for fiscal year 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $1.6 million or 30.2% to $7.1 million in
fiscal year 1997 compared to fiscal year 1996. The increase was primarily
16
<PAGE>
attributable to the Automotive Operation, specifically from the acquisition of
Phoenix Airbag, which was approximately $1.9 million, partially offset by lower
costs in the U.K. due to lower sales. Selling, general and administrative
expenses as a percentage of sales increased slightly to 8.4% for fiscal year
1997 from 5.7% for fiscal year 1996. The increase related to the continued
expansion of the Company's automotive operation, including additional support
personnel and marketing.
OPERATING INCOME. Operating income increased by $1.0 million or 13.2%
to $8.6 million in fiscal year 1997 compared to fiscal year 1996. The Automotive
Operation increased by $3.6 million primarily attributable to the acquisition of
Phoenix Airbag, which contributed approximately $4.8 million. This increase was
partially offset by lower operating income in North America. The decrease of
approximately $876,000 in North America was primarily the result of the change
in accounting principle discussed above, offset by lower costs due to ongoing
cost reduction programs. The impact of the change in accounting principle was to
currently expense product launch costs, which were previously deferred in the
comparable period. The increase in the Automotive Operation was partially offset
by a decrease in the Defense Operation of $2.6 million which reflected 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 a change in product
mix.
INTEREST EXPENSE. Interest expense increased $1.2 million or 308.1% to
$1.6 million for fiscal year 1997 compared to fiscal year 1996. This increase
was a direct result of the $20.0 million term loan used for the acquisition of
Phoenix Airbag. The increase of other expense is primarily attributable to
losses on foreign currency transactions.
INCOME TAXES. The income tax rate applied against pre-tax income was
43.7% for fiscal year 1997 compared to 38.8% for fiscal year 1996. The tax rate
increased as compared to prior year due to the increasing percentage of income
generated from European operations, which have higher tax rates than U.S.
operations.
NET INCOME. Net income decreased to $2.2 million for fiscal year 1997
compared to $4.9 million in fiscal year 1996. Net income decreased due to the
impact of the extraordinary item and the cumulative effect of accounting change
as discussed above. Income before extraordinary item and cumulative effect of
accounting change was $3.8 million for fiscal year 1997 compared to $4.9 million
for fiscal year 1996. The decrease was primarily the impact of the change in
accounting principle for product launch costs during fiscal year 1997. These
costs, which were previously deferrable, are currently expensed as incurred. The
impact on fiscal year 1997 was to expense $1.8 million ($1.1 million net of tax
benefit of $704,000) of product launch costs.
YEAR ENDED MARCH 31, 1996 COMPARED TO YEAR ENDED MARCH 31, 1995
NET SALES. Net sales increased $43.2 million or 83.4% to $94.9 million
in fiscal year 1996 compared to fiscal year 1995. The increase was primarily
attributable to the Defense Operation, which increased $37.1 million as a result
of significantly higher revenues from the Systems Contract and, to a lesser
extent, increased shipments of metal ordnance components. The increase at the
Automotive Operation was $6.0 million as a result of increase production. The
Automotive Operation's unit sales increased approximately 23.3% over the prior
year, while overall sales increased by 14.0%. The Company's unit sales continued
17
<PAGE>
to increase reflecting higher sales of both passenger and driver side airbags.
Sales were unfavorably impacted in the current period by the softening U.S.
automotive market and a changing product mix in Europe, and to a lesser extent,
decreases in material prices, delays on certain model year 1996 programs by
certain original equipment manufacturers and the GM labor dispute in the fourth
quarter of fiscal year 1996.
GROSS PROFIT. Gross profit increased by $5.8 million or 80.4% to $13.0
million in fiscal year 1996 compared to fiscal year 1995. The increase was
primarily attributable to the Defense Operation, which increased $4.0 million.
Gross profit increased primarily as a result of higher sales from the Systems
Contract, partially offset by changes in the metal ordnance component product
mix, with decreased sales of several older, higher margin defense programs and
higher sales of newer, lower margin defense and commercial programs. The
Automotive Operation increased $1,773,000 for fiscal year 1996. The improvement
in gross profit resulted primarily from the increased sales volume, and to a
lesser extent from greater efficiencies related to higher levels of production.
Gross profit was unfavorably impacted in the current fiscal year by certain
program delays and the GM labor dispute in the fourth fiscal quarter. During the
year ended March 31, 1995, the continued improvement in the gross profit of the
Automotive Operation's North American operations was partially offset by certain
expenses related to the expansion of the Automotive Operation's European
operations. Specifically, during the year ended March 31, 1995, TRW, under the
European requirements contract, accelerated demand for airbags in Europe
required the Company to operate, on a temporary basis, a high cost facility in
Germany pending the transfer of certain manufacturing operations to two Czech
subcontractors. Certain costs relating to the launching of new programs in North
America and Europe were capitalized during this period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $1.4 million or 34.1% to $5.4 million in
fiscal year 1996 compared to fiscal year 1995. The increase was primarily
attributable to the Defense Operation, which increased $868,000 in fiscal year
1996 reflecting increased expenses related to the Systems Contract, higher bid
and proposal costs associated with potential future contracts and higher
corporate overhead expenses. The Automotive Operation increased $512,000
primarily from greater expenditures related to the continued expansion of the
Company's automotive operations, including additional support personnel,
increased marketing and professional services and higher corporate overhead
expenses, including increased staffing, legal, accounting and insurance
expenses.
OPERATING INCOME. Operating income increased by $4.4 million or 139.4%
to $7.6 million in fiscal year 1996 compared to fiscal year 1995. The increase
was primarily attributable to the Defense Operation, which increased $3.2
million primarily as a result of higher income from the Systems Contract,
partially offset by higher corporate overhead expenses and, to a lesser extent,
lower margins on metal ordnance components. The Automotive Operation increased
$1.3 million primarily as a result from the continued improvement in the
profitability of the manufacturing operations due to higher sales volume and
greater efficiencies, partially offset by increased expenses for administrative,
marketing and professional services supporting the ongoing expansion of the
Company's automotive operations.
NET INCOME. Net income increased to $4.9 million for fiscal year 1996
compared to $2.1 million in fiscal year 1995 for the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
As the Company's business grows, its equipment and working capital
requirements will also continue to increase as a result of the anticipated
growth of the Automotive Operations. This growth will be funded through a
combination of cash flow from operations, equipment financing, revolving credit
borrowings and the proceeds from potential future Company public offerings.
18
<PAGE>
On August 6, 1996 the Company acquired Phoenix Airbag (the "Phoenix
Acquisition"), a major European airbag cushion manufacturer located in
Hildesheim, Germany. The acquisition was funded through a loan agreement with
Bank of America National Trust and Savings Association ("Bank of America NT &
SA"). Outstandings on the Bank of America NT & SA term loan ($17.3 million at
March 31, 1997) bore interest at 8.79%, and the Bank of America NT & SA
revolving credit facility ($2.9 million at March 31, 1997) bore interest at
8.54%. The proceeds of the Credit Agreement, defined herein, were used to repay
and terminate the Bank of America NT & SA Facility. Pursuant to the Phoenix
Acquisition, the Company initially acquired 80% of Phoenix AG's interest in
Phoenix Airbag for a purchase price of approximately $22.0 million, subject to a
net worth adjustment. The Company will acquire the remaining 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 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 $2.2 million of the contingent purchase price was paid April 28, 1997.
If the annual performance targets for calendar years 1997 and 1998 are not met,
the Company will acquire the remaining 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.
As of May 21, 1997, the Company, Phoenix and Automotive Safety
Components International Limited ("ASCIL" and collectively, the "Borrowers")
entered into the Credit Agreement with KeyBank National Association, as
administrative agent ("KeyBank"), and the lending institutions named therein
(the "Credit Agreement"). The Credit Agreement provides for (i) a term loan in
the principal amount of $15.0 million (the "Term Loan") and (ii) a revolving
credit facility in the aggregate principal amount of $12.0 million (including
letter of credit facilities). The indebtedness under the Credit Agreement is
secured by substantially all the assets of the Company and bears interest at a
rate equal to either (i) the greater of KeyBank's prime rate or (ii) the sum of
LIBOR plus 1.00% for term loans (and 1.25% for revolving loans, subject to
reduction to 1.00% upon consummation of the offering so long as no default or
event of default shall have occurred and be continuing). The principal amount of
the Term Loan is payable quarterly commencing September 30, 1997, in the amount
of $750,000, with the last payment due on May 31, 2002 provided that the Term
Loan must be prepaid out of the proceeds of the private placement Offering. The
revolving loans under the Credit Agreement will mature on May 31, 2002. The
Credit Agreement contains certain restrictive covenants that impose limitations
upon, among other things, the Company's ability to change its business; merge,
consolidate or dispose of assets; incur liens; make loans and investments; incur
indebtedness; pay dividends and other distributions; engage in certain
transactions with affiliates; engage in sale and lease-back transactions; enter
into lease agreements; and make capital expenditures. On June 30, 1997 the
Company entered into a definitive agreement to acquire all of the assets of JPS
Automotive for $56.3 million (including 18 looms scheduled for delivery prior to
closing) plus the assumption of $797,000 in indebtedness, subject to a
post-closing adjustment. The acquisition is subject to certain conditions,
including a financing condition. The financing is expected to be provided from a
portion of the proceeds of a private placement of $80.0 million in senior
subordinated notes. The remaining proceeds of the Offering are expected to be
used to repay the term loan, to pay transaction fees and expenses, to be used
for the contemplated purchase a building in South Carolina adjacent to the JPS
Automotive facility, and for working capital and general corporate expenses.
Pursuant to a commitment letter with KeyBank, an amendment to the Credit
Agreement shall convert the Credit Agreement into a $27.0 million revolving
credit facility for a five year term bearing interest at LIBOR plus 1.00% with a
commitment fee of 0.25% for any unused portion.
The Company generated (used) net cash from operations of $11.1 million,
($3.5) million and ($901,000) in the fiscal years ended March 31, 1997, 1996 and
1995, respectively. The net cash in fiscal year 1997 was used for net capital
expenditures of $8.6 million, while during fiscal years 1996 and 1995 the
Company used an additional $4.6 million and $2.5 million, respectively, for net
capital expenditures. In fiscal year 1997, $24.3 million of net cash was used to
acquire Phoenix Airbag. Net cash provided by financing activities in fiscal year
1997 includes $22.9 million in proceeds from term note, and the net proceeds
from the revolving credit facility, which was used in part to repay $3.8 million
long-term debt and obligations, and purchase of treasury stock. Net cash
provided by financing activities in fiscal year 1996 includes $18.0 million in
proceeds from the sale of common stock and proceeds from long-term debt, which
19
<PAGE>
was used in part to purchase $1.4 million of treasury stock and $94,000 of
common stock warrants. Net cash provided by financing activities in fiscal year
1995 includes $14.6 million in proceeds from the sale of common stock, which was
used in part to pay for consideration of transferred assets of $1.9 million,
repay $3.3 million long-term debt and obligations and repay certain intercompany
accounts totaling $2.3 million. These activities resulted in a net decrease in
cash of $3.7 million in fiscal year 1997, a net increase in cash of $8.2 million
in fiscal year 1996, and a net increase in cash of $3.8 million in fiscal year
1995.
Capital expenditures were $8.6 million in fiscal year 1997, compared to
$4.6 million and $2.5 million in fiscal years 1996 and 1995, respectively.
Capital expenditures in fiscal year 1997 were used to construct the new facility
in the Czech Republic, and the acquisition of additional equipment to expand the
Company's production capacity worldwide. Capital expenditures for fiscal year
1998 are estimated to be $8.7 million, which includes $1.2 million outstanding
commitments for capital expenditures for additional property, plant and
equipment from fiscal year 1997. Capital expenditures for fiscal year 1998
includes the completion of the Czech facility and the acquisition of additional
equipment to further expand the Company's production capacity worldwide. The
Company expects to fund these capital expenditures through operations and the
revolving credit facility.
The above discussion 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, specific defense
program appropriation decisions and the ability of Safety Components to
consummate the financing necessary for the JPS Acquisition.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("FAS
128"). FAS 128 establishes standards for computing and presenting earnings per
share ("EPS"). It replaces the presentation of primary EPS with a presentation
of basic EPS. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. It also requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. Diluted EPS is computed similarly to fully diluted
EPS pursuant to Accounting Principles Board Opinion No. 15. This statement is
effective for the Company beginning in the fiscal year ending March 31, 1998,
earlier adoption is not permitted. Since the Company is considered to have a
simple capital structure for reporting EPS, the adoption of this principle will
have no material impact on reported EPS.
SEASONALITY AND INFLATION
The Automotive Operation's business is subject to the seasonal
characteristics of the automotive industry in which there are seasonal plant
shutdowns in the third and fourth calendar quarters of each year. Although the
Systems Contract is not seasonal in nature, there will be variations in revenues
from the Systems Contract based upon costs incurred by the Company in fulfilling
the Systems Contract in each quarter. The majority of the Defense Operation's
ordnance manufacturing for U.S. Government and prime defense contractors occurs
from January through September and there is generally a lower level of
manufacturing and sales during the fourth calendar quarter. The Company does not
believe that its operations to date have been materially affected by inflation.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item appears in Item 14(a)(1) and (2) of this
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEMS 10, 11, 12 AND 13.
The information called for by Items 10, 11, 12 and 13 of this Form 10-K
is incorporated by reference to those portions of the Company's 1997 Proxy
Statement which contains such information.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The financial statements, related notes thereto and report of
independent accountants required by Item 8 are listed on page F-1
herein.
(2) All financial statement schedules are omitted because they are not
applicable or the required information is shown in the Company's
consolidated financial statements or the notes thereto.
(3) Exhibits:
2.1(12) Agreement, dated June 6, 1996, among AB 9607 Verwaltungs
GmbH & Co. KG., Phoenix Aktiengesellschaft and Phoenix
Airbag GmbH (the "Phoenix Purchase Agreement") (confidential
treatment requested as to part)
2.2(12) Amendment Agreement, dated June 28, 1996, to the Phoenix
Purchase Agreement
3.1(1) Certificate of Incorporation of Safety Systems
International, Inc.
3.2(1) Amended and Restated Certificate of Incorporation of Safety
Systems International, Inc.
3.3(1) Certificate of Amendment of the Amended and Restated
Certificate of Incorporation of Safety Systems
International, Inc.
3.4(11) Certificate of Amendment to the Amended and Restated
Certificate of Safety Components International, Inc.
("Safety Components")
3.5(1) By-laws of Safety Components
4.1(2) Warrant Agreement, dated as of May 13, 1994 between
Hampshire Securities Corporation and Safety Components
4.2(15) Registration Rights Agreement, dated as of May 22, 1997, by
and among Safety Components, Robert A. Zummo, Francis X.
Suozzi and the Valentec International Corporation Employee
Stock Ownership Plan
4.3 Form of Pledge Agreement, dated as of May 21, 1997, made by
the Pledgors named therein in favor of KeyBank National
Association, as collateral agent for the benefit of the
Secured Creditors (as defined therein)
10.2(3) Airbag Purchase Agreement by and between TRW Vehicle Safety
Systems, Inc. and Valentec International Corporation
("Valentec") dated March 31, 1993 (confidential treatment
granted as to part)
10.3(3) Long-Term Contract for the Supply of Airbags by and between
TRW REPA GmbH and Valentec International Limited ("VIL"),
dated September 20, 1993 (confidential treatment granted as
to part)
10.4(2) Representation Agreement, effective as of May 13, 1994, by
and between Automotive Safety Components International, Inc.
("Automotive Safety") and Champion Sales and Service Co.
("Champion")
*10.5(4) Employment Agreement, effective as of May 13, 1994, between
Safety Components and Robert A. Zummo
*10.6(4) Employment Agreement, effective as of May 13, 1994, between
Safety Components and W. Hardy Myers
*10.7(4) Stock Option Plan of Safety Components
10.8(2) Master Asset Transfer Agreement, dated May 13, 1994, among
Valentec, Safety Components, Galion, Inc. ("Galion"), and
Automotive Safety
21
<PAGE>
10.9(2) Asset Purchase Agreement, dated May 13, 1994, between VIL
and Automotive Safety Components International Limited
("Automotive Limited")
10.10(9) Corporate Services Agreement, dated as of April 1, 1995,
between Valentec and Safety Components 10.11(2) Facility
Agreement, dated May 13, 1994, between Valentec and
Automotive Safety 10.12(2) Facility Agreement, dated May 13,
1994, between VIL and Automotive Limited 10.13(2)
Representation Agreement, effective as of May 13, 1994, by
and between Automotive Limited and Champion
10.14(5) Form of Sublease Agreement, dated May 13, 1994, between VIL
and Automotive Limited *10.15(6) Employment Agreement, dated
as of September 29, 1994 by and between Safety Components
and Paul L. Sullivan
10.16(7) Contract DAAA09-94-C-0532 (Systems Contract) between Safety
Components and the U.S. Army (the "Systems Contract")
*10.17(8) Employment Agreement, effective as of September 19, 1994,
between Safety Components and Victor Guadagno
10.18(8) Lease Agreement, dated February 15, 1995 between Inmobiliara
Calibert, S.A. de C.V. and Automotive Safety Components
International SA. de C.V.
10.19 Credit Agreement, dated as of March 15, 1996, among Safety
Components, Automotive Safety, Galion, Valentec Systems,
Inc. and CUSA
10.20 Pledge and Security Agreement, dated as of March 15, 1996,
made by Safety Components, Automotive Safety, Galion and
Valentec Systems in favor of CUSA
*10.21(10) Employment Agreement, dated June 1, 1995, between
Automotive Limited and John Laurence Hakes
10.22(10) Underwriting Agreement, dated June 15, 1995, among BT
Securities Corporation, Prime Charter Ltd., Safety
Components, Valentec and the other selling stockholders
named therein
10.23(13) Loan Agreement between the Company, Automotive Safety and
ASCI Holdings Germany (DE), Inc. and Bank of America
National Trust and Savings Association dated August 1, 1996
10.24(14) TRW/SCI Multi Year Agreement dated as of April 1, 1996 among
TRW Vehicle Safety Systems, Inc., TRW, Inc. and Safety
Components. Confidential treatment requested as to certain
portions of this exhibit. Such portions have been redacted
10.25(14) Exhibits to Credit Agreement dated as of March 15, 1996
among Safety Components, Automotive Safety, Galion, Valentec
Systems, Inc. and Citicorp USA, Inc.
10.26(14) Amendment No. 1 to Loan Agreement among Safety Components,
Automotive Safety, ASCI Holdings Germany (DE), Inc. and Bank
of America National Trust & Savings Association dated as of
September 30, 1996
10.27(14) Amendment No. 2 to Loan Agreement among Safety Components,
Automotive Safety, ASCI Holdings Germany (DE), Inc. and Bank
of America National Trust & Savings Association dated as of
October 31, 1996
10.28(14) Amendment No. 3 to Loan Agreement among Safety Components,
Automotive Safety., ASCI Holdings Germany (DE), Inc. and
Bank of America National Trust & Savings Association dated
as of December 31, 1996
10.29(15) Stock Purchase Agreement, dated as of May 22, 1997, by and
among Robert A. Zummo, Francis X. Suozzi, the Valentec
International Corporation Employee Stock Ownership Plan and
Safety Components
*10.30 Employment Agreement, dated as of February 15, 1997, between
Safety Components and Jeffrey J. Kaplan
*10.31 Employment Agreement, dated as of May 19, 1997, between
Safety Components and Thomas W. Cresante
10.32 Consulting Agreement, dated as of May 31, 1997, between
Safety Components and W. Hardy Myers
22
<PAGE>
10.33 Credit Agreement (the "Credit Agreement"), dated as of May
21, 1997, by and among Safety Components, Phoenix Airbag and
Automotive Limited, as borrowers and KeyBank National
Association, as administrative agent, and the lending
institutions named therein
10.34 Form of Subsidiary Guaranty, dated as of May 21, 1997, among
the guarantors named therein, KeyBank National Association,
as administrative agent for itself and the other Lenders (as
defined in the Credit Agreement)
10.35 Form of Security Agreement, dated as of May 21, 1997, among
the assignors named therein and KeyBank National
Association, as collateral agent for the benefit of the
Secured Creditors (as defined therein)
18.1 Letter from Price Waterhouse LLP regarding change in
accounting principles
21.1 Subsidiaries of Safety Components
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
* Indicates exhibits relating to executive compensation.
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1 (the "1994 Registration Statement") filed with the Securities
and Exchange Commission (the "Commission") on February 11, 1994.
(2) Incorporated by reference to the Company's Report on Form 10-K for the
fiscal year ended March 31, 1994, filed with the Commission.
(3) Incorporated by reference to Amendment No. 2 to the 1994 Registration
Statement, filed with the Commission on March 18, 1994.
(4) Incorporated by reference to Amendment No. 3 to the 1994 Registration
Statement, filed with the Commission on April 20, 1994.
(5) Incorporated by reference to Amendment No. 4 to the 1994 Registration
Statement, filed with the Commission on May 3, 1994.
(6) Incorporated by reference to the Company's Report on Form 10-Q for the
quarter ended September 30, 1994 filed with the Commission.
(7) Incorporated by reference to the Company's Report on Form 10-Q for the
quarter ended December 31, 1994, filed with the Commission.
(8) Incorporated by reference to the Company's Report on Form 10-K for the
fiscal year ended March 31, 1995.
(9) Incorporated by reference to Amendment No. 1 to the Company's
Registration Statement on Form S-1, filed with the Commission on May 19,
1995.
(10) Incorporated by reference to the Company's Report on Form 10-Q for the
quarter ended June 30, 1995.
(11) Incorporated by reference to the Company's Report on Form 10-Q for the
quarter ended September 30, 1995.
(12) Incorporated by reference to the Company's Report on Form 10-K for the
fiscal year ended March 31, 1996.
(13) Incorporated by reference to the Company's Report on Form 10-Q for the
quarter ended June 30, 1996.
(14) Incorporated by reference to the Company's Report on Form 10-Q for the
quarter ended December 31, 1996.
(15) Incorporated by reference to the Company's Current Report on Form 8-K,
filed with the Commission on June 6, 1997.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SAFETY COMPONENTS INTERNATIONAL, INC.
By: /S/ ROBERT A. ZUMMO
-------------------------------
Robert A. Zummo
Chairman of the Board, President
and Chief Executive Officer
Date: June 30, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name and Signature Title Date
- - -------------------------- ----------------------------- -------------
/S/ ROBERT A. ZUMMO Chairman of the Board, June 30, 1997
- - ----------------------- President and Chief Executive
Robert A. Zummo Officer (Principal Executive Officer)
/S/ JEFFREY J. KAPLAN Executive Vice President, Chief June 30, 1997
- - --------------------- Financial Officer and Director
Jeffrey J. Kaplan (Principal Financial Officer)
/S/ GEORGE D. PAPADOPOULOS Corporate Controller and Secretary June 30, 1997
- - -------------------------- (Principal Accounting Officer)
George D. Papadopoulos
/S/ JOSEPH J. DIOGUARDI Director June 30, 1997
- - -----------------------
Joseph J. DioGuardi
/S/ FRANCIS X. SUOZZI Director June 30, 1997
- - ---------------------
Francis X. Suozzi
/S/ ROBERT J. TOROK Director June 30, 1997
- - -------------------
Robert J. Torok
24
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Page Number
-----------
REPORT OF INDEPENDENT ACCOUNTANTS F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of March 31, 1997 and 1996. F-3
Consolidated Statements of Operations for the Years ended March 31,
1997, 1996 and 1995. F-4
Consolidated Statements of Stockholders' Equity for the Years ended
March 31, 1997, 1996 and 1995. F-5
Consolidated Statements of Cash Flows for the Years ended March 31,
1997, 1996 and 1995. F-6
Notes to Consolidated Financial Statements. F-7
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
of Safety Components International, Inc.:
In our opinion, the consolidated financial statements of Safety
Components International, Inc. and Subsidiaries listed in the accompanying
"Index to Financial Statements" appearing on page F-1, present fairly, in all
material respects, the consolidated financial position of Safety Components
International, Inc. and its subsidiaries as of March 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended March 31, 1997 in conformity with generally
accepted accounting principles. These consolidated financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We
conducted our audits of these consolidated financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, the
Company changed its method of accounting for product launch costs in fiscal year
1997.
PRICE WATERHOUSE LLP
Costa Mesa, California
May 22, 1997 except for Notes 1, 6 and 13, which are as of June 30, 1997
F-2
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
As of March 31, 1997 and March 31, 1996
(in thousands, except per share and per share data)
<TABLE>
<CAPTION>
1997 1996
------- -------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................. $ 8,320 $12,033
Accounts receivable, net (Notes 2 and 4) ................... 11,751 16,597
Inventories (Notes 2 and 4) ................................ 6,378 5,315
Prepaid and other .......................................... 870 925
------- -------
Total current assets .......................... 27,319 34,870
Property, plant and equipment, net (Notes 2 and 4) ...................... 28,295 12,192
Receivable from affiliate (Note 5) ...................................... 4,348 17
Intangible assets, net (Note 2) ........................................ 10,991 -
Other assets ............................................................ 2,454 2,752
------- -------
Total assets .................................. $73,407 $49,831
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................... $ 7,792 $ 8,066
Earnout payable (Note 1) ................................... 2,211 -
Accrued liabilities ........................................ 2,476 1,057
Current portion of long-term obligations (Note 6) .......... 3,085 697
------- -------
Total current liabilities ..................... 15,564 9,820
Long-term obligations (Note 6) .......................................... 21,296 3,087
Other long-term liabilities ............................................. 1,273 1,580
------- -------
Total liabilities ............................. 38,133 14,487
------- -------
Commitments and contingencies (Note 8)
Stockholders' equity (Note 3 and 11):
Preferred stock: $.10 par value per share - 2,000,000 shares
authorized; no shares outstanding at
March 31, 1997 and 1996 ............................. - -
Common stock: $.01 par value per share - 10,000,000 shares
authorized; 5,025,383 and 5,048,500 shares issued and
outstanding at March 31, 1997 and 1996, respectively 51 51
Common stock warrants ...................................... 1 1
Additional paid-in-capital ................................. 30,062 30,058
Treasury stock, 113,492 and 90,000 shares, at March 31, 1997
and 1996, respectively, at cost ..................... (1,647) (1,379)
Retained earnings .......................................... 9,183 6,979
Cumulative translation adjustment (Note 2) ................. (2,376) (366)
------- -------
Total stockholders' equity .................... 35,274 35,344
------- -------
Total liabilities and stockholders' equity .... $73,407 $49,831
======= =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-3
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended March 31, 1997, 1996 and 1995
(in thousands, except per share and per share data)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net Sales (Notes 2 and 5) ...................................... $83,958 $94,942 $51,779
Cost of sales, excluding depreciation and product launch costs . 64,130 80,804 43,810
Depreciation ................................................... 2,043 1,104 743
Product launch costs (Note 2) .................................. 1,761 - -
------- ------- -------
Gross profit ...................................... 16,024 13,034 7,226
Selling and marketing expenses ................................. 1,375 1,102 894
General and administrative expenses ............................ 5,697 4,328 3,156
Amortization of goodwill (Note 2) .............................. 348 - -
------- ------- -------
Income from operations ............................ 8,604 7,604 3,176
Other expense (income) ......................................... 208 (807) (484)
Interest expense ............................................... 1,555 381 244
------- ------- -------
Income before income taxes ........................ 6,841 8,030 3,416
Provision for income taxes (Notes 2 and 7) ..................... 2,995 3,116 1,283
------- ------- -------
Income before extraordinary item and cumulative effect
of accounting change ...................................... 3,846 4,914 2,133
Extraordinary item - financing costs (less tax
benefit of $255) (Note 2) ................................. (383) - -
Cumulative effect of change in accounting for
product launch costs (less tax benefit of $718) (Note 2) .. (1,259) - -
------- ------- -------
Net income ..................................................... $ 2,204 $ 4,914 $ 2,133
======= ======= =======
Earnings per common share (Note 2):
Income before extraordinary item and cumulative effect of
change in accounting ................................. $ 0.77 $ 0.99 $ 0.53
Extraordinary item ........................................ (0.08) - -
Cumulative effect of change in accounting for deferred
product launch costs ................................. (0.25) - -
------- ------- -------
Net income per share ...................................... $ 0.44 $ 0.99 $ 0.53
======= ======= =======
Weighted average number of shares outstanding .................. 5,026,501 4,980,884 4,030,787
========= ========= =========
Note: Pro forma amounts assuming the new accounting method is applied retroactively are reflected in tabular form in Note 2.
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended March 31, 1995, 1996 and 1997
(in thousands, except shares)
<TABLE>
<CAPTION>
Common Common Common Additional Cummulative
Stock Stock Stock Paid-in Treasury Retained Translation Division
Shares Amount Warrants Capital Stock Earnings Adjustment Equity
--------- ------ -------- ---------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1994 ...................... 2,400,000 $24 $- $ - $ - $ - $ - $ 866
Net income for the period from
April 1, 1994 to May 13, 1994 ........... - - - - - - - 68
Transfer of Assets (Note 3 ................. - - - 934 - - - (934)
Capital contribution from
Valentec (Note 3) ....................... (100,000) (1) - - - - - -
Issuance of common stock (Note 3) .......... 1,760,000 18 - 12,661 - - - -
Issuance of warrants for 128,000
shares of common stock (Note 3) ......... - - 1 - - - - -
Net income for the period from
May 14, 1994 to March 31, 1995 .......... - - - - - 2,065 - -
Foreign currency translation adjustment .... - - - - - - 269 -
--------- ------ -------- ---------- --------- -------- ----------- --------
Balance at March 31, 1995 ...................... 4,060,000 41 1 13,595 - 2,065 269 -
Issuance of common stock ................... 1,078,500 10 - 16,557 - - - -
Purchase of treasury stock ................. (90,000) - - - (1,379) - -
Repurchase of warrants for 23,600
shares of common stock .................. - - - (94) - - - -
Net Income for the year ended
March 31, 1996 .......................... - - - - - 4,914 - -
Foreign currency translation adjustment .... - - - - - - (635) -
--------- ------ -------- ---------- --------- -------- ----------- --------
Balance at March 31, 1996 ...................... 5,048,500 51 1 30,058 (1,379) 6,979 (366) -
Issuance of common stock ................... 375 - - 4 - - - -
Purchase of treasury stock ................. (23,492) - - - (268) - -
Net Income for the year ended
March 31, 1997 .......................... - - - - - 2,204 - -
Foreign currency translation adjustment .... - - - - - - (2,010) -
--------- ------ -------- ---------- --------- -------- ----------- --------
Balance at March 31, 1997 ...................... 5,025,383 $51 $1 $30,062 $(1,647) $9,183 (2,376) $ -
========= ====== ======== ========== ========= ======== =========== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended March 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- ------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income .................................................. $ 2,204 $ 4,914 $ 2,133
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation ........................................... 2,043 1,104 743
Amortization ........................................... 348 - -
Extraordinary item ..................................... 638 - -
Cumulative effect of change in accounting principle .... 1,977 - -
Deferred income taxes .................................. (280) - -
Changes in operating assets and liabilities:
Accounts receivable ................................. 5,968 (9,662) (4,607)
Inventories ......................................... 375 532 (3,024)
Prepaid and other current assets .................... 55 (268) (60)
Other assets ........................................ (2,309) (440) (1,500)
Accounts payable .................................... (1,547) 749 (4,938)
Accrued liabilities ................................. 1,643 429 476
-------- ------- -------
Net cash provided by (used in) operating activities 11,115 (3,500) (901)
-------- ------- -------
Cash Flows From Investing Activities:
Additions to property, plant and equipment ............. (8,613) (4,588) (2,473)
Purchase of Phoenix Airbag, net of cash acquired ....... (24,257) - -
-------- ------- -------
Net cash (used in) investing activities ........... (32,870) (4,588) (2,473)
-------- ------- -------
Cash Flows From Financing Activities:
Net proceeds from sale of common stock ................. 4 16,568 14,564
Purchase of treasury stock ............................. (268) (1,379) -
Repurchase of common stock warrants .................... - (94) -
Payment to parent company inconsideration
for transfer of assets ......................... - - (1,885)
Proceeds from term note ................................ 20,000 - -
(Repayments) borrowing of debt and long-term obligations (3,764) 1,460 (3,269)
Net borrowing on revolving credit facility ............. 2,931 - -
Changes in intercompany accounts ....................... - - (2,326)
-------- ------- -------
Net cash provided by financing activities ......... 18,903 16,555 7,084
-------- ------- -------
Effect of exchange rate changes on cash ......................... (861) (280) 96
-------- ------- -------
Change in cash and cash equivalents ............................. (3,713) 8,187 3,806
Cash and cash equivalents, beginning of period .................. 12,033 3,846 40
-------- ------- -------
Cash and cash equivalents, end of period ........................ $ 8,320 $12,033 $3,846
======== ======= =======
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest .......................................... $1,555 $ 381 $134
Income taxes ...................................... 1,819 2,344 993
Supplemental disclosure of non-cash transactions:
Equipment acquired under capital lease obligations ..... $1,430 $ - $ -
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-6
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION AND BUSINESS
Safety Components International, Inc. (the "Company" or "SCI") was
formed to acquire certain assets and assume certain liabilities from Valentec
International Corporation ("Valentec Oldco"). RAZ Acquisition Corporation
("RAZ") was formed to acquire all of the outstanding common stock of Valentec
Oldco from Insilco Corporation ("Insilco"). Subsequent to the acquisition,
Valentec Oldco was merged into RAZ which subsequently changed its name to
Valentec International Corporation ("Valentec") which was effected on August 27,
1993. The acquisition was accounted for as a purchase. The operations from April
1, 1994 to May 12, 1994 are reflected as division equity in the accompanying
consolidated stockholders' equity. On May 13, 1994, upon the completion of its
initial public offering ("Initial Public Offering" ), the Company acquired
certain assets and assumed certain liabilities from Valentec which were
accounted for utilizing the historical bases of Valentec similar to that of a
pooling of interest.
On August 6, 1996, Automotive Safety Components International ("ASCI"),
a wholly-owned subsidiary of the Company, acquired 80% of the outstanding
capital stock of Phoenix Airbag GmbH ("Phoenix Airbag"). Phoenix Airbag was a
corporation organized under the laws of the Republic of Germany, and at the time
of the acquisition, was a wholly-owned subsidiary of Phoenix Aktiengesellschaft
("Phoenix AG") in Hamburg, Germany. The purchase from Phoenix AG was made in
accordance with the terms and conditions of the Agreement Concerning the Sale
and Transfer of all the Shares in Phoenix Airbag GmbH ("Stock Purchase
Agreement") dated June 6, 1996, as amended. The acquisition was completed on
August 5, 1996.
Pursuant to the Stock Purchase Agreement, eighty percent of Phoenix
AG's interest in Phoenix Airbag was acquired for an initial purchase price of
$20.0 million, subject to a net worth adjustment which decreased the initial
purchase price by $2.0 million. Additional purchase consideration of up to
approximately $7.0 million for the remaining twenty percent interest is
contingent on Phoenix Airbag meeting certain performance targets during calendar
years 1996 through 1998. If the annual targets are met, payments are to be paid
annually commencing April 30, 1997. Phoenix Airbag met its performance target
for calendar 1996, and ASCI paid its first contingent purchase price payment of
$2.2 million subsequent to March 31, 1997. Accordingly, such payment is accrued
in the accompanying consolidated balance sheet at March 31, 1997. If the
remaining performance targets are not met, ASCI would acquire the remaining
twenty percent without the payment of any additional consideration.
Additionally, ASCI may, under certain circumstances, be required to provide a
bank guaranty to Phoenix AG, in August 1997, to secure the payment of up to
approximately $4.8 million of the contingent purchase price.
The acquisition was accounted for as a purchase. Although ASCI will
acquire the remaining 20% interest effective December 31, 1998, it is entitled
to 100% of the income or losses, risks and rewards of Phoenix Airbag commencing
August 6, 1996. Accordingly, all assets and liabilities were reflected at fair
value at the date of acquisition, and no minority interest was recorded in the
accompanying consolidated financial statements for Phoenix AG's remaining 20%
interest. Through March 31, 1997, the cumulative purchase price amounted to
approximately $24.2 million, including $3.1 million of direct acquisition costs.
Management of the Company allocated the purchase consideration for Phoenix
Airbag assets at fair market value, net of liabilities assumed, with the excess
allocated to goodwill. The unaudited pro forma revenues, net income and net
income per common share, assuming the acquisition of Phoenix Airbag was
consummated on April 1, 1996 are as follows (in thousands):
Pro forma March 31,
--------------------
1997 1996
--------------------
Revenues ............................................... $ 96,339 $128,118
======== ========
Income before extraordinary item and cumulative
effect of accounting change ...................... $ 4,473 $ -
======== ========
Net income ............................................. $ 2,831 $ 5,469
======== ========
Income before extraordinary item and cumulative
effect of accounting change per common share ..... $ 0.89 $ -
======== ========
Net income per common share ............................ $ 0.56 $ 1.10
======== ========
F-7
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's Automotive segment manufactures automotive airbags for
specific models of several domestic and foreign automobile manufacturers under
contracts with major airbag systems producers. The Company's Automotive segment
operates in the United States, Europe and Mexico. Through March 31, 1997, the
majority of the Company's sales have been made in the United States. To date,
TRW Vehicle Safety Systems, Inc. ("TRW") and its affiliates have been the
Company's major automotive airbag customer (see Note 2); however, the
acquisition of Phoenix Airbag has significantly diversified the Company's
concentration of sales to this customer and in the United States. In addition,
the Company recently formed a subsidiary to manufacture certain of its products
in a newly constructed facility in the Czech Republic.
The Defense segment consists of two main operating units: Galion and
Systems. Galion manufactures projectiles and other metal components for small to
medium caliber training and tactical ammunition for the U.S. Armed Forces.
Galion also manufactures metal components for use in the automotive and consumer
products industries. Systems was established in June 1994 to serve as the prime
contractor under a $60.0 million systems contract for mortar cartridges (the
"Systems Contract") for the U.S. Army, coordinating the manufacture and assembly
of components supplied by various subcontractors.
Effective as of May 22, 1997, the Company acquired all of the
outstanding stock of Valentec in a stock for stock exchange. Prior to such
transaction, Valentec divested Valentec International Limited ("VIL"), its
majority-owned subsidiary. See Note 13 "Subsequent Events" for further
discussion. Valentec is a high volume manufacturer of stamped and precision
machine products in the automotive, commercial and defense industries, including
the manufacture of belted links for small to medium caliber ammunition and other
defense-related industries.
On June 30, 1997, the Company entered into a definitive agreement to
acquire substantially all of the net assets of the Air Restraints and Industrial
Fabrics Division ("JPS") for $56.3 million, subject to a post closing
adjustment. In addition, the Company will incur certain acquisition costs
related to the JPS acquisition (see Note 13). JPS is one of the world's largest
manufacturers and suppliers of airbag fabrics as well as other-value added
synthetics fabrics used in a variety of industrial and commercial applications.
The acquisitions of Valentec and JPS, assuming JPS is consummated, will
be accounted for using the purchase method of accounting and, accordingly, will
be included in the accounts from the dates of close.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the majority-owned subsidiaries of Safety Components International, Inc. All
significant intercompany transactions have been eliminated.
REVENUE RECOGNITION
Revenues are generally recognized as units are shipped to customers.
The Company accounts for certain long-term contracts under the
percentage of completion method, whereby progress toward contract completion is
measured on a cost incurred basis (including direct labor, materials and
allocable indirect manufacturing overhead and general and administrative costs).
Losses on long-term contracts are recognized in the period when such losses are
identified. On certain contracts with the U.S. Government, contract costs,
including indirect costs, are subject to audit and adjustment by negotiations
between the Company and government representatives. Contract revenues have been
recorded in amounts which are expected to be realized upon final settlement
based on historical results.
F-8
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ANNUAL REVENUES FROM MAJOR CUSTOMERS
The Company had sales to two customers in fiscal year 1997 aggregating
47% and 23% of net revenues, respectively. In fiscal year 1996, the Company had
sales from two customers aggregating 48% and 39% of net revenues, respectively.
In fiscal year 1995, the Company had sales to one customer aggregating 83% of
net revenues.
CONCENTRATION OF CREDIT RISK
The Company is subject to a concentration of credit risk consisting of
its trade receivables. At March 31, 1997, two customers accounted for
approximately 15% and 17% of its trade receivables, respectively; at March 31,
1996, two customers accounted for 21% and 51% of its trade receivables,
respectively. The Company performs ongoing credit evaluations of its customers
and generally does not require collateral. The Company evaluates potential
losses for uncollectible accounts and such losses have historically been
immaterial and within management's expectations.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures that result from the remediation of an
existing condition caused by past operations that will not contribute to current
or future revenues are expensed. Expenditures which extend the life of the
related property or prevent future environmental contamination are capitalized.
Liabilities are recognized for remedial activities when the cleanup is probable
and the cost can be reasonably estimated.
INVENTORIES
Inventories represent direct labor, materials and overhead costs
incurred for products not yet delivered and are stated at the lower of cost
(first-in, first-out) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is
calculated using the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized over the shorter of their estimated
lives or the term of the underlying lease. Estimated useful lives by class of
assets are as follows:
Machinery and Equipment.............................. 5 - 10 years
Furniture and Fixtures............................... 3 - 5 years
Leasehold improvements............................... 10 - 20 years
Buildings............................................ 25 - 40 years
Expenditures for repairs and maintenance are charged to expense as
incurred. Renewals or betterments of significant items are capitalized. When
assets are sold or otherwise disposed of, the cost and related accumulated
depreciation or amortization are removed from the respective accounts and any
resulting gain or loss is recognized.
The Company assesses the recoverability of long-lived assets by
determining whether the depreciation or amortization of the balances over its
remaining life can be recovered through projected undiscounted cash flows. If
there is an indication of impairment of such assets, the amount of impairment,
if any, will be measured based on projected discounted cash flows and, if
available, comparable market values, and will be charged to operations in the
period in which impairment is determined by management. The methodology that
management is expected to use to project results of operations will be based on
a trend line of expected cash flows generated from the assets in service. No
impairment of assets will be recorded below their estimated net realizable
value.
F-9
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTANGIBLE ASSETS
Intangible and other assets consist of goodwill and patents (see Notes
1 and 3) associated with the acquisition of Phoenix Airbag and are stated at
cost less accumulated amortization. Goodwill and patents are amortized over the
expected periods to be benefited, which have been determined to be between 15
and 25 years, respectively.
The Company assesses the recoverability of intangible assets by
determining whether the amortization of the balances over its remaining life can
be recovered through projected undiscounted cash flows. If there is an
indication of impairment of such assets, the amount of impairment, if any, will
be measured based on projected discounted cash flows and will be charged to
operations in the period in which impairment is determined by management.
PRODUCT LAUNCH COSTS
During the 1997 fiscal year, the Company changed its accounting for
product launch costs from the deferral method to the expense as incurred method.
Management believes expensing such costs is comparable with its industry peer
group. Expensing such costs as incurred is considered the preferable method of
accounting and, accordingly, management recorded the cumulative effect of this
change in accounting principle totaling $2.0 million ($1.3 million after income
taxes or $0.25 per share) effective April 1, 1996, in accordance with Accounting
Principles Board Opinion No. 20. During the fiscal year ended March 31, 1997,
the Company incurred approximately $1.8 million of product launch costs which,
under the previously used accounting method, would have been capitalized to
deferred product launch costs. Under the new accounting policy, such costs were
expensed as incurred. The pro forma amounts shown below have been adjusted for
the effect of retroactive application for product launch costs and the related
change in provision for income taxes.
Pro forma amounts assuming the new accounting method is applied
retroactively are as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
March 31,
------------------------------
1997 1996 1995
------------------------------
<S> <C> <C> <C>
Income before extraordinary item ..................... $ 3,846 $ - $ -
========= ====== =====
Income before extraordinary item per common share $ 0.77 $ - $ -
========= ====== =====
Net Income ........................................... $ 3,463 $5,017 $ 950
========= ====== =====
Net Income per common share ...................... $ 0.69 $ 1.01 $0.24
========= ====== =====
</TABLE>
FOREIGN CURRENCY TRANSLATION
The Company follows the principles of Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation," ("FAS 52") in accounting for
foreign operations. The financial statements of the Company's subsidiaries
whose functional currency is the local currency, except the accounts of the
Mexican subsidiary, have been translated into U.S. dollars. Accordingly, all
assets and liabilities outside the United States are translated to U.S. Dollars
at the rate of exchange in effect at the balance sheet date. Income and expense
items are translated at the weighted average exchange rate prevailing during the
period. Translation adjustments are recorded as a separate component of
stockholders' equity. During the year ended March 31, 1997, translation
adjustments, primarily attributable to the Company's German and Czech Republic
subsidiaries, accounted for substantially all of the change in cumulative
translation adjustment activity as reflected in the accompanying consolidated
financial statements.
The financial statements of the Company's subsidiary in Mexico, whose
functional currency is the U.S. Dollar, are remeasured into U.S. Dollars.
Accordingly, monetary assets and liabilities are translated at the rate of
exchange in effect at the balance sheet date and non-monetary assets and
liabilities at historical rates. Income and expense items are translated at a
F-10
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
weighted average exchange rate prevailing during the period, except expenses
related to non-monetary assets and liabilities which are translated at
historical rates. The effect of foreign currency adjustment for this entity is
included in the results of operations. During the reported periods herein, such
amounts were not significant.
Foreign currency transaction gains or losses are reflected in
operations. During the year ended March 31, 1997, transaction losses charged to
operations amounted to $379,000; in 1996 and 1995, such gains and losses were
not significant.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"). Under the liabilities method specified by FAS 109, the deferred tax
assets and liabilities are measured each year based on the difference between
the financial statement and tax bases of assets and liabilities at the
applicable enacted tax rates. Additionally, a valuation allowance is recorded
for that portion of deferred tax assets for which it is more likely than not
that the assets will not be realized. The deferred tax provision is the result
of changes in the deferred tax assets and liabilities.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The consolidated financial statements include financial instruments
whereby the fair market value of such instruments may differ from amounts
reflected on a historical basis. Financial instruments of the Company consist of
cash deposits, accounts receivable, advances to affiliates, accounts payable,
certain accrued liabilities, long-term debt and capital leases. The carrying
amount of the Company's long term debt approximates fair market value based on
prevailing market rates. The Company's other financial instruments generally
approximate their fair values at March 31, 1997 and 1996 based on the short-term
nature of these instruments. Advances to affiliates have no readily
ascertainable fair market value and , accordingly, their fair value are not
readily determinable.
DEFERRED FINANCING COSTS
Costs incurred in connection with financing activities (Note 6), are
capitalized and amortized using the effective interest method, and charged to
interest expense in the accompanying consolidated statements of operations.
Total costs deferred and included in the accompanying consolidated balance
sheets at March 31, 1997 and 1996 were $405,000 and $589,000, respectively.
During fiscal 1997, the Company terminated its line of credit with a bank. Costs
deferred at March 31, 1996 were charged in the accompanying consolidated
statement of operations as an extraordinary item, net of applicable income
taxes.
EARNINGS PER SHARE
Earnings per share amounts have been computed using the weighted
average number of common shares outstanding during each period. In February
1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("FAS 128"). FAS 128
establishes standards for computing and presenting earnings per share ("EPS").
It replaces the presentation of primary EPS with a presentation of basic EPS.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. It also requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Diluted EPS is computed similarly to fully diluted EPS
pursuant to Accounting Principles Board Opinion No. 15. This statement is
F-11
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
effective for the Company beginning with its quarterly period ending December
31, 1997, earlier adoption is not permitted. Since the Company's capital
structure is considered simple for reporting EPS, the adoption of this principle
is not expected to have a material impact on EPS reporting.
RECLASSIFICATIONS
Certain reclassifications have been made to the consolidated financial
statements for prior periods to conform to the March 31, 1997 presentation.
USE OF ESTIMATES
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles, which require management to make
estimates and assumptions that effect the amounts and disclosures reported in
the financial statements and accompanying notes. Significant estimates made by
management include allowances for doubtful accounts receivable, reserves for
inventories, legal actions and environmental issues, and costs to complete on
long term contracts. Actual results could differ from those estimates.
NOTE 3 PUBLIC OFFERINGS
INITIAL PUBLIC OFFERING
On May 13, 1994, the Company completed its Initial Public Offering by
selling 1.6 million shares of previously unissued common stock at $10.00 per
share (the "Initial Public Offering Price"). In conjunction with the Initial
Public Offering, the underwriter was granted warrants to purchase 128,000 shares
of the Company's common stock at 130% of the Initial Public Offering Price
($13.00) exercisable over a four-year period commencing one year after the
effective date of the registration statement (May 6, 1994). The net proceeds to
the Company from the Initial Public Offering of approximately $14.6 million
(including the proceeds received pursuant to the exercise of the over allotment
option described below) were used to retire the Company's portion of Valentec's
short and long-term debt, pay off its intercompany debt balances with Valentec
(such debt balances were assumed in connection with the transfer of assets
described in Note 1) and pay cash consideration to Valentec for the transfer of
assets. The remaining proceeds have been used to fund the additional growth of
the business. In conjunction with the Initial Public Offering, the underwriter
was granted a 30 day option to purchase up to an aggregate of 240,000 additional
shares (of which 80,000 were to be sold by Valentec) at the Initial Public
Offering Price, less underwriting discounts and accountable expenses. The entire
option was exercised within the 30 day period.
ADDITIONAL OFFERING
On June 21, 1995, the Company completed an additional offering (the
"Offering") of 1.5 million shares of common stock at $17.00 per share (the
"Offering Price"), of which the Company sold 1.0 million shares of previously
unissued common stock and Valentec and other selling shareholders sold 500,000
shares. The net proceeds to the Company from the Offering of approximately $16.5
million (including the proceeds received pursuant to the exercise of the over
allotment option described below) has been, and will continue to be, used to
fund the future growth of the business. In conjunction with the Offering, the
underwriter was granted a 30 day option to purchase up to an aggregate of
225,000 additional shares (of which 75,000 shares and 150,000 shares were to be
sold by the Company and Valentec and other selling shareholders respectively) at
the Offering Price, less underwriting discounts. The entire option was exercised
within the 30 day period.
F-12
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 COMPOSITION OF CERTAIN CONSOLIDATED BALANCE SHEET COMPONENTS
(in thousands)
March 31,
----------------------
1997 1996
----------------------
Accounts receivable:
Billed receivables ........................... $ 9,152 $ 4,779
Unbilled receivables (net of unliquidated
progress payments of $9,846 and $30,94
in 1997 and 1996, respectively) ............. 1,834 8,588
Other ........................................ 765 3,230
-------- --------
$ 11,751 $ 16,597
======== ========
Inventories:
Raw materials ................................ $ 3,339 $ 2,297
Work-in-process .............................. 2,073 1,958
Finished goods ............................... 966 1,060
-------- --------
$ 6,378 $ 5,315
======== ========
Property, plant and equipment:
Land and building ............................ $ 8,435 $ 1,241
Machinery and equipment ...................... 18,768 10,001
Furniture and fixtures ....................... 2,074 749
Construction in process ...................... 2,822 2,373
-------- --------
32,099 14,364
Less - accumulated depreciation
and amortization ................... (3,804) (2,172)
-------- --------
$ 28,295 $ 12,192
======== ========
NOTE 5 RELATED PARTY TRANSACTIONS
For periods prior to the Initial Public Offering, the Company was
allocated a portion of Valentec's corporate general and administrative expenses
(excluding interest) based on a formula of revenue, fixed assets and payroll
costs. In the opinion of management, the allocation method used was reasonable.
Corporate charges totaled $60,000 for the year ended March 31, 1995. During
fiscal years 1997 and 1996, the Company allocated certain of its corporate
general and administrative expenses to Valentec totaling $726,000 and $659,000,
respectively, using a similar basis for allocating expenses as previously
discussed.
The Company purchases certain components used in its products from
affiliates. Purchases from affiliates totaled $2.6 million, $774,000 and $1.3
million for the years ended March 31, 1997, 1996 and 1995, respectively.
The Company sells certain components to affiliates for use in their
products. Sales to affiliates totaled $104,000, $4.3 million and $1.0 million
for the years ended March 31, 1997, 1996 and 1995, respectively.
The Company subleases space from VIL for its European automotive
operations. Sublease payments for the years ended March 31, 1997, 1996 and 1995
were $117,000, $121,000 and $112,000, respectively. In addition, the Company is
allocated its pro-rata portion of certain manufacturing overhead expenses based
on square footage, as well as a pro-rata portion of shared general and
administrative expenses. Such costs totaled $358,000, $254,000 and $248,000 for
the years ended March 31, 1997, 1996 and 1995, respectively.
At March 31, 1997 and 1996, the Company has a receivable from Valentec
aggregating $4.3 million, which was realized through the merger on May 22, 1997.
F-13
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 LONG-TERM OBLIGATIONS
Long-term obligations outstanding were as follows (in thousands):
March 31,
-------------------
1997 1996
-------------------
Bank of America NT & SA term loan and revolving credit
facility, bearing interest at 2.25% and 2.0% over
LIBOR (6.54% at March 31, 1997),
respectively, refinanced May 21, 1997 ................ $ 20,192 $ --
Note payable, principal due in annual installments of
$205,000 beginning January 12, 1999 to January 12, 2002,
with interest at 7.22% in semiannual
installments, secured by assets of the
Company's United Kingdom subsidiary .................. 820 764
Capital equipment notes payable, due in monthly
installments with interest at 9.0% to 11.32%
maturing at various rates through April
2001, secured by machinery and equipment ............. 3,369 3,020
-------- --------
24,381 3,784
Less - current portion ................................. (3,085) (697)
-------- --------
$ 21,296 $ 3,087
======== ========
On August 1, 1996, the Company entered into a loan agreement with Bank
of America National Trust and Savings Association ("Bank of America NT & SA").
This credit facility was refinanced on May 21, 1997 as discussed in the
following paragraph. The proceeds provided the Company with financing for the
acquisition of Phoenix Airbag in the form of a $20.0 million acquisition term
loan, to be amortized over a four-year period. The loan agreement also provided
for a $5.5 million revolving credit facility and a non-revolving stand-by letter
of credit facility to secure payment, if necessary, for 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 NT & SA Facility". Indebtedness under the Bank of America
NT & SA Facility was secured by substantially all the assets of the Company.
Outstanding borrowings on the Bank of America NT & SA Facility term loan and
revolving credit facility at March 31, 1997 were $17.3 million and $2.9 million,
respectively.
On May 21, 1997, the Company, Phoenix Airbag and Automotive Safety
Components International Limited ("ASCIL" collectively, the "Borrowers") entered
into an agreement with KeyBank National Association, as administrative agent
("KeyBank"), and the lending institutions named therein (the "Credit
Agreement"). The Credit Agreement provides for (i) a term loan in the principal
amount of $15.0 million (the "Term Loan") and (ii) a revolving credit facility
in the aggregate principal amount of $12.0 million (including letter of credit
facilities). The indebtedness under the Credit Agreement is secured by
substantially all the assets of the Company and bears interest at a rate equal
to either (i) the greater of KeyBank's prime rate or (ii) the sum of LIBOR plus
1.00% for term loans (and 1.25% for revolving loans, subject to reduction to
1.00% upon consummation of the proposed offering of senior subordinated notes
(see Note 13), so long as no default or event of default shall have occurred and
be continuing). The principal amount of the Term Loan is payable quarterly
commencing September 30, 1997, in the amount of $750,000, with the last payment
due on May 31, 2002 provided that the Term Loan must be prepaid out of the
proceeds of the offering senior subordinated notes (see Note 13). The revolving
loans under the Credit Agreement will mature on May 31, 2002. The Credit
Agreement contains certain restrictive covenants that impose limitations upon,
among other things, the Company's ability to change its business; merge,
consolidate or dispose of assets; incur liens; make loans and investments; incur
indebtedness; pay dividends and other distributions; engage in certain
transactions with affiliates; engage in sale and lease-back transactions; enter
into lease agreements; and make capital expenditures. Upon completion of the
offering of senior subordinated notes (see Note 13), pursuant to a commitment
letter with KeyBank, the Credit Agreement will be converted into a $27.0 million
revolving credit facility with a five year term, bearing interest at LIBOR plus
1.00% with a commitment fee of 0.25% per annum for any unused portion.
F-14
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future annual minimum principal payments, under the refinanced terms
through KeyBank at March 31, 1997, are as follows (in thousands):
1998 ................................ $ 3,085
1999 ................................ 4,019
2000 ................................ 3,811
2001 ................................ 3,739
2002 ................................ 3,617
Thereafter .......................... 6,110
-------
$24,381
=======
During fiscal year 1997, the Company entered into a sale-leaseback of
certain equipment which is accounted for as a capital lease. The Company
received proceeds (which approximated the carrying value of the asset at the
time of sale) of approximately $1.5 million; no gain or loss was recorded in
connection with this transaction. The agreement requires that specified
machinery and equipment used in the Company's operations be pledged as
collateral, among other criteria. The Company imputed interest at 9% per annum.
On May 22, 1997, the Company completed the acquisition of Valentec
(Notes 1 and 13). The Company assumed all of Valentec's outstanding obligations
as of that date, including two term notes of approximately $5.1 million, a
revolving line of credit of approximately $1.4 million, as of March 31, 1997 and
equipment financings of approximately $1.1 million as of March 31, 1997. In
addition, the Company issued a $2.0 million note payable and has or will pay
$800,000 to VIL to repay intercompany amounts at the time of the sale.
On June 4, 1997, the Company secured a $7.5 million mortgage note
facility with Bank Austria. The note is payable in semi-annual installments of
$375,000 beginning September 30, 1997 through March 31, 2007 and bears interest
at a rate of 7.5%. The note is secured by the assets of the Company's Czech
Republic facility.
In May and June 1997, the Company paid approximately $6.5 million of
the obligations assumed in the Valentec acquisition with the proceeds of the
KeyBank credit facility, Bank Austria mortgage note and the $2.0 million
equipment financing. The $2.0 million equipment financing bears interest at
9.38% and is payable monthly beginning July 1, 1997 through June 1, 2002 and is
secured by certain fixed assets of Valentec.
NOTE 7 INCOME TAXES
Income before income taxes comprises the following (in thousands):
March 31,
------------------------------
1997 1996 1995
------------------------------
Domestic ................................... $2,670 $6,291 $2,379
Foreign .................................... 4,171 1,739 1,037
------ ------ ------
$6,841 $8,030 $3,416
====== ====== ======
F-15
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The income tax provision comprises the following (in thousands):
March 31,
------------------------------------
1997 1996 1995
------------------------------------
Taxes currently payable:
Federal ........................ $ 935 $ 1,934 $ 602
State .......................... 154 327 114
Foreign ........................ 916 124 372
Deferred taxes:
Federal ........................ (177) 311 148
State .......................... (49) 47 47
Foreign ........................ 1,216 373 --
------- ------- -------
$ 2,995 $ 3,116 $ 1,283
======= ======= =======
The income tax provision differs from the amount computed by applying
the federal income tax rate to income before income taxes as follows:
<TABLE>
<CAPTION>
March 31,
---------------------
1997 1996 1995
---------------------
<S> <C> <C> <C>
Expected taxes at federal statutory rate ............. 34% 34% 34%
State income taxes, net of federal benefits .......... 2 5 5
Foreign earnings taxed at different rates ............ 7 - 1
Change in deferred tax asset valuation allowance ..... - - (4)
Other, net ........................................... 1 - 2
--- --- ---
44% 39% 38%
=== === ===
</TABLE>
The primary components of deferred tax assets and liabilities, included
in other long-term liabilities in the accompanying consolidated balance sheet,
are as follows (in thousands):
<TABLE>
<CAPTION>
March 31,
-----------------------
1997 1996
-----------------------
<S> <C> <C>
Deferred tax assets (liabilities):
Accrued liabilities ........................ $ 103 $ 37
Inventory .................................. 193 203
Property, plant and equipment .............. (1,552) (862)
Deferred product launch costs .............. - (688)
Other ...................................... (7) -
------- -------
$(1,263) $(1,310)
======= =======
</TABLE>
No taxes have been provided relating to the possible distribution of
approximately $4.2 million of undistributed earnings considered to be
permanently reinvested. The amount of such additional taxes that would be
payable if such earnings were distributed is estimated to be approximately
$950,000.
F-16
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 COMMITMENTS AND CONTINGENCIES
Operating leases
The Company has noncancelable operating leases for equipment and office
space that expire at various dates through 2002. Certain of the lease payments
are subject to adjustment for inflation, which have been normalized to
operations. The Company incurred rent expense of $927,000, $612,000 and $272,000
for the years ended March 31, 1997, 1996 and 1995, respectively.
Future annual minimum lease payments for all noncancelable operating
leases as of March 31, 1997 are as follows (in thousands):
1998 ................................. $1,130
1999 ................................. 1,068
2000 ................................. 1,092
2001 ................................. 573
2002 ................................. 308
Thereafter ........................... 403
------
$4,574
======
ENVIRONMENTAL ISSUES
This Company has identified two areas of underground contamination at
its facility in Galion, Ohio. One area involves a localized plating solution
spill, which is currently being handled by the existing waste water treatment
system. The second area involves a chlorinated solvent spill in the vicinity of
a former above ground storage area. The Company has retained environmental
consultants to quantify the extent of this problem. The Company has accrued
$243,000 for the estimated cost of additional testing and remediation which are
included in the long-term liabilities in the accompanying consolidated balance
at March 31, 1997. The Company's environmental consultants estimate that the
Company's voluntary plan of remediation will take three to five years to
complete. In the opinion of management, the total remediation costs are not
expected to have a material adverse effect on the Company's results of
operations or financial position. Management's opinion is based on the advice of
an independent consultant on environmental matters.
LEGAL PROCEEDINGS
From time to time, the Company is the subject of legal proceedings for
various matters. In management's opinion, there are no material claims currently
pending.
F-17
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 BUSINESS SEGMENT INFORMATION
The Company's operations have been classified into two business
segments: automotive and defense. See Note 1 for a description of business
segments.
Summarized financial information by business segment is as follows (in
thousands):
March 31,
---------------------------------
1997 1996 1995
---------------------------------
Net Sales:
Automotive ........................ $68,827 $49,091 $43,073
Defense ........................... 15,131 45,851 8,706
------- ------- -------
$83,958 $94,942 $51,779
======= ======= =======
Operating income:
Automotive ........................ $ 7,255 $ 3,658 $ 2,397
Defense ........................... 1,349 3,946 779
------- ------- -------
$ 8,604 $ 7,604 $ 3,176
======= ======= =======
Total assets at period end:
Automotive ........................ $60,800 $21,518 $20,429
Defense ........................... 8,251 16,924 5,899
Corporate ......................... 4,356 11,389 1,983
------- ------- -------
$73,407 $49,831 $28,311
======= ======= =======
Depreciation and amortization:
Automotive ........................ $ 2,036 $ 796 $ 489
Defense ........................... 355 308 254
------- ------- -------
$ 2,391 $ 1,104 $ 743
======= ======= =======
Capital expenditures:
Automotive ........................ $ 8,092 $ 3,863 $ 1,979
Defense ........................... 521 725 494
------- ------- -------
$ 8,613 $ 4,588 $ 2,473
======= ======= =======
F-18
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized financial information by geographic area is as follows (in
thousands):
March 31,
---------------------------------
1997 1996 1995
---------------------------------
Net Sales (1):
North America ..................... $46,371 $77,333 $34,274
Europe ............................ 37,587 17,609 17,505
------- ------- -------
$83,958 $94,942 $51,779
======= ======= =======
Operating income:
North America ..................... $ 3,089 $ 6,555 $ 3,143
Europe ............................ 5,515 1,049 33
------- ------- -------
$ 8,604 $ 7,604 $ 3,176
======= ======= =======
Total assets at period end:
North America ..................... $24,930 $37,974 $16,251
Europe ............................ 48,477 11,857 12,060
------- ------- -------
$73,407 $49,831 $28,311
======= ======= =======
- - -----------------------------------------
(1) Foreign and domestic sales are representative of amounts reported by
geographic region
NOTE 10 BENEFIT PLAN
SCI participates in Valentec's defined contribution plan qualified
under Section 401(k) of the Internal Revenue Code for eligible employees. The
plan provides for discretionary employer contributions. The Company made no
employer contributions during any of the periods presented in the consolidated
financial statements.
NOTE 11 COMMON STOCK AND STOCK OPTIONS
COMMON STOCK
During fiscal years 1997 and 1996, the Company purchased 23,492 shares
and 90,000 shares of common stock, respectively. The shares are held in treasury
and are accounted for at cost. See Note 13 for common stock issued to acquire
Valentec and treasury shares obtained in connection with such acquisition.
STOCK OPTIONS
In conjunction with the Initial Public Offering, SCI established a stock
option plan ("Plan"). The Plan, as amended, provides for the issuance of options
to purchase an aggregate of 550,000 shares of SCI's common stock to key
officers, employees of SCI or its affiliates, directors and consultants. Each
award is determined by the Compensation Committee of the Board of Directors on
an individual basis, except for awards to non-officer directors, which are
determined pursuant to a formula. The Company accounts for these plans under
Accounting Principles Board Opinion No. 25, under which no compensation cost has
been recognized.
Had compensation cost for these plans been determined consistent with
FASB Statement No. 123, the Company's net income and earnings per share would
have been reduced to the following pro forma amounts (in thousands, except per
share data):
March 31,
------------------------------
1997 1996 1995
------------------------------
Net Income:
As Reported ....................... $2,204 $4,914 $2,133
====== ====== ======
Pro Forma ......................... $1,941 $4,756 $2,133
====== ====== ======
Net Income Per Share:
As Reported ....................... $ 0.44 $ 0.99 $ 0.53
====== ====== ======
Pro Forma ......................... $ 0.39 $ 0.95 $ 0.53
====== ====== ======
F-19
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the status of the Company's stock option plan at March 31,
1997, 1996 and 1995 and changes during the years then ended is presented in the
table and narrative below:
<TABLE>
<CAPTION>
March 31, 1997 March 31, 1996 March 31, 1995
------------------------ ----------------------- ---------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise Of Exercise of Exercise
Shares Price Shares Price Shares Price
--------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 288,625 $13.06 210,500 $10.79 - $ -
Granted 244,499 11.97 84,500 18.65 243,500 10.68
Exercised (375) 10.00 - - - -
Forfeited (750) 10.00 (6,375) 12.06 (33,000) 10.00
------- ------- -------
Outstanding at end of year 531,999 12.57 288,625 13.06 210,500 10.79
------- ===== ------- ===== ------- =====
Exercisable at end of year 122,250 12.04 50,750 10.57 - -
======= ===== ====== ===== ======= =====
Weighted average fair value
of options granted $5.48 $8.85 $4.94
</TABLE>
Of the 531,999 options outstanding at March 31, 1997, 200,000 have
exercise prices between $10.00 and $14.88, with a weighted average exercise
price of $10.15 and a weighted average remaining contractual life of 6.1 years;
98,375 of these options are exercisable with a weighted average exercise price
of $10.28. An additional 87,500 options have exercise prices between $17.13 and
$21.00 with a weighted average exercise price of $19.28 and a weighted average
remaining contractual life of 6.6 years; 23,875 of these options are exercisable
with a weighted average exercise price of $19.30. The remaining 244,499 options
have exercise prices between $10.25 and $14.17 with a weighted average exercise
price of $11.97 and a weighted average remaining contractual life of 9.3 years;
none of these options are currently exercisable. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions used for grants in 1997,
1996 and 1995, respectively: risk-free interest rates of 6.7, 6.5 and 7.2
percent; dividends for all years; expected lives of 6.2, 6.8 and 6.0 years; and
expected volatility of 32.4 percent for all years.
F-20
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 UNAUDITED QUARTERLY RESULTS
Unaudited quarterly financial information for fiscal year 1996 and 1997
is set forth below (See Note 2). The Company recorded the cumulative effect of
the change in accounting principle and the extraordinary item during the fourth
quarter of fiscal year 1997 (see Note 2). The Company did not restate prior
quarters. All dollar amounts are in thousands except per share data.
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------
Company
----------------------------------------------------------------
June 30, September 30, December 31, March 31,
1995 1995 1995 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 1996
Revenues ................................. $23,683 $25,317 $24,447 $21,495
Income from operations ................... $ 1,562 $ 1,952 $ 1,943 $ 2,147
Net income ............................... $ 1,047 $ 1,343 $ 1,297 $ 1,227
Net income per share ..................... $ 0.24 $ 0.26 $ 0.25 $ 0.24
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------
Company
----------------------------------------------------------------
June 30, September 30, December 31, March 31,
1996 1996 1996 1997
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 1997
Revenues ................................. $16,172 $18,877 $24,662 $24,247
Income from operations ................... $ 1,446 $ 2,248 $ 3,150 $ 1,760
Income before extraordinary item and
cumulative effect of accounting change... $ 853 $ 1,148 $ 1,420 $ 425
Net income ............................... $ 853 $ 1,148 $ 1,420 $(1,217)
Income before extraordinary item and
cumulative effect of accounting
change per share .................. $ 0.17 $ 0.23 $ 0.28 $ 0.09
Net income per share ..................... $ 0.17 $ 0.23 $ 0.28 $ (0.24)
</TABLE>
<TABLE>
<CAPTION>
AMENDED Quarter Ended
----------------------------------------------------------------
Company
----------------------------------------------------------------
June 30, September 30, December 31, March 31,
1996 1996 1996 1997
----------------------------------------------------------------
<S> <C> <C> <C> <C>
AMENDED Fiscal 1997
Revenues ................................. $16,172 $18,877 $24,662 $24,247
Income from operations ................... $ 1,416 $ 1,971 $ 2,627 $ 2,590
Income before extraordinary item and
cumulative effect of accounting change... $ 835 $ 982 $ - $ -
Net (loss) income ........................ $ (424) $ 599 $ 1,106 $ 923
Income before extraordinary item and
cumulative effect of accounting
change per share .................. $ 0.17 $ 0.20 $ - $ -
Net (loss) income per share .............. $ (0.08) $ 0.12 $ 0.22 $ 0.20
</TABLE>
F-21
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 SUBSEQUENT EVENTS
Pursuant to a definitive Stock Purchase Agreement, effective as of May
22, 1997, the Company acquired all of the outstanding common stock of Valentec
in a tax-free stock-for-stock exchange. Valentec was the Company's largest
shareholder immediately prior to the acquisition owning approximately 27%, or
1,379,200 shares of the issued and outstanding shares of the Company's common
stock. The Company issued the shareholders of Valentec 1,369,200 newly issued
shares of its common stock.
The purchase price for the Valentec acquisition was negotiated between
Valentec and a special committee consisting of independent members of the Board
of Directors of the Company. The special committee was advised by independent
legal counsel and an independent financial advisor. The Company's Board of
Directors received an opinion from the special committee's financial advisor as
to the fairness from a financial point of view of the consideration to be
received by the Company to the Company's shareholders other than Valentec.
The acquisition will be accounted for as a purchase. The aggregate
purchase price amounted to approximately $14.3 million, including estimated
direct acquisition costs of approximately $600,000. No significant adjustments
to assets and liabilities acquired will be recorded as their carrying value
approximates their fair value, except for common stock of the Company held by
Valentec, which common shares have been recorded as treasury shares at market
value of $13.7 million. These shares were previously accounted for under the
equity method of accounting for the investment by Valentec. Management intends
to merge Valentec during the first quarter of fiscal 1998. The excess of the
purchase price over the fair value of the net assets acquired will be allocated
to goodwill.
On June 30, 1997, the Company entered into a definitive agreement to
acquire substantially all of the assets of the air restraint and technical
products division of JPS for $56.3 million plus the assumption of $797,000 in
indebtedness subject to post-closing adjustments (the "JPS Acquisition"). The
Company expects to finance the JPS Acquisition with a portion of the proceeds of
a private placement of $80.0 million of senior subordinated notes.
Unaudited pro forma condensed balance sheet information assuming the
acquisitions and the senior subordinated notes were effected on March 31, 1997
is as follows (in thousands):
Current assets ........................................... $ 50,679
========
Noncurrent assets ........................................ $108,887
========
Current liabilities ...................................... $ 26,082
========
Total liabilities ........................................ $124,292
========
Unaudited pro forma condensed consolidated operations information
assuming the acquisition and the senior subordinated notes were(and acquisition
of Phoenix Airbag - see Note 1) effected on April 1, 1996 is as follows (in
thousands, except per share data):
Revenues ................................................. $173,208
========
Income before extraordinary item
and change in accounting principle .................... $ 2,011
========
Income per share before extraordinary
item and change in accounting principle ............... $ 0.40
========
The unaudited pro forma condensed consolidated operations information
is not necessarily indicative of the actual results which would have been
attained if the acquisition would have been consummated on April 1, 1996.
F-22
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-23
PLEDGE AGREEMENT
PLEDGE AGREEMENT dated as of May 21, 1997 (as amended, modified, or
supplemented from time to time, this Agreement), made by each of the undersigned
(each, together with its successors and assigns, a "Pledgor" and collectively,
the "Pledgors"), in favor of KEYBANK NATIONAL ASSOCIATION, a national banning
association, as Collateral Agent (herein, together with its successors and
assigns in such capacity, the "Pledgee" for the benefit of the Secured Creditors
(as defined below):
PRELIMINARY STATEMENTS:
(1) Except as otherwise defined therein, terms used herein and defined
in the Credit Agreement (as defined below) shall be used herein as therein
defined.
(2) This Agreement is made pursuant to the Credit Agreement, dated as
of the date hereof (herein, as amended or otherwise modified from time to time,
the "Credit Agreement"), among Safety Components International, Inc., a Delaware
corporation (herein, together with its successors and assigns, the "Company"),
the other Borrowers named therein, the financial institutions named as lenders
therein, and KeyBank National Association, as the Administrative Agent for the
Lenders (as defined in the Credit Agreement), providing, among other things, for
loans or advances or other extensions of credit to or for the benefit of the
Borrowers of up to $27,000,000, with such loans or advances being evidenced by
promissory notes (the "Notes", such term to include all Notes and other
securities issued in exchange therefor or in replacement thereof).
(3) The Company or any of its Subsidiaries may from time to time be
party to one or more Designated Hedge Agreements (as defined in the Credit
Agreement). Any institution that participates, and in each case their subsequent
assigns, as a counterparty to any Designated Hedge Agreement (collectively, the
"Hedge Creditors"; and the Hedge Creditors together with the Lenders,
collectively the "Secured Creditors"), shall benefit hereunder as herein
provided.
(4) Pursuant to the Subsidiary Guaranty, each Subsidiary Guarantor has
jointly and severally guaranteed to the Secured Creditors the payment when due
of the Guaranteed Obligations (as defined in the Subsidiary Guaranty).
(5) It is a condition precedent to the making of Loans and the issuance
of, and participation in, Letters of Credit under the Credit Agreement that each
Pledgor shall have executed and delivered to the Pledgee this Agreement.
(6) Each Pledgor desires to execute this Agreement to satisfy the
conditions described in the preceding paragraph.
1
<PAGE>
NOW, THEREFORE, in consideration of the benefits accruing to each
Pledgor, the receipt and sufficiency of which are hereby acknowledged, each
Pledgor hereby makes the following representations and warranties to the Pledgee
and hereby covenants and agrees with the Pledgee as follows:
1. SECURITY FOR OBLIGATIONS.
This Agreement is made by each Pledgor to the Pledgee, for the benefit
of the Secured Creditors, to secure:
(i) the full and prompt payment when due (whether at the
stated maturity, by acceleration or otherwise) of all obligations
(including obligations which, but for the automatic stay under section
362(a) of the Bankruptcy Code, would become due) of such Pledgor to the
Lenders, whether now existing or hereafter incurred under, arising out
of, or in connection with the Credit Agreement and the other Credit
Documents to which such Pledgor is a party (including without
limitation (x) in the case of any Borrower, all such obligations and
indebtedness of such Borrower under the Credit Agreement and (y) in the
case of each other Pledgor, all such obligations and indebtedness under
the Subsidiary Guaranty to which such Pledgor is a party which relate
to any of the foregoing), and the due performance and compliance by
such Pledgor with all of the terms, conditions and agreements contained
in the Credit Agreement and such other Credit Documents (all such
obligations and liabilities under this clause (i), being herein
collectively called the "Credit Document Obligations");
(ii) the full and prompt payment when due (whether at the
stated maturity, by acceleration or otherwise) of all obligations
(including obligations which, but for the automatic stay under section
362(a) of the Bankruptcy Code, would become due) and liabilities of
each Pledgor or other Subsidiary of the Company now existing or
hereafter incurred under, arising out of or in connection with any
Designated Hedge Agreement with any of the Secured Creditors including,
in the case of Pledgors other than the Borrowers, all obligations of
such Pledgor under the Subsidiary Guaranty in respect of any Designated
Hedge Agreement, and the due performance and compliance by such Pledgor
with all of the terms, conditions and agreements contained therein (all
such obligations and liabilities described in this clause (ii) being
herein collectively called the "Hedge Obligations");
(iii) any and all sums advanced by the Pledgee in order to
preserve the Collateral (as hereinafter defined) or preserve its
security interest in the Collateral (to the extent provided for in the
Credit Documents); and
(iv) in the event of any proceeding for the collection or
enforcement of any indebtedness, obligations, or liabilities of such
Pledgor referred to in clauses (i), (ii) and (iii) above, after an
Event of Default (as such term is defined in the Security Agreement)
2
<PAGE>
shall have occurred and be continuing, the reasonable expenses of
retaking, holding, preparing for sale or lease, selling or otherwise
disposing of or realizing on the Collateral, or of any exercise by the
Pledgee of its rights hereunder, together with reasonable attorneys'
fees and court costs.
All such obligations, liabilities, sums and expenses set forth in clauses (i)
through (iv) of this section 1 being herein collectively called the
"Obligations," it being acknowledged and agreed that the "Obligations" shall
include extensions of credit of the types described above, whether outstanding
on the date of this Agreement or extended from time to time after the date of
this Agreement.
2. CERTAIN DEFINITIONS; INITIAL REPRESENTATIONS, ETC.
2.1 Definitions. As used herein:
"Company" shall have the meaning provided in the Preliminary
Statements.
"Credit Agreement" shall have the meaning provided in the
Preliminary Statements.
"Credit Document Obligations" shall have the meaning provided
in clause (i) of section 1.
"Equity Interests" shall mean (i) all of the partnership
interests in a general or limited partnership at any time owned or held by any
Pledgor, and (ii) all of the membership interests in a limited liability company
at any time owned or held by any Pledgor.
"Foreign Corporation" shall mean a corporation that is not
organized under the laws of the United States or any State or territory thereof.
"Hedge Creditors" shall have the meaning provided in the
Preliminary Statements.
"Hedge Obligations" shall have the meaning provided in clause
(ii) of section 1.
"Notes" shall mean all promissory notes from time to time
issued to, or held by, any Pledgor.
"Noticed Event of Default" shall mean (i) an Event of Default
specified in section 10.1(g) of the Credit Agreement and (ii) any other Event of
Default under the Credit Agreement in respect of which the Pledgee has given the
Company notice that such Event of Default constitutes a Noticed Event of
Default.
"Obligations" shall have the meaning provided in section 1.
3
<PAGE>
"Pledged Entity" shall mean the issuer of any Equity
Interests.
"Pledged Equity Interests" shall mean all Equity Interests at
any time pledged or required to be pledged under this Agreement.
"Pledged Votes" shall mean all Notes at any time pledged or
required to be pledged under this Agreement.
"Pledged Securities" shall mean all Pledged Stock and all
Pledged Notes.
"Pledged Stock" shall mean all Stock at any time pledged or
required to be pledged under this Agreement.
"Secured Creditors" shall have the meaning provided in the
Preliminary Statements.
"Secured Debt Agreement" shall have the meaning provided in
section 5.
"Securities" shall mean all of the Stock and Notes.
"Stock" shall mean (i) all of the issued and outstanding
shares of stock of any corporation (other than a Foreign Corporation) at any
time directly owned by any Pledgor; and (ii) all of the issued and outstanding
shares of capital stock of any Foreign Corporation at any time owned by any
Pledgor, provided that such Pledgor shall not be required to pledge hereunder
(and the term "Stock" shall not include) more than 65% of the total combined
voting power of all classes of capital stock of any Foreign Corporation entitled
to vote.
"Termination Date" shall have the meaning provided in section
18(a).
2.2 Representations and Warranties as to Collateral Initially
Pledged Hereunder. Each Pledgor represents and warrants that on the date hereof:
(a) each Subsidiary of such Pledgor and the direct ownership
thereof is listed on Annex A hereto;
(b) the Stock owned by it consists of the number and type of
shares of the stock of the corporations as described in Annex B hereto;
(c) such Pledgor is the holder of record with respect to any
such Subsidiary and sole beneficial owner of such Stock;
(d) such Stock constitutes that percentage of the issued and
outstanding capital stock of the issuing corporation as is set forth in Annex B
hereto;
4
<PAGE>
(e) the Notes held by such Pledgor consist of the promissory
notes described in Annex C hereto;
(f) the Equity Interests held by such Pledgor constitutes that
percentage of the entire interest of each Pledged Entity as is set forth on
Annex D hereto; and
(g) on the date hereof, such Pledgor owns or possesses no
other Securities or Equity Interests.
3. PLEDGE OF SECURITIES, GRANT OF SECURITY INTERESTS, ETC.
3.1 Pledge. To secure the Obligations and for the purposes set forth in
section 1, each Pledgor hereby pledges and grants to the Pledgee a first
priority continuing security interest in, and as part of such grant and pledge,
hereby transfers and assigns to the Pledgee all of the following whether now
existing or hereafter acquired (collectively, the "Collateral"):
(a) such Pledgor's Equity Interest and all of such Pledgor's
right, title and interest in each Pledged Entity including, without limitation:
(i) all the capital thereof and its interest in all
profits, losses and other distributions to which such Pledgor shall at
any time be entitled in respect of such Equity Interest;
(ii) all other payments due or to become due to such
Pledgor in respect of such Equity Interest, whether under any
partnership agreement, limited liability company agreement or
otherwise, whether as contractual obligations, damages, insurance
proceeds or otherwise;
(iii) all of its claims, rights powers, privileges,
authority, options, security interests, liens and remedies, if any,
under any partnership agreement, limited liability company agreement or
at law or otherwise in respect of such Equity Interest;
(iv) all present and future claims if any, of the
Pledgor against any Pledged Entity for moneys loaned or advanced, for
services rendered or otherwise;
(v) all of such Pledgor's rights under any
partnership agreement, limited liability company agreement or at law to
exercise and enforce every right, power, remedy, authority, option and
privilege of such Pledgor relating to the Equity Interest including any
power to terminate, cancel or modify any partnership agreement or
limited liability company agreement, to execute any instruments and to
take any and all other action on behalf of and in the name of such
Pledgor in respect of the Equity Interest and any Pledged Entity, to
make determinations, to exercise any election (including, but not
limited to, election of remedies) or option or to give or receive any
notice, consent, amendment,
5
<PAGE>
waiver or approval, together with full power and authority to demand,
receive, enforce, collect or receipt for any of the foregoing, to
enforce or execute any checks, or other instruments or orders, to file
any claims and to take any action in connection with any of the
foregoing;
(vi) all other property hereafter delivered in
substitution for or in addition to any of the foregoing, all
certificates and instruments representing or evidencing such other
property and all cash, securities, interest, distributions, dividends,
rights and other property at any time and from time to time received,
receivable or otherwise distributed in respect of or in exchange for
any or all thereof; and
(vii) to the extent not otherwise included, all
proceeds of any or all of the foregoing;
(b) all Securities owned by such Pledgor on the date hereof, if any,
and such Pledgor hereby pledges and deposits as security with the Pledgee and
delivers to the Pledgee certificates or instruments therefor duly endorsed in
blank in the case of Notes and accompanied by undated stock powers duly executed
in blank by such Pledgor in the case of Stock, or such other instruments of
transfer as are acceptable to the Pledgee; and
(c) all of such Pledgor's right, title and interest in and to such
Securities (and in and to all certificates or instruments evidencing such
Securities), which such Pledgor hereby assigns, transfers, hypothecates,
mortgages, charges and sets over to the Pledgee;
all of which Collateral is to be held and dealt with by the Pledgee upon the
terms and conditions set forth in this Agreement.
3.2 Subsequently Acquired Securities and Equity Interests. If a Pledgor shall
acquire (by purchase, stock dividend or otherwise) any additional Securities
and/or Equity Interests at any time or from time to time after the date hereof
which are represented by certificates or instruments, such Pledgor will
forthwith pledge and deposit such Securities and/or Equity Interests as security
with the Pledgee and deliver to the Pledgee certificates or instruments thereof,
duly endorsed in blank in the case of Notes and accompanied by undated stock
powers duly executed in blank in the case of Stock, by such Pledgor or such
other instruments of transfer as are acceptable to the Pledgee, and will
promptly thereafter deliver to the Pledgee a certificate executed by a principal
executive officer of such Pledgor describing such Securities and/or Equity
Interests and certifying that the same have been duly pledged with the Pledgee
hereunder. No Pledgor shall be required at any time to pledge hereunder any
Stock which is more than 65% of the total combined voting power of all classes
of capital stock of any Foreign Corporation entitled to vote.
3.3 Uncertificated Securities and/or Equity Interests. Notwithstanding anything
to the contrary contained in sections 3.1 and 3.2, if any Securities and/or
Equity Interests (whether or
6
<PAGE>
not now owned or hereafter acquired) are uncertificated securities, a Pledgor
shall promptly notify the Pledgee thereof, and shall promptly take all actions
required to perfect the security interest of the Pledgee under applicable law
(including, any event, under sections 8-313 and 8-321 of the Uniform Commercial
Code if applicable). Each Pledgor further agrees to take such actions as the
Pledgee deems reasonably necessary or desirable to effect the foregoing and to
permit the Pledgee to exercise any of its rights and remedies hereunder, and
agrees to provide an opinion of counsel reasonably satisfactory to the Pledgee
with respect to any such pledge of uncertificated securities and/or Equity
Interests promptly upon the request of the Pledgee.
4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC.
The Pledgee shall have the right to appoint one or more sub-agents for
the purpose of retaining physical possession of the Pledged Securities, which
may be held (in the discretion of the Pledgee) in the name of the relevant
Pledgor, endorsed or assigned in blank or in favor of the Pledgee or any nominee
or nominees of the Pledgee or a sub-agent appointed by the Pledgee.
5. VOTING, ETC. WHILE NO EVENT OF DEFAULT.
Unless and until a Noticed Event of Default shall have occurred and be
continuing, each Pledgor shall be entitled to exercise all voting rights
attaching to any and all Collateral owned by it, and to give consents, waivers
or ratifications in respect thereof, provided that no vote shall be cast or any
consent, waiver or ratification given or any action taken which would violate,
result in breach of any covenant contained in or be inconsistent with, any of
the terms of this Agreement, any other Credit Document or any Designated Hedge
Agreement (collectively, the "Secured Debt Agreements"), or which would have the
effect of impairing the position or interests of the Pledgee or any Secured
Creditor therein. All such rights of such Pledgor to vote and to give consents
waivers and ratifications shall cease in ease a Noticed Event of Default shall
occur and be continuing and section 7 hereof shall become applicable.
6. DIVIDENDS AND OTHER DISTRIBUTIONS.
Unless and until a Noticed Event of Default shall have occurred and be
continuing, all cash dividends or other amounts payable in respect of the
Collateral shall be paid to the relevant Pledgor, provided that all dividends,
distributions or other amounts payable in respect of the Collateral which are
reasonably determined by the Pledgee to represent in whole or in part an
extraordinary, liquidating or other distribution in return of capital not
permitted by the Credit Agreement shall be paid to the extent so determined to
represent an extraordinary, liquidating or other distribution in return of
capital, to the Pledgee and retained by it as part of the Collateral (unless
such cash dividends and/or distributions are applied to repay the Obligations
pursuant to section 9 of this Agreement). The Pledgee shall also be entitled to
receive directly, and to retain as part of the Collateral:
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(i) all other or additional stock, other securities,
partnership interests, membership interests or property (other than
cash) paid or distributed by way of dividend or otherwise in respect of
the Collateral;
(ii) all other or additional stock, other securities,
partnership interests, membership interests or property (including
cash) paid or distributed in respect of the Collateral by way of
stocksplit, spin-off, split-up, reclassification, combination of shares
or similar rearrangement; and
(iii) all other or additional stock, other securities,
partnership interests, membership interests or property (including
cash) which may be paid in respect of the Collateral by reason of any
consolidation, merger, exchange of stock, conveyance of assets,
liquidation or similar corporate, partnership or limited liability
company reorganization.
All dividends, distributions or other payments which are received by any Pledgor
contrary to the provisions of this section 6 or section 7 shall be received in
trust for the benefit of the Pledgee, shall be segregated from other property or
funds of such Pledgor and shall be forthwith paid over to the Pledgee as
Collateral in the same form as so received (with any necessary endorsement).
7. REMEDIES IN CASE OF AN EVENT OF DEFAULT.
In case a Noticed Event of Default shall have occurred and be
continuing, the Pledgee shall be entitled to exercise all of the rights, powers
and remedies (whether vested in it by this Agreement or any other Secured Debt
Agreement or by law) for the protection and enforcement of its rights in respect
of the Collateral, including, without limitation all the rights and remedies of
a secured party upon default under the Uniform Commercial Code of the State of
New York, and the Pledgee shall be entitled, without limitation to exercise any
or all of the following rights which each Pledgor hereby agrees to be
commercially reasonable:
(i) to receive all amounts payable in respect of the
Collateral otherwise payable under section 6 to a Pledgor;
(ii) to transfer all or any part of the Collateral into the
Pledgee's name or the name of its nominee or nominees;
(iii) to accelerate by Pledged Note which may be accelerated
in accordance with its terms, and take any other lawful action to
collect upon any Pledged Note (including, without limitation, to make
any demand for payment thereon);
(iv) to vote all or any part of the Collateral (whether or not
transferred into the name of the Pledgee) and give as consents, waivers
and ratifications in respect of the Collateral and otherwise act with
respect thereto as though it were the outright owner
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thereof (each Pledgor hereby irrevocably constituting and appointing
the Pledgee the proxy and attorney-in-fact of such Pledgor, with full
power of substitution to do so); and
(v) at any time or from time to time to sell, assign and
deliver, or grant options to purchase, all or any part of the
Collateral, or any interest therein, at any public or private sale,
without demand of performance, advertisement or notice of intention to
sell or of the time or place of sale or adjournment thereof or to
redeem or otherwise (all of which are hereby waived by each Pledgor),
for cash, on credit or for other property, for immediate or future
delivery without any assumption of credit risk, and for such price or
prices and on such terms as the Pledgee in its absolute discretion may
determine, provided that at least 10 days' notice of the time and place
of any such sale shall be given to the relevant Pledgor; each purchaser
at any such sale shall hold the property so sold absolutely free from
any claim or right on the part of any Pledgor, and each Pledgor hereby
waives and releases to the fullest extent permitted by law any right or
equity of redemption with respect to the Collateral whether before or
after sale hereunder, all rights, if any, of marshaling the Collateral
and any other security for the Obligations or otherwise, and all
rights, if any, of stay and/or appraisal which it now has or may at any
time in the future have under rule of law or statute now existing or
hereafter enacted; at any such sale, unless prohibited by applicable
law, the Pledgee on behalf of all Secured Creditors (or certain of
them) may bid for and purchase (by bidding in Obligations or otherwise)
all or any part of the Collateral so sold free from any such right or
equity of redemption; and neither the Pledgee nor any Secured Creditor
shall be liable for failure to collect or realize Upon any or all of
the Collateral or for any delay in so doing nor shall it be under any
obligation to take any action whatsoever with regard thereto.
8. REMEDIES CUMULATIVE; PLEDGEE TO ACT FOR SECURED CREDITORS.
8.1 Remedies Cumulative, etc. Each right, power and remedy of the
Pledgee provided for in this Agreement or any other Secured Debt Agreement now
or hereafter existing at law or in equity or by statute shall be cumulative and
concurrent and shall be in addition to every other such right, power or remedy.
The exercise or beginning of the exercise by the Pledgee of any one or more of
the rights, powers or remedies provided for in this Agreement or any other
Secured Debt Agreement or now or hereafter existing at law or in equity or by
statute or otherwise shall not preclude the simultaneous or later exercise by
the Pledgee or any Secured Creditor of all such other rights, powers or
remedies, and no failure or delay on the part of the Pledgee or any Secured
Creditor to exercise any such right, power or remedy shall operate as a waiver
thereof. Unless otherwise required by the Credit Documents, no notice to or
demand upon any Pledgor in any case shall entitle it to any other or further
notice or demand in similar other circumstances or constitute a waiver of any of
the rights of the Pledgee or any other Secured Creditor to any other further
action in any circumstances without demand or notice.
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8.2 Pledgee to Act on Behalf of Secured Creditors. The Secured
Creditors agree by their acceptance of the benefits hereof that this Agreement
may be enforced on their behalf only by the action of the Pledgee, acting upon
the instructions of the Required Lenders (or, after all Credit Document
Obligations have been paid in full, instructions of the holders of at least the
majority of the outstanding Hedge Obligations) ant that no other Secured
Creditor shall have any right individually to seek to enforce or to enforce this
Agreement or to realize upon the security to be granted hereby, it being
understood and agreed that such rights and remedies may be exercised by the
Pledgee, for the benefit of the Secured Creditors, upon the terms of this
Agreement.
9. APPLICATION OF PROCEEDS.
(a) All moneys collected by the Pledgee Upon any sale or other
disposition of the Collateral pursuant to the terms of this Agreement, together
with all other moneys received by the Pledgee hereunder, shall be applied as
follows:
(i) first, to the payment of all Obligations owing to the
Pledgee or any of the Secured Creditors of the type described in
clauses (ii) and (iii) of section 1 of this Agreement;
(ii) second, to the extent monies remain after the application
pursuant to the preceding clause (i), an amount equal to the
outstanding Obligations shall be paid to the Secured Creditors as
provided in section 9(c), with each Secured Creditor receiving an
amount equal to its outstanding Obligations or, if the proceeds are
insufficient to pay in full all such Obligations, its Pro Rata Share
(as defined below) of the amount remaining to be distributed; and
(iii) third, to the extent monies remain after the application
pursuant to the preceding clauses (i) and (ii) or following the
termination of this Agreement pursuant to section 18(a) hereof, to the
relevant Pledgor or to whomever may be lawfully entitled to receive
such surplus.
(b) For purposes of this Agreement, "Pro Rata Share" shall mean, when
calculating a Secured Creditor's portion of any distribution or amount, the
amount (expressed as a percentage) equal to a fraction, the numerator of which
is the then outstanding amount of the relevant Obligations owed such Secured
Creditor and the denominator of which is the then outstanding amount of all
Obligations.
(c) All payments required to be made to the (i) Lenders hereunder shall
be made to the Administrative Agent for the account of the respective Lenders
and (ii) Hedge Creditors hereunder shall be made to the paying agent under the
applicable Designated Hedge Agreement or, in the case of Designated Hedge
Agreements without a paying agent, directly to the applicable Hedge Creditor.
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(d) For purposes of applying payments received in accordance with this
section 9, the Pledgee shall be entitled to rely upon (i) the Administrative
Agent for a determination (which the Administrative Agent agrees to provide upon
request to the Pledgee) of the outstanding Credit Document Obligations (as
defined in the Subsidiary Guaranty) and (ii) Upon any Hedge Creditor for a
determination (which each Hedge Creditor agrees to provide upon request to the
Pledgee) of the outstanding Hedge Obligations (as defined in the Subsidiary
Guaranty) owed to such Hedge Creditor. Unless it has actual knowledge (including
by way of written notice from a Secured Creditor) to the contrary, the
Administrative Agent under the Credit Agreement, in furnishing information
pursuant to the preceding sentence, and the Pledgee, in acting hereunder, shall
be entitled to assume that (x) no Credit Document Obligation other than
principal, interest and regularly accruing fees are owing to any Lender any (y)
no Designated Hedge Agreements or Hedge Obligations with respect thereto are in
existence.
(e) It is understood and agreed that each Pledgor shall remain liable
to the extent of any deficiency between (x) the amount of the proceeds of the
Collateral applied pursuant to clause (i) of section 9(a) and (y) the aggregate
outstanding amount of the Obligations.
10. PURCHASERS OF COLLATERAL.
Upon any sale of the Collateral by the Pledgee hereunder (whether by
virtue of the power of sale herein granted, pursuant to judicial process or
otherwise), the receipt of the Pledgee or the officer making the sale shall be a
sufficient discharge to the purchaser or purchasers of the Collateral so sold,
and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the Pledgee or such
officer or be answerable in any way for the misapplication or nonapplication
thereof.
11. INDEMNITY.
Each Pledgor jointly and severally agrees (i) to indemnify and hold
harmless the Pledgee and the Secured Creditors from and against any and all
claims, demands, losses, judgments and liabilities (including liabilities for
penalties) of whatsoever kind or nature, and (ii) to reimburse the Pledgee and
the Secured Creditors for all reasonable costs and expenses, including
reasonable attorneys' fees, growing out of, or resulting from this Agreement or
the exercise by the Pledgee of any right or remedy granted to it hereunder or
under any other Secured Debt Agreement except, with respect to clauses (i) and
(ii) above, for those arising from the Pledgee's gross negligence or willful
misconduct. In no event shall the Pledgee be liable, in the absence of gross
negligence or willful misconduct on its part, for any matter or thing in
connection with this Agreement other than to account for moneys or other
property actually received by it in accordance with the terms hereof or thereof.
If and to the extent that the obligations of each Pledgor under this Section 11
are unenforceable for any reason, each Pledgor hereby agrees to make the maximum
contribution to the payment and satisfaction of such obligations which is
permissible under applicable law.
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12. FURTHER ASSURANCES.
Each Pledgor agrees that it will join with the Pledgee in executing
and, at the Pledgor's own expense, file and refile under the Uniform Commercial
Code such financing statements, continuation statements and other documents in
such offices as the Pledgee may deem reasonably necessary or appropriate and
wherever required or permitted by law in order to perfect and preserve the
Pledgee's security interest in the Collateral hereunder and hereby authorizes
the Pledgee to file financing statements and amendments thereto relative to all
or any part of the Collateral without the signature of such Pledgor where
permitted by law, and agrees to do such further acts and things and to execute
and deliver to the Pledgee such additional conveyances, assignments, agreements
and instruments as the Pledgee may reasonably require or deem advisable to carry
into effect the purposes of this Agreement or to further assure and confirm unto
the Pledgee its rights, powers and remedies hereunder or thereunder.
13. THE PLEDGEE AS AGENT.
The Pledgee will hold in accordance with this Agreement all items of
the Collateral at any time received under this Agreement. It is expressly
understood and agreed that the obligations of the Pledgee as holder of the
Collateral and interests therein and with respect to the disposition thereof,
and otherwise under this Agreement, are only those expressly set forth in this
Agreement. The Pledgee shall act hereunder on the terms and conditions set forth
herein and in section 11 of the Credit Agreement.
14. TRANSFER BY THE PLEDGORS.
No Pledgor will sell or otherwise dispose of, grant any option with
respect to, or mortgage, pledge or otherwise encumber any of the Collateral or
any interest therein (except in accordance with the terms of this Agreement and
the Credit Documents).
15. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
PLEDGORS.
(a) Each Pledgor represents, warrants and covenants that:
(i) it is the legal, beneficial and record owner of, and has
good and marketable title to, all Securities pledged by it hereunder,
subject to no pledge, lien, mortgage, hypothecation, security interest,
charge, option or other encumbrance whatsoever, except the liens and
security interests created by this Agreement;
(ii) it has full power, authority and legal right to pledge
all the Securities pledged by it pursuant to this Agreement;
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(iii) all the shares of the Stock have been duly and validly
issued and are fully paid and nonassessable;
(iv) each of fee Notes, when executed by the obligor thereof
and pledged hereunder, will be the legal valid and binding obligation
of the obligor thereof, enforceable in accordance with its terms;
(v) it will defend the Pledgee's right, title and interest in
and to the Equity Interests and in and to the Collateral pledged by it
pursuant hereto or in which it has granted a security interest pursuant
hereto against the claims and demands of all other persons whomsoever,
and such Pledgor covenants and agrees that it will have like title to
and right to pledge any other property at any time hereafter pledged to
the Pledgee as Collateral hereunder and will likewise defend the right
thereto and security interest therein of the Pledgee;
(vi) it is the legal and beneficial owner of and has good
title to its Equity Interests and has good title to all of the other
Collateral pledged by it pursuant hereto or in which it has granted a
security interest pursuant hereto, free and clear of all claims,
pledges, liens, encumbrances and security interests of every nature
whatsoever, except such as are created pursuant to this Agreement, and
has the unqualified right to pledge and grant a security interest in
the same as herein provided without the consent of any other person,
firm, association or entity which has not been obtained;
(vii) it the full power, authority and legal right to pledge
the Equity Interests pledged by it pursuant to this Agreement and such
Equity Interest has been validly acquired and is fully paid for and is
duly and validly pledged hereunder;
(viii) it is not in default in the payment of any portion of
any mandatory capital contribution, if any, required to be made under
any partnership agreement or limited liability company agreement to
which such Pledgor is a party, and such Pledgor is not in violation of
any other material provisions of any partnership agreement or limited
liability company agreement to which such Pledgor is a party, or
otherwise in default or violation thereunder, no Equity Interest is
subject to any defense, offset or counterclaim, nor have any of the
foregoing been asserted or alleged against such Pledgor by any person
with respect thereto and as of the Initial Borrowing Date, there are no
certificates, instruments, documents or other writings (other than the
partnership agreements, limited liability company agreements, and
certificates, if any, delivered to the Collateral Agent) which evidence
any Equity Interest of such Pledgor;
(ix) the pledge and assignment of the Equity Interests
pursuant to this Agreement, together with the relevant filings consents
or recordings (which filings and recordings have been made or
obtained), creates a valid, perfected and continuing first security
interest in such Equity Interests and the proceeds thereof, subject to
no prior lien
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or encumbrance or to any agreement purporting to grant to any third
party a lien or encumbrance on the property or assets of such Pledgor
which would include the Collateral;
(x) there are no currently effective financing statements
under the UCC covering any property which is now or hereafter may be
included in the Collateral and such Pledgor will, without the prior
written consent of the Pledgee, execute and, until the Termination Date
(as hereinafter defined), there will not ever be on file in any public
office any enforceable financing statement or statements covering any
or all of the Collateral, except financing statements filed or to be
filed in favor of the Pledgee as secured party,
(xi) it shall give the Pledgee prompt notice of any written
claim relating to the Collateral and shall deliver to the Pledgee a
copy of each other demand, notice or document received by it which may
adversely affect the Pledgee's interest in the Collateral promptly
upon, but in any event within 10 days after, such Pledgor's receipt
thereof;
(xii) it shall not withdraw as a partner or member of any
Pledged Entity, or file or pursue or take any action which may,
directly or indirectly, cause a dissolution or liquidation of or with
respect to any Pledged Entity or seek a partition of any property of,
any Pledged Entity, except as permitted by the Credit Agreement; and
(xiii) a notice in the form set forth in Annex E attached
hereto and by this reference made a part hereof (such notice the
"Notice of Pledge"), appropriately completed, notifying each Pledged
Entity of the existence of this Agreement and a certified copy of this
Agreement have been delivered by such Pledgor to the relevant Pledged
Entity, and such Pledgor has received and delivered to the Pledgee an
acknowledgment in the form set forth in Annex E attached hereto (such
acknowledgment, the "Pledged Entity Acknowledgment") duly executed by
the relevant Pledged Entity.
(b) Each Pledgor covenants and agrees that it will defend the Pledgee's
right, title and security interest in and to the Collateral (including the
proceeds thereof) against the claims and demands of all persons whomsoever.
(c) Each Pledgor covenants and agrees that it will take no action which
would violate or be inconsistent with any of the terms of any Secured Debt
Agreement or which would have the effect of impairing the position or interests
of the Pledgee or any Secured Creditor under any Secured Debt Agreement except
as permitted by the Credit Agreement.
16. PLEDGORS' OBLIGATIONS ABSOLUTE, ETC.
The obligations of each Pledgor under this Agreement shall be absolute
and unconditional and shall remain in full force and effect without regard to,
and shall not be released, suspended, discharged, terminated or otherwise
affected by, any circumstance or occurrence whatsoever,
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including, without limitation:
(i) any renewal, extension, amendment or modification of, or
addition or supplement to or deletion from other Credit Documents or
any other Secured Debt Agreement, or any other instrument or agreement
referred to therein, or any assignment or transfer of any thereof;
(ii) any waiver, consent, extension, indulgence or other
action or inaction under or in respect of any such agreement or
instrument or this Agreement except as expressly provided in such
renewal, extension, amendment, modification, addition, supplement,
assignment or transfer;
(iii) any furnishing of any additional security to the Pledgee
or its assignee or any acceptance thereof or any release of any
security by the Pledgee or its assignee;
(iv) any limitation on any person's liability or obligations
under any such instrument or agreement or any invalidity or
unenforceability, in whole or in part, of any such instrument or
agreement or any term thereof; or
(v) any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other link proceeding relating
to a Pledgor or any Subsidiary of a Pledgor, or any action taken with
respect to this Agreement by any trustee or receiver, or by any court,
in any such proceeding, whether or not a Pledgor shall have notice or
knowledge of any of the foregoing.
17. REGISTRATION, ETC.
(a) If a Noticed Event of Default shall have occurred and be
continuing and the relevant Pledgor shall have received from the
Pledgee a written request or requests that such Pledgor cause any
registration, qualification or compliance under any Federal or state
securities law or laws to be effected with respect to all or any part
of the Stock of its Subsidiaries, such Pledgor as soon as practicable
and at its expense will use its best efforts to cause such registration
to be effected (and be kept effective) and will use its best efforts to
cause such qualification and compliance to be effected (and be kept
effective) as may be so requested and as would permit or facilitate the
sale and distribution of such Stock, including, without limitation,
registration under the Securities Act of 1933, as then in effect (or
any similar statute then in effect), appropriate qualifications under
applicable blue sky or other state securities laws and appropriate
compliance with any other governmental requirements, provided that the
Pledgee shall furnish to such Pledgor such information regarding the
Pledgee as such Pledgor may request in writing and as shall be required
in connection with any such registration, qualification or compliance.
The relevant Pledgor will cause the Pledgee to be kept reasonably
advised in writing as to the progress of each such registration,
qualification or compliance and as to the completion
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thereof, will furnish to the Pledgee such number of prospectuses,
offering circulars and other documents incident thereto as the Pledgee
from time to time may reasonably request, and will indemnify the
Pledgee and all others participating in the distribution of such Stock
against all claims, losses, damages or liabilities caused by any untrue
statement (or alleged untrue statement) of a material fact contained
therein (or in any related registration statement, notification or the
like) or by any omission (or alleged omission) to state therein (or in
any related registration statement, notification or the like) a
material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same may have
been caused by an untrue statement or omission based upon information
furnished in writing to such Pledgor by the Pledgee expressly for use
therein.
(b) If at any time when the Pledgee shall determine to exercise its
right to sell all or any part of the Pledged Stock; pursuant to section
7, such Pledged Stock or the part thereof to be sold shall not, for any
reason whatsoever, be effectively registered under the Securities Act
of 1933, as then in effect, the Pledgee may, in its sole and absolute
discretion, sell such Pledged Stock or part thereof by private sale in
such manner and under such Circumstances as Pledgee may deem necessary
or advisable in order that such sale may legally be effected without
such registration, provided that at least 10 days' notice of the time
and place of any such sale shall be given to the relevant Pledgor.
Without limiting the generality of the foregoing, in any such event the
Pledgee, in its sole and absolute discretion, (i) may proceed to make
such private sale notwithstanding that a registration statement for the
purpose of registering such Pledged Stock or part thereof shall have
been filed under such Securities Act, (ii) may approach and negotiate
with a single possible purchaser to effect such sale and (iii) may
restrict such sale to a purchaser who will represent and agree that
such purchaser is purchasing for its own account, for investment, and
not with a view to the distribution or sale of such Pledged Stock or
part thereof. In the event of any such sale, the Pledgee shall incur no
responsibility or liability to any Pledgor for selling all or any part
of the Pledged Stock at a price which the Pledgee may in good faith
deem reasonable under the circumstances, notwithstanding the
possibility that a substantially higher price might be realized if the
sale were deferred until the registration as aforesaid.
18. TERMINATION; RELEASE.
(a) After the Termination Date (as defined below), this Agreement shall
terminate (provided that indemnities set forth herein including, without
limitation, in section 11 hereof shall survive any such termination) and the
Pledgee, at the request and expense of the relevant Pledgor, will execute and
deliver to the relevant Pledgor a proper instrument or instruments acknowledging
the satisfaction and termination of this Agreement as provided above, and will
duly assign, transfer and deliver to the relevant Pledgor (without recourse and
without any representation or warranty) such of the Collateral as may be in the
possession of the Pledgee and as has not theretofore been sold or otherwise
applied or released pursuant to this Agreement, together with
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moneys at the time held by the Pledgee hereunder. As used in this Agreement,
"Termination Date" shall mean the date upon which the Total Commitment and all
Designated Hedge Agreements have been terminated, no Letter of Credit nor Note
under the Credit Agreement is outstanding and all other Obligations have been
paid in full.
(b) In the event that any part of the Collateral is sold in connection
with a sale permitted by section 9.2 of the Credit Agreement or is otherwise
released at the direction of the Required Lenders (or all the Lenders if
required by section 13.12 of the Credit Agreement), and the proceeds of such
sale or sales or from such release are to be applied in accordance with the
terms of the Credit Agreement to the extent required to be so applied, the
Pledgee, at the request and expense of such Pledgor will release such Collateral
from this Agreement, and will duly assign, transfer and deliver to such Pledgor
(without recourse and without any representation or warranty) such of the
Collateral as is then being (or has been) so sold or released and as may be in
possession of the Pledgee and has not theretofore been released pursuant to this
Agreement.
(c) At any time that a Pledgor desires that Collateral be released as
provided in the foregoing section 18(a) or (b), it shall deliver to the Pledgee
a certificate signed by an executive officer stating that the release of the
respective Collateral is permitted pursuant to section 18(a) or (b). The Pledgee
shall have no liability whatsoever to any Secured Creditor as the result of any
release of Collateral by it as permitted by this section 18.
19. NOTICES, ETC.
All notices and other communications hereunder shall be in writing and
shall be delivered or mailed by first class mail postage prepaid, addressed:
(i) if to any Pledgor, at its address specified in or pursuant
to the Subsidiary Guaranty,
(ii) if to the Pledgee, at:
KeyBank of New York,
as Collateral Agent
2 Gannett Drive
White Plains, New York 10604
Attn.: Brendan Sachjten
Senior Market Manager
Tel. No.: (914) 696-2161
Fax No.: (914) 694-8463;
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with copies to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attn.: John W. Sager, Esq.
Te1. No.: (216) 586-7228
Fax No.: (216) 579-0212
(iii) if to any Lender (other than the Pledgee), at such
address as such Lender shall have specified in the Credit Agreement;
(iv) if to any Hedge Creditor, at such address as such Hedge
Creditor shall have specified in writing to the Pledgors and the
Pledgee;
or at such address as shall have been furnished in writing by any person
described above to the party required to given notice hereunder.
20. WAIVER; AMENDMENT.
None of the terms and conditions of this Agreement may be changed,
waived, modified or varied in any manner whatsoever unless in writing duly
signed by each Pledgor and the Pledgee (with the consent of the Required Lenders
or, to the extent required by section 13.12 of the Credit Agreement all of the
Lenders); provided, however, that no such change, waiver, modification or
variance shall be made to section 9 hereof or this section 20 without the
consent of each Secured Creditor adversely affected thereby, provided further,
that any change, waiver, modification or variance affecting the rights and
benefits of a single Class of Secured Creditors (and not all Secured Creditors
in a like or similar manner) shall require the written consent of the Requisite
Creditors of such Class of Secured Creditors. For the purpose of this Agreement,
the term "Class" shall mean each class of Secured Creditors, i.e., whether (x)
the lenders as holders of the Credit Document Obligations or (y) the Hedge
Creditors as holders of the Hedge Obligations. For the purpose of this
Agreement, the term "Requisite Creditors" of any Class shall mean each of (x)
with respect to each of the Credit Document Obligations, the Required Lenders
and (y) with respect to the Hedge Obligations, the holders of 51% of all
obligations outstanding from time to time under the Designated Hedge Agreements.
21. PLEDGEE NOT BOUND.
(a) Nothing herein shall be construed to make the Pledgee liable as a
general partner or limited partner of any Pledged Entity or a shareholder of any
corporation, and the Pledgee by
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virtue of this Agreement or otherwise (except as referred to in the following
sentence) shall not have any of the duties, obligations or liabilities of a
general partner or limited partner of any Pledged Entity or a stockholder of any
corporation. The parties hereto expressly agree that, unless the Pledgee shall
become the absolute owner of a Equity Interest or Stock pursuant hereto, this
Agreement shall not be construed as creating a partnership or joint venture
among the Pledgee and/or a Pledgor.
(b) Except as provided in the last sentence of section 21(a), the
Pledgee, by accepting this Agreement, did not intent to become a general
partner, limited partner or member of any Pledged Entity or a shareholder of any
corporation or otherwise be deemed to be a co-venturer with respect to any
Pledgor or any Pledged Entity or a shareholder of any corporation either before
or after an Event of Default shall have occurred. The Pledgee shall have only
those powers set forth herein and shall assume none of the duties, obligations
or liabilities of a general partner or limited partner of any Pledged Entity or
of a Pledgor.
(c) The Pledgee shall not be obligated to perform or discharge any
obligation of a Pledgor as a result of the collateral assignment hereby
effected.
(d) The acceptance by the Pledgee of this Agreement, with all the
rights, powers, privileges and authority so created, shall not at any time or in
any event obligate the Pledgee to appear in or defend any action or proceeding
relating to the Collateral to which it is not a party, or to take any action
hereunder or thereunder, or to expend any money or incur any expenses or perform
or discharge any obligation duty or liability under the Collateral.
22. MISCELLANEOUS.
This Agreement shall create a continuing security interest in the
Collateral and shall (i) remain in full force and effect, subject to release
and/or termination as set forth in section 18, (ii) be binding upon each
Pledgor, its successors and assigns; provided, however, that no Pledgor shall
assign any of its rights or obligations hereunder without the prior written
consent of the Pledgee (with the prior written consent of the Required Lenders
or to the extent required by section 13.12 of the Credit Agreement, all of the
Lenders), and (iii) inure, together with the rights and remedies of the Pledgee
hereunder, to the benefit of the Pledgee, the Secured Creditors and their
respective successors, transferees and assigns. THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
The headings of the several sections and subsections in this Agreement are for
purposes of reference only and shall not limit or define the meaning hereof.
This Agreement may be executed in any number of counterparts, each of which
shall be an original, but all of which together shall constitute one instrument.
In the event that any provision of this Agreement shall prove to be invalid or
unenforceable, such provision shall be deemed to be severable from the other
provisions of this Agreement which shall remain binding on all parties hereto.
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23. WAIVER OF JURY TRIAL.
Each Pledgor and the Pledgee each hereby irrevocably waives all right
to a trial by jury in any action, proceeding or counterclaim arising out of or
relating to this Agreement or the transactions contemplated hereby.
20
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into by and
between Safety Components International, Inc., a Delaware corporation (the
"Company"), and Jeffrey J. Kaplan ("Employee") and is dated as of the 15th day
of February, 1997.
W I T N E S S E T H:
WHEREAS, the Company desires to employ Employee as its Executive Vice
President and Chief Financial Officer; and
WHEREAS, Employee desires to accept such employment upon the terms set
forth in the Agreement.
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the adequacy and
receipt of which is hereby acknowledged, the parties agree as follows:
1. Employment. The Company hereby employs Employee and Employee hereby
accepts employment with the Company, commencing as of February 15, 1997 (the
"Effective Date"), for the Term (as defined below), in the position and with the
duties and responsibilities set forth in Section 3 below, and upon the other
terms and subject to the conditions hereinafter stated.
2. Term. Except as otherwise specifically provided in Section 7 below,
the term of the Agreement (the "Term") shall commence on the Effective Date and
shall continue until the third (3rd) anniversary of the Effective Date, subject
to the terms and conditions of the Agreement.
3. Position, Duties, Responsibilities and Services.
3.1 Position, Duties and Responsibilities. During the Term, Employee
shall serve as Executive Vice President and Chief Financial Officer of the
Company and shall be responsible for the duties attendant to such offices, which
duties will be generally consistent with his position as an executive officer of
the Company, and such other managerial duties and responsibilities with the
Company, its subsidiaries or divisions as may be assigned by the Company's Chief
Executive Officer or the Board of Directors of the Company (the "Board").
Additionally, the Company will nominate and recommend Employee for election to
the Board for each fiscal year during the Term. Employee shall be subject to the
supervision and control of the Board and the provisions of the By-Laws of the
Company.
3.2 Services to be Provided. During the Term, Employee shall (i) devote
at least eighty percent (80%) of his working time, attention and energies to the
affairs of the Company and its subsidiaries and divisions, (ii) use his best
efforts to promote its and their
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best interests, (iii) faithfully and diligently perform his duties and
responsibilities hereunder, and (iv) comply with and be bound by the Company's
operational policies, procedures and practices as are from time to time in
effect during the Term. It shall be understood that, during the Term, Employee
shall devote the remaining portion of his working time, attention and energies
(not to exceed twenty percent (20%) to the affairs of Valentec International
Corporation ("Valentec") as its Executive Vice President and Chief Financial
Officer. The Agreement shall not be construed as preventing Employee from
serving as an outside director of any other company, from investing his assets
or from winding down certain business matters relating to his previous
employment, in each case, to the extent that it does not require a material
amount of his time and, in each case, subject to the non-competition obligations
contained in Section 9 below.
3.3 Domicile. During the Term, the Employee shall conduct his business
activities at a Company office located in the New York metropolitan area, it
being understood however, that business travel shall be required.
4. Compensation.
4.1 Base Salary. Employee shall be paid a base salary ("Base Salary")
at an annual rate of two hundred and twenty thousand dollars ($220,000) per
year, payable at such intervals as the other executive officers of the Company
are paid, but in any event at least on a monthly basis. The Base Salary shall be
reviewed by the Board on or before April 1 (the first day of the fiscal year of
the Company) of each year during the Term, based upon recommendations of the
Company's Chief Executive Officer, with such reviews to commence in 1998, and
shall be subject to increase in the sole discretion of the Board, taking into
account the recommendation of the Company's Chief Executive Officer, merit,
corporate and individual performance and general business conditions, including
changes in the cost of living index. Any such increase shall be retroactive to
the February 15 immediately preceding such review.
4.2 Bonus Compensation. Employee shall also be eligible for an annual
performance-related bonus ("Bonus Compensation") commencing with the Company's
fiscal year ended March 31, 1998 (the "1998 Fiscal Year). For the 1998 Fiscal
Year, the Company shall pay Employee Bonus Compensation of a minimum of $30,000.
The Bonus Compensation of Employee, if any, for each fiscal year of the Term,
including any amount in excess of the $30,000 minimum amount for the 1998 Fiscal
Year, shall be determined by the Board, in its sole discretion, taking into
account the recommendation of the Company's Chief Executive Officer, and may be
paid in cash and/or capital stock of the Company in the Board's sole discretion.
The Company shall pay the Bonus Compensation to Employee for each fiscal year of
the Term within thirty (30) days of the completion by the Company's accountants
of their audit of the Company's financial statements for such fiscal year.
4.3 Stock Options. The Company hereby agrees to cause the issuance to
Employee of stock options ("Stock Options") to purchase shares of common stock,
$.01 par value, of the Company ("Common Stock") in accordance with the following
schedule: (i) Stock
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Options to purchase 125,000 shares of Common Stock to be issued on February 15,
1997; (ii) Stock Options to purchase 50,000 shares of Common Stock to be issued
on April 1, 1997, unless Employee is not, for any reason, an employee of the
Company on such date; and (iii) Stock Options to purchase 50,000 Shares of
Common Stock to be issued on April 1, 1998, unless Employee is not, for any
reason, an employee of the Company on such date. All such Stock Options shall be
issued pursuant to, and in accordance with, the Company's 1994 Stock Option Plan
(the "Plan"). The Company shall submit for approval of its Shareholders at the
next annual meeting of Shareholders of the Company, any increase in the shares
authorized under the Plan as may be necessary for issuance of the Stock Options
to be granted hereunder. The maximum number of such Stock Options shall be
qualified stock options under the Plan as would not cause a disqualification
under applicable Internal Revenue Code Sections or regulations thereunder, and
the remainder of such Stock Options shall be non-qualified stock options under
the Plan. Each Stock Option shall be exercisable at a price equal to the Fair
Market Value (as defined in the Plan) of the Common Stock on the date of
issuance of such Stock Option (or if such date is not a business day, than such
option shall be exercisable at a price equal to the Fair Market Value on the
next business day following such date) in accordance with the terms of the Plan
and shall vest over a four year period from the date of grant at a rate of 25%
per year, commencing with the first anniversary of the date of grant. Employee's
vested Stock Options shall be exercisable for a period of ten years from the
date of issuance. Upon the termination of the Agreement, any unvested Stock
Options shall lapse, except as otherwise provided in Section 7 below, and
Employee shall have ninety (90) days from the date of termination of his
employment with the Company, for any reason, to exercise any vested Stock
Options (one year in the case of termination by reason of death or disability of
Employee).
5. Employee Benefits.
5.1 Benefit Programs. During the Term, Employee shall be entitled to
participate in and receive benefits generally made available now or hereafter to
executive officers of the Company under all benefit programs, arrangements or
perquisites of the Company including, but not limited to, pension and other
retirement plans, hospitalization, surgical, dental and major medical coverage.
In addition, Employee shall be entitled to short and long term disability
benefits at least comparable to those made available to the previous Chief
Financial Officer of the Company.
5.2 Vacation. During the Term, Employee shall be entitled to four (4)
weeks vacation with pay during each year of his employment hereunder consistent
with his position as an executive officer of the Company (pro-rated as necessary
for partial calendar years during the Term); provided, however, that the
vacation days taken do not interfere with the operations of the Company. Such
vacation may be taken, in Employee's discretion, at such time or times as are
not inconsistent with the reasonable business needs of the Company. Employee
shall not be entitled to any additional compensation in the event that Employee,
for whatever reason, fails to take such vacation during any year of his
employment hereunder. Employee shall also be entitled to all paid holidays given
by the Company to its executive officers.
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5.3 Life Insurance. Subject to the availability on commercially
reasonable terms, during the Term, the Company shall maintain in effect and pay
the premiums for a term life insurance policy covering Employee in an amount
equal to two million dollars ($2,000,000) (the "Life Insurance Amount"), the
beneficiary of which shall be designated by Employee.
5.4 Automobile. During the Term, the Company shall lease and provide
the Employee with an appropriate automobile, and pay or reimburse Employee for
all expenses relating to the insurance, maintenance and operation thereof. The
total cost borne by the Company under this Section 5.4 shall be approximately
$1,200 per month, unless a greater amount is approved by the Company's Chief
Executive Officer.
6. Expenses. During the Term, the Company shall reimburse Employee upon
presentation of appropriate vouchers or receipts and in accordance with the
Company's expense reimbursement policies for executive officers, for all
reasonable travel and entertainment expenses (other than automobile expenses)
incurred by Employee in connection with the performance of his duties under the
Agreement.
7. Consequences of Termination of Employment.
7.1 Death. In the event of the death of Employee during the Term,
Employee's employment hereunder shall be terminated as of the date of his death
and Employee's designated beneficiary, or, in the absence of such designation,
the estate or other legal representative of the Employee (collectively, the
"Estate") shall be paid, in addition to any life insurance proceeds pursuant to
Section 5.3 above, Employee's unpaid Base Salary through the month in which the
death occurs and any unpaid Bonus Compensation which is set forth in this
Agreement or thereafter approved by the Company's Board (taking into account the
recommendation of the Company's Chief Executive Officer) for any fiscal year
which has ended as of the date of such termination or which was at least one
half (1/2) completed as of the date of death. In the case of such incomplete
fiscal year, the Bonus Compensation shall be pro-rated and all such Bonus
Compensation payable as a result of this Section 7.1 shall be otherwise payable
as set forth in Section 4.2 above. The Estate shall be entitled to all other
death benefits in accordance with the terms of the Company's benefit programs
and plans.
7.2 Disability. In the event Employee shall be unable to render the
services or perform his duties hereunder by reason of illness, injury or
incapacity (whether physical, mental, emotional or psychological) for a period
of either (i) ninety (90) consecutive days or (ii) one hundred eighty (180) days
in any consecutive three hundred sixty-five (365) day period, the Company shall
have the right to terminate this Agreement by giving Employee ten (10) days'
prior written notice. If Employee's employment hereunder is so terminated,
Employee shall be paid, in addition to payments under any disability insurance
policy in effect, Employee's unpaid Base Salary through the month in which such
termination occurs, plus Bonus Compensation on the same basis as is set forth in
Section 7.1 above.
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7.3 Termination of Employment of Employee by the Company for Cause.
Nothing herein shall prevent the Company from terminating Employee's employment
under the Agreement for Cause (as defined below). In the event Employee is
terminated for Cause, Employee shall be paid his unpaid Base Salary (but no
Bonus Compensation) through the month in which such termination occurs. The term
"Cause" as used herein, shall mean (i) Employee's willful misconduct, material
dishonesty or fraud in the performance of his duties hereunder, (ii) the
continued failure or refusal of Employee (following written notice thereof) to
carry out any reasonable request of the Company's Chief Executive Officer or
Board for the provision of services hereunder, (iii) the material breach of the
Agreement by Employee or (iv) the entering of a plea of guilty or nolo
contendere to, or the conviction of Employee of, a felony or any other criminal
act involving moral turpitude, dishonesty, theft or unethical business conduct.
For purposes of this Section 7.3, no act or omission shall be considered willful
unless done or omitted to be done in bad faith and without reasonable belief
that such act or omission was in the best interest of the Company.
Termination of employment of Employee pursuant to this Section 7.3
shall be made by delivery to Employee of a letter from the Board generally
setting forth a description of the conduct which provides the basis for a
termination of employment of Employee for Cause; provided, however, that, prior
to the termination of the Agreement for a basis set forth in Sections 7.3(ii) or
7.3(iii) above (which is capable of being cured), Employee shall be given notice
of the basis for termination by the Company and a reasonable opportunity to cure
such breach.
7.4 Termination of Employment Other than for Cause, Death or
Disability.
(a) Termination. The Agreement may be terminated (i) by the
Company (in addition to termination pursuant to Sections 7.1, 7.2 or 7.3 above)
at any time and for any reason, (ii) by the Employee at any time and for any
reason or (iii) upon the expiration of the Term.
(b) Severance and Non-Competition Payments.
(1) If the Agreement is terminated by the Company, including
by reason of a Constructive Termination (as defined below), other than as a
result of death or disability of Employee or for Cause (and other than in
connection with a change in control of the Company (as defined below)), the
Company shall pay Employee a severance and noncompetition payment equal to the
sum of (x) an amount equal to the Base Salary for the remainder of the Term plus
(y) an amount equal to the Bonus Compensation earned by the Employee in respect
of the last year immediately preceding the year of termination, multiplied by
the number of years remaining in the Term (including, in the case of a partial
year, the fraction of such year which is remaining); provided; however, that a
termination during the last twelve (12) months of the Term shall be governed by
Subsection 7.4(b)(5) below. Such severance and non-competition payment shall be
payable in equal monthly installments commencing on the first day of the month
following termination and shall continue for the remainder of the Term.
(2) For purposes of the Agreement, a "change in control of the
Company" shall be deemed to have occurred if (i) the Company shall have merged
or consolidated with an unaffiliated entity or the Company shall have
transferred or sold all or substantially all of its assets to an unaffiliated
entity, other than a transaction which is approved by Employee in his capacity
as director or shareholder of the Company, or (ii) there shall be a change in
the constituency of a majority of the members of the Board within any twelve
(12) month period, other than a change which Employee voted in favor of in his
capacity as a director or shareholder of the Company.
(3) For purposes of the Agreement, a "Constructive
Termination" shall be deemed to have occurred upon (i) the removal of Employee
from or a failure of Employee to continue as Executive Vice President and Chief
Financial Officer of the Company, (ii) any material diminution in the nature or
scope of the authorities, powers, functions, duties or responsibilities attached
to such positions, (iii) the breach by the Company of the domicile provision
contained in Section 3.3 hereof, or (iv) the material breach by the Company of
the Agreement if, in any such case, the Employee does not agree to such change
and elects to terminate his employment.
(4) In the event of a termination of employment by the Company
following a change in control of the Company (including by reason of a
Constructive Termination), the Company shall pay the Employee a severance and
non-competition payment equal to two (2) times the sum of the Base Salary plus
the Bonus Compensation in respect of the year immediately preceding the year of
termination. Such severance and non-competition payment shall be payable in a
lump sum on the first day of the month following the termination. In addition,
all unvested Stock Options which were granted prior to the date of termination
shall be deemed to have vested on the date of such change in control.
(5) If this Agreement is not renewed beyond the Term by the
parties hereto or if the Agreement is terminated by the Company (other than as a
result of death or disability of Employee or for Cause and other than in
connection with a change in control), including by reason of a Constructive
Termination, in accordance with this Section 7 during the last twelve (12)
months of the Term, the Company shall pay Employee a severance and
noncompetition payment equal to the sum of (x) an amount equal to the Base
Salary in respect of the year immediately preceding the year of termination plus
(y) an amount equal to the Bonus Compensation earned by Employee in respect of
the year immediately preceding the year of termination. Such severance and
non-competition payment shall be payable in twelve (12) equal monthly
installments commencing on the first day of the month following termination. In
addition, all unvested Stock Options shall be deemed to have vested on the date
of such termination.
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(6) If Employee terminates his employment voluntarily prior to
the expiration of the Term, Employee shall be paid his unpaid Base Salary (but
no Bonus Compensation) through the month in which the voluntary termination
occurs.
(7) The Employee shall not be required to mitigate the amount
of any severance and non-competition payment provided for under the Agreement by
seeking other employment or otherwise.
8. Confidential Information.
8.1 The Employee agrees not to use, disclose or make accessible to any
other person, firm, partnership, corporation or any other entity any
Confidential Information (as defined below) pertaining to the business of the
Company or Valentec except (i) while employed by the Company or Valentec, in the
business of and for the benefit of the Company or Valentec or (ii) when required
to do so by a court of competent jurisdiction, by any governmental agency having
supervisory authority over the business of the Company or Valentec, or by any
administrative body or legislative body (including a committee thereof) with
jurisdiction to order the Company or Valentec to divulge, disclose or make
accessible such information. For purposes of the Agreement, "Confidential
Information" shall mean non-public information concerning the Company's or
Valentec's financial data, statistical data, strategic business plans, product
development (or other proprietary product data), customer and supplier lists,
customer and supplier information, information relating to governmental
relations, discoveries, practices, processes, methods, trade secrets, marketing
plans and other non-public, proprietary and confidential information of the
Company or Valentec, that, in any case, is not otherwise generally available to
the public and has not been disclosed by the Company or Valentec to others not
subject to confidentiality agreements. In the event Employee's employment is
terminated hereunder for any reason, he immediately shall return to the Company
or Valentec all Confidential Information in his possession.
8.2 The Employee and the Company agree that the covenant regarding
confidential information contained in this Section 8 is a reasonable covenant
under the circumstances, and further agree that if, in the opinion of any court
of competent jurisdiction, such covenant is not reasonable in any respect, such
court shall have the right, power and authority to excise or modify such
provision or provisions of this covenant as to the court shall appear not
reasonable and to enforce the remainder of the covenant as so amended. The
Employee agrees that any breach of the covenant contained in this Section 8
would irreparably injure the Company or Valentec, as the case may be.
Accordingly, the Employee agrees that the Company and/or Valentec, in addition
to pursuing any other remedies it may have in law or in equity, may obtain an
injunction against the Employee from any court having jurisdiction over the
matter, restraining any further violation of this Section 8.
8.3 The provisions of this Section 8 shall extend for the Term and
shall survive the termination of the Agreement for the greater of (x) the period
in which severance and
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non-competition payments are made pursuant to the Agreement or (y) two years
from the date the Agreement is terminated.
9. Non-Competition; Non-Solicitation.
9.1 The Employee agrees that, during the Non-Competition Period (as
defined in Section 9.4 below), without the prior written consent of the Company
or Valentec, as the case may be: (i) he shall not, directly or indirectly,
either as principal manager, agent, consultant, officer, director, greater than
two (2 %) percent holder of any class or series of equity securities, partner,
investor, lender or employee or in any other capacity, carry on, be engaged in
or have any financial interest in or otherwise be connected with, any entity
which is now or at the time, has material operations which are engaged in any
business activity competitive (directly or indirectly) with the business of the
Company (currently the manufacture and sale of (i) automotive airbags and (ii)
military ordnance products) or Valentec including, for these purposes, any
business in which, at the termination of his employment, there was a bona fide
intention on the part of the Company or Valentec to engage in the future; and
(ii) he shall not, on behalf of any competing entity, directly or indirectly,
have any dealings or contact with any suppliers or customers of the Company or
Valentec.
9.2 During the Non-Competition Period, Employee agrees that, without
the prior written consent of the Company or Valentec, as the case may be, (and
other than on behalf of the Company or Valentec), Employee shall not, on his own
behalf or on behalf of any person or entity, directly or indirectly hire or
solicit the employment of any employee who has been employed by the Company or
Valentec at any time during the one (1) year period immediately preceding such
date of hiring or solicitation.
9.3 The Employee and the Company agree that the covenants of non-
competition and non-solicitation contained in this Section 9 are reasonable
covenants under the circumstances, and further agree that if, in the opinion of
any court of competent jurisdiction such covenants are not reasonable in any
respect, such court shall have the right, power and authority to excise or
modify such provision or provisions of these covenants as to the court shall
appear not reasonable and to enforce the remainder of these covenants as so
amended. The Employee agrees that any breach of the covenants contained in this
Section 9 would irreparably injure the Company or Valentec, as the case may be.
Accordingly, the Employee agrees that the Company, or Valentec, as the case may
be, in addition to pursuing any other remedies it may have in law or in equity,
may obtain an injunction against the Employee from any court having jurisdiction
over the matter, restraining any further violation of this Section 9.
9.4 The provisions of this Section 9 shall extend for the Term and
survive the termination of the Agreement for the greater of (x) one year from
the date of such termination and (y) the period in which severance and
non-competition payments are made to Employee pursuant to this Agreement (herein
referred to as the "Non-Competition Period").
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10. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given if delivered personally or sent
by facsimile transmission, overnight courier, or certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally or sent by facsimile transmission (provided that a
confirmation copy is sent by overnight courier), one day after deposit with an
overnight courier, or if mailed, five (5) days after the date of deposit in the
United States mails, as follows:
To the Company: Safety Components International, Inc.
3190 Pullman Street
Costa Mesa, California 92626
Telephone: (714) 662-7756
Telecopy: (714) 662-7649
Attention: Chief Executive Officer
or to its principal executive offices as set forth on the cover page of its
latest filing with the Securities and Exchange Commission, if different.
To Employee: Jeffrey J. Kaplan
39 Hudson Avenue
Nyack, New York 10960
or to such other address as is reflected in the Company's records as the
Employee's principal residence.
11. Entire Agreement. This Agreement contains the entire agreement
between the parties hereto with respect to the matters contemplated herein and
supersedes all prior agreements or understandings among the parties related to
such matters.
12. Binding Effect. Except as otherwise provided herein, the Agreement
shall be binding upon and inure to the benefit of the Company and its successors
and assigns and upon Employee. "Successors and assigns" shall mean, in the case
of the Company, any successor pursuant to a merger, consolidation, or sale, or
other transfer of all or substantially all of the assets or capital stock of the
Company.
13. No Assignment. Except as contemplated by Section 12 above, the
Agreement shall not be assignable or otherwise transferable by either party.
14. Amendment or Modification; Waiver. No provision of the Agreement
may be amended or waived unless such amendment or waiver is authorized by the
Board and is agreed to in writing, signed by Employee and by a duly authorized
officer of the Company. Except as otherwise specifically provided in this
Agreement, no waiver by either party hereto of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
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other party shall be deemed a waiver of a similar or dissimilar provision or
condition at the same or at any prior or subsequent time.
15. Fees and Expenses. If either party institutes any action or
proceedings to enforce any rights the party has under this Agreement, or for
damages by reason of any alleged breach of any provision of this Agreement, or
for a declaration of each party's rights or obligations hereunder or to set
aside any provision hereof, or for any other judicial remedy, the prevailing
party shall be entitled to reimbursement from the other party for its costs and
expenses incurred thereby, including but not limited to, reasonable attorneys'
fees and disbursements.
16. Governing Law. The validity, interpretation, construction,
performance and enforcement of this Agreement shall be governed by the internal
laws of the State of New York, without regard to its conflicts of law rules.
17. Titles. Titles to the Sections in this Agreement are intended
solely for convenience and no provision of this Agreement is to be construed by
reference to the title of any Section.
18. Counterparts. This Agreement may be executed in one or more
counterparts, which together shall constitute one agreement. It shall not be
necessary for each party to sign each counterpart so long as each party has
signed at least one counterpart.
19. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of the
Agreement or affecting the validity or enforceability of any of the terms and
provisions of the Agreement in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first set forth above.
SAFETY COMPONENTS INTERNATIONAL, INC.
By:
-------------------------------------
Name: Robert A. Zummo
Title: President and Chief Executive Officer
-------------------------------------
Jeffrey J. Kaplan
9
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into by
and between Safety Components International, Inc., a Delaware corporation (the
"Company"), and Thomas W. Cresante ("Employee") and is dated as of the 19th day
of May, 1997.
W I T N E S S E T H:
WHEREAS, the Company desires to employ Employee as its
Executive Vice President and Chief Operating Officer; and
WHEREAS, Employee desires to accept such employment upon the
terms set forth in the Agreement.
NOW THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
adequacy and receipt of which is hereby acknowledged, the parties agree as
follows:
1. Employment. The Company hereby employs Employee and
Employee hereby accepts employment with the Company, commencing as of May 19,
1997 (the "Effective Date"), for the Term (as defined below), in the position
and with the duties and responsibilities set forth in Section 3 below, and upon
the other terms and subject to the conditions hereinafter stated.
2. Term. Except as otherwise specifically provided in Section
7 below, the term of the Agreement (the "Term") shall commence on the Effective
Date and shall continue until the third (3rd) anniversary of the Effective Date,
subject to the terms and conditions of the Agreement.
3. Position, Duties, Responsibilities and Services; No
Violation
3.1 Position, Duties and Responsibilities. During the Term,
Employee shall serve as Executive Vice President and Chief Operating Officer of
the Company and shall be responsible for the duties attendant to such offices,
which duties will be generally consistent with his position as an executive
officer of the Company, and such other managerial duties and responsibilities
with the Company, its subsidiaries or divisions as may be assigned by the
Company's Chief Executive Officer or the Board of Directors of the Company (the
"Board"). Employee shall be subject to the supervision and control of the
Company's Chief Executive Officer and Board and the provisions of the By-Laws of
the Company.
3.2 Services to be Provided. During the Term, Employee shall
(i) devote at least eighty percent (80%) of his working time, attention and
energies to the affairs of
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the Company and its subsidiaries and divisions, (ii) use his best efforts to
promote its and their best interests, (iii) faithfully and diligently perform
his duties and responsibilities hereunder, and (iv) comply with and be bound by
the Company's operational policies, procedures and practices as are from time to
time in effect during the Term. It shall be understood that, during the Term,
Employee shall devote the remaining portion of his working time, attention and
energies (not to exceed twenty percent (20%) to the affairs of Valentec
International Corporation ("Valentec") as its Executive Vice President and Chief
Operating Officer; provided, however, that the Company may at any time in its
sole discretion terminate this provision and require that Employee devote one
hundred percent (100%) of his working time to the Company. The Agreement shall
not be construed as preventing Employee from serving as an outside director of
any other company or from investing his assets, in each case, to the extent that
it does not require a material amount of his time and, in each case, subject to
the non-competition obligations contained in Section 9 below.
3.3 No Violation. Employee represents and warrants to the
Company that the execution, delivery and performance of the
Agreement by Employee will not breach, violate, conflict with, or cause a
default under, any other agreement to which he is a party. Notwithstanding
anything to the contrary contained herein, the representation contained in the
preceding sentence shall survive any termination or expiration of the Agreement.
4. Compensation.
4.1 Base Salary. Employee shall be paid a base salary ("Base
Salary") at an annual rate of two hundred and thirty-five thousand dollars
($235,000) per year, payable at such intervals as the other executive officers
of the Company are paid, but in any event at least on a monthly basis. The Base
Salary shall be reviewed by the Board on or before April 1 (the first day of the
fiscal year of the Company) of each year during the Term, based upon
recommendations of the Company's Chief Executive Officer, with such reviews to
commence in 1998, and shall be subject to increase in the sole discretion of the
Board, taking into account the recommendation of the Company's Chief Executive
Officer, merit, corporate and individual performance and general business
conditions, including changes in the cost of living index. Any such increase
shall be retroactive to the anniversary of the Effective Date immediately
preceding such review.
4.2 Bonus Compensation. Employee shall also be eligible for an
annual performance-related bonus ("Bonus Compensation") commencing with the
Company's fiscal year ended March 31, 1998 (the "1998 Fiscal Year"). For the
1998 Fiscal Year, the Company shall pay Employee Bonus Compensation of a minimum
of fifty thousand dollars ($50,000). The Bonus Compensation of Employee, if any,
for each fiscal year of the Term, including any amount in excess of the $50,000
minimum amount for the 1998 Fiscal Year, shall be determined by the compensation
committee of the Board ("Compensation Committee"), in its sole discretion,
taking into account the recommendation of the Company's Chief Executive Officer,
and may be paid in cash and/or capital stock of the Company in the sole
discretion of the Board. Bonus
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Compensation shall be based upon the achievement of certain numerate and
non-numerate performance objectives to be established for each fiscal year which
entitle Employee to Bonus Compensation targeted at fifty percent (50%) of the
Base Salary of Employee. The Company shall pay the Bonus Compensation to
Employee, if any, for each fiscal year of the Term within thirty (30) days of
the completion by the Company's accountants of their audit of the Company's
financial statements for such fiscal year.
4.3 Stock Options. On the Effective Date, the Company hereby
agrees to cause the issuance to Employee of stock options ("Stock Options") to
purchase shares of common stock, $.01 par value, of the Company ("Common Stock")
as follows: Stock Options to purchase 225,000 shares of Common Stock to be
issued on the Effective Date ("Base Stock Options"). Employee will also be
eligible for consideration of additional stock options during each year of the
Term, as determined by the Compensation Committee, in its sole discretion
("Additional Stock Options"). All Base Stock Options and any Additional Stock
Options shall be issued pursuant to, and in accordance with, the Company's 1994
Stock Option Plan (the "Plan"). The issuance of the Base Stock Options shall be
subject to approval of the Shareholders of the Company. The Company shall submit
for approval of its Shareholders at the next annual meeting of Shareholders of
the Company, any increase in the shares authorized under the Plan as may be
necessary for issuance of the Base Stock Options to be granted hereunder. The
maximum number of Base Stock Options shall be qualified stock options under the
Plan as would not cause a disqualification under applicable Internal Revenue
Code Sections or regulations thereunder, and the remainder of Base Stock Options
shall be non-qualified stock options under the Plan. Each Base Stock Option
shall be exercisable at a price equal to the Fair Market Value (as defined in
the Plan) of the Common Stock on the date of issuance of such Base Stock Option
(or if such date is not a business day, then such option shall be exercisable at
a price equal to the Fair Market Value on the next business day following such
date) in accordance with the terms of the Plan and shall vest over a three year
period from the date of grant at a rate of 331/3% per year, commencing with the
first anniversary of the date of grant. Employee's vested Base Stock Options
shall be exercisable for a period of ten years from the date of issuance. Upon
the termination of the Agreement, any unvested Base Stock Options shall lapse,
except as otherwise provided in Section 7 below, and Employee shall have ninety
(90) days from the date of termination of his employment with the Company, for
any reason, to exercise any vested Base Stock Options (one year in the case of
termination by reason of death or disability of Employee).
5. Employee Benefits.
5.1 Benefit Programs. During the Term, Employee shall be
entitled to participate in and receive benefits generally made available now or
hereafter to executive officers of the Company under all benefit programs,
arrangements or perquisites of the Company including, but not limited to,
pension and other retirement plans, including a 401(K) plan, hospitalization,
surgical, dental and major medical coverage and short and long term disability
benefits.
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5.2 Vacation. During the Term, Employee shall be entitled to
four (4) weeks vacation with pay during each year of his employment hereunder
consistent with his position as an executive officer of the Company (pro-rated
as necessary for partial calendar years during the Term); provided, however,
that the vacation days taken do not interfere with the operations of the
Company. Such vacation may be taken, in Employee's discretion, at such time or
times as are not inconsistent with the reasonable business needs of the Company.
Employee shall not be entitled to any additional compensation in the event that
Employee, for whatever reason, fails to take such vacation during any year of
his employment hereunder. Employee shall also be entitled to all paid holidays
given by the Company to its executive officers.
5.3 Life Insurance. Subject to the availability on
commercially reasonable terms, during the Term, the Company shall maintain in
effect and pay the premiums for a term life insurance policy covering Employee
in an amount equal to two million dollars ($2,000,000) (the "Life Insurance
Amount"), the beneficiary of which shall be designated by Employee.
5.4 Automobile. During the Term, the Company will provide
Employee with an automobile allowance of $1,200 per month for all expenses
relating to the insurance, maintenance and operation of Employee's automobile.
5.5 Country Club Membership. During the Term, the Company
will, promptly following the submission of documentation reasonably satisfactory
to the Company, reimburse Employee for annual membership and associated fees
paid by Employee during such fiscal year in the so-called "Gainey Ranch" country
club, or another equivalent country club.
6. Expenses. Upon submission by Employee of a bill from his
previous employer, the Company shall deliver to Employee's previous employer a
check made payable to such employer in the approximate amount of fifty-five
thousand dollars ($55,000), in order to repay advances received by Employee for
relocation and temporary living expenses. During the Term, the Company shall
reimburse Employee upon presentation of appropriate vouchers or receipts and in
accordance with the Company's expense reimbursement policies for executive
officers, for all reasonable travel and entertainment expenses (other than
automobile expenses) incurred by Employee in connection with the performance of
his duties under the Agreement.
7. Consequences of Termination of Employment.
7.1 Death. In the event of the death of Employee during the
Term, Employee's employment hereunder shall be terminated as of the date of his
death and Employee's designated beneficiary, or, in the absence of such
designation, the estate or other legal representative of the Employee
(collectively, the "Estate") shall be paid, in addition to any life insurance
proceeds pursuant to Section 5.3 above, Employee's unpaid Base Salary through
the month in which the death occurs and any unpaid Bonus Compensation which is
set forth in this Agreement or thereafter approved by the Company's Board
(taking into account the
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recommendation of the Company's Chief Executive Officer) for any fiscal year
which has ended as of the date of such termination or which was at least one
half (1/2) completed as of the date of death. In the case of such incomplete
fiscal year, the Bonus Compensation shall be pro-rated and all such Bonus
Compensation payable as a result of this Section 7.1 shall be otherwise payable
as set forth in Section 4.2 above. The Estate shall be entitled to all other
death benefits in accordance with the terms of the Company's benefit programs
and plans.
7.2 Disability. In the event Employee shall be unable to
render the services or perform his duties hereunder by reason of illness, injury
or incapacity (whether physical, mental, emotional or psychological) for a
period of either (i) ninety (90) consecutive days or (ii) one hundred eighty
(180) days in any consecutive three hundred sixty-five (365) day period, the
Company shall have the right to terminate this Agreement by giving Employee ten
(10) days' prior written notice. If Employee's employment hereunder is so
terminated, Employee shall be paid, in addition to payments under any disability
insurance policy in effect, Employee's unpaid Base Salary through the month in
which such termination occurs, plus Bonus Compensation on the same basis as is
set forth in Section 7.1 above.
7.3 Termination of Employment of Employee by the Company for
Cause. Nothing herein shall prevent the Company from terminating Employee's
employment under the Agreement for Cause (as defined below). In the event
Employee is terminated for Cause, Employee shall be paid his unpaid Base Salary
(but no Bonus Compensation) through the month in which such termination occurs.
The term "Cause" as used herein, shall mean (i) Employee's willful misconduct,
material dishonesty or fraud in the performance of his duties hereunder, (ii)
the continued failure or refusal of Employee (following written notice thereof)
to carry out any reasonable request of the Company's Chief Executive Officer or
Board for the provision of services hereunder, (iii) the material breach of the
Agreement by Employee or (iv) the entering of a plea of guilty or nolo
contendere to, or the conviction of Employee of, a felony or any other criminal
act involving moral turpitude, dishonesty, theft or unethical business conduct.
For purposes of this Section 7.3, no act or omission shall be considered willful
unless done or omitted to be done in bad faith and without reasonable belief
that such act or omission was in the best interest of the Company.
Termination of employment of Employee pursuant to this Section
7.3 shall be made by delivery to Employee of a letter from the Board generally
setting forth a description of the conduct which provides the basis for a
termination of employment of Employee for Cause; provided, however, that, prior
to the termination of the Agreement for a basis set forth in Sections 7.3(ii) or
7.3(iii) above (which is capable of being cured), Employee shall be given notice
of the basis for termination by the Company and a reasonable opportunity to cure
such breach.
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7.4 Termination of Employment Other than for Cause, Death or
Disability.
(a) Termination. The Agreement may be terminated (i) by
the Company (in addition to termination pursuant to Sections 7.1, 7.2 or 7.3
above) at any time and for any reason, (ii) by the Employee at any time and for
any reason or (iii) upon the expiration of the Term.
(b) Severance and Non-Competition Payments.
(1) If the Agreement is terminated by the Company,
including by reason of a Constructive Termination (as defined below), other than
as a result of death or disability of Employee or for Cause (and other than in
connection with a change in control of the Company (as defined below)), the
Company shall pay Employee a severance and noncompetition payment equal to the
sum of (x) an amount equal to the Base Salary for the remainder of the Term plus
(y) an amount equal to the Bonus Compensation earned by the Employee in respect
of the last year immediately preceding the year of termination, multiplied by
the number of years remaining in the Term (including, in the case of a partial
year, the fraction of such year which is remaining); provided; however, that a
termination during the last twelve (12) months of the Term shall be governed by
Subsection 7.4(b)(5) below. Such severance and non-competition payment shall be
payable in equal monthly installments commencing on the first day of the month
following termination and shall continue for the remainder of the Term.
(2) For purposes of the Agreement, a "change in control
of the Company" shall be deemed to have occurred if (i) the Company shall have
merged or consolidated with an unaffiliated entity or the Company shall have
transferred or sold all or substantially all of its assets to an unaffiliated
entity, other than a transaction which is approved by Employee in his capacity
as a shareholder of the Company, or (ii) there shall be a change in the
constituency of a majority of the members of the Board within any twelve (12)
month period, other than a change which Employee voted in favor of in his
capacity as a shareholder of the Company.
(3) For purposes of the Agreement, a "Constructive
Termination" shall be deemed to have occurred upon (i) the removal of Employee
from or a failure of Employee to continue as Executive Vice President and Chief
Operating Officer of the Company, (ii) any material diminution in the nature or
scope of the authorities, powers, functions, duties or responsibilities attached
to such positions, or (iii) the material breach by the Company of the Agreement
if, in any such case, the Employee does not agree to such change and elects to
terminate his employment.
(4) In the event of a termination of employment by the
Company following a change in control of the Company (including by reason of a
Constructive Termination), the Company shall pay the Employee a severance and
non-competition payment
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equal to two (2) times the sum of the Base Salary plus the Bonus Compensation in
respect of the year immediately preceding the year of termination. Such
severance and non-competition payment shall be payable in a lump sum on the
first day of the month following the termination. In addition, all unvested Base
Stock Options which were granted prior to the date of termination shall be
deemed to have vested on the date of such change in control.
(5) If this Agreement is not renewed beyond the Term by
the parties hereto or if the Agreement is terminated by the Company (other than
as a result of death or disability of Employee or for Cause and other than in
connection with a change in control), including by reason of a Constructive
Termination, in accordance with this Section 7 during the last twelve (12)
months of the Term, the Company shall pay Employee a severance and
noncompetition payment equal to the sum of (x) an amount equal to the Base
Salary in respect of the year immediately preceding the year of termination plus
(y) an amount equal to the Bonus Compensation earned by Employee in respect of
the year immediately preceding the year of termination. Such severance and
non-competition payment shall be payable in twelve (12) equal monthly
installments commencing on the first day of the month following termination. In
addition, all unvested Base Stock Options shall be deemed to have vested on the
date of such termination.
(6) If Employee terminates his employment voluntarily
prior to the expiration of the Term, Employee shall be paid his unpaid Base
Salary (but no Bonus Compensation) through the date of such voluntary
termination.
(7) The Employee shall not be required to mitigate the
amount of any severance and non-competition payment provided for under the
Agreement by seeking other employment or otherwise.
8. Confidential Information.
8.1 The Employee agrees not to use, disclose or make
accessible to any other person, firm, partnership, corporation or any other
entity any Confidential Information (as defined below) pertaining to the
business of the Company or Valentec except (i) while employed by the Company or
Valentec, in the business of and for the benefit of the Company or Valentec or
(ii) when required to do so by a court of competent jurisdiction, by any
governmental agency having supervisory authority over the business of the
Company or Valentec, or by any administrative body or legislative body
(including a committee thereof) with jurisdiction to order the Company or
Valentec to divulge, disclose or make accessible such information. For purposes
of the Agreement, "Confidential Information" shall mean non-public information
concerning the Company's or Valentec's financial data, statistical data,
strategic business plans, product development (or other proprietary product
data), customer and supplier lists, customer and supplier information,
information relating to governmental relations, discoveries, practices,
processes, methods, trade secrets, marketing plans and other non-public,
proprietary and confidential information of the Company or Valentec, that, in
any case, is not otherwise generally
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available to the public and has not been disclosed by the Company or Valentec to
others not subject to confidentiality agreements. In the event Employee's
employment is terminated hereunder for any reason, he immediately shall return
to the Company or Valentec all Confidential Information in his possession.
8.2 The Employee and the Company agree that the covenant
regarding confidential information contained in this Section 8 is a reasonable
covenant under the circumstances, and further agree that if, in the opinion of
any court of competent jurisdiction, such covenant is not reasonable in any
respect, such court shall have the right, power and authority to excise or
modify such provision or provisions of this covenant as to the court shall
appear not reasonable and to enforce the remainder of the covenant as so
amended. The Employee agrees that any breach of the covenant contained in this
Section 8 would irreparably injure the Company or Valentec, as the case may be.
Accordingly, the Employee agrees that the Company and/or Valentec, in addition
to pursuing any other remedies it may have in law or in equity, may obtain an
injunction against the Employee from any court having jurisdiction over the
matter, restraining any further violation of this Section 8.
8.3 The provisions of this Section 8 shall extend for the Term
and shall survive the termination of the Agreement for the greater of (x) the
period in which severance and non-competition payments are made pursuant to the
Agreement or (y) two years from the date the Agreement is terminated.
9. Non-Competition; Non-Solicitation.
9.1 The Employee agrees that, during the Non-Competition
Period (as defined in Section 9.4 below), without the prior written consent of
the Company or Valentec, as the case may be: (i) he shall not, directly or
indirectly, either as principal manager, agent, consultant, officer, director,
greater than two (2 %) percent holder of any class or series of equity
securities, partner, investor, lender or employee or in any other capacity,
carry on, be engaged in or have any financial interest in or otherwise be
connected with, any entity which is now or at the time, has material operations
which are engaged in any business activity competitive (directly or indirectly)
with the business of the Company (currently the manufacture and sale of (i)
automotive airbags and (ii) military ordnance products) or Valentec including,
for these purposes, any business in which, at the termination of his employment,
there was a bona fide intention on the part of the Company or Valentec to engage
in the future; and (ii) he shall not, on behalf of any competing entity,
directly or indirectly, have any dealings or contact with any suppliers or
customers of the Company or Valentec.
9.2 During the Non-Competition Period, Employee agrees that,
without the prior written consent of the Company or Valentec, as the case may
be, (and other than on behalf of the Company or Valentec), Employee shall not,
on his own behalf or on behalf of any person or entity, directly or indirectly
hire or solicit the employment of any employee who
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has been employed by the Company or Valentec at any time during the one (1) year
period immediately preceding such date of hiring or solicitation.
9.3 The Employee and the Company agree that the covenants of
non- competition and non-solicitation contained in this Section 9 are reasonable
covenants under the circumstances, and further agree that if, in the opinion of
any court of competent jurisdiction such covenants are not reasonable in any
respect, such court shall have the right, power and authority to excise or
modify such provision or provisions of these covenants as to the court shall
appear not reasonable and to enforce the remainder of these covenants as so
amended. The Employee agrees that any breach of the covenants contained in this
Section 9 would irreparably injure the Company or Valentec, as the case may be.
Accordingly, the Employee agrees that the Company, or Valentec, as the case may
be, in addition to pursuing any other remedies it may have in law or in equity,
may obtain an injunction against the Employee from any court having jurisdiction
over the matter, restraining any further violation of this Section 9.
9.4 The provisions of this Section 9 shall extend for the Term
and survive the termination of the Agreement for the greater of (x) one year
from the date of such termination and (y) the period in which severance and
non-competition payments are made to Employee pursuant to this Agreement (herein
referred to as the "Non-Competition Period").
10. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been given if delivered
personally or sent by facsimile transmission, overnight courier, or certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally or sent by facsimile transmission (provided
that a confirmation copy is sent by overnight courier), one day after deposit
with an overnight courier, or if mailed, five (5) days after the date of deposit
in the United States mails, as follows:
To the Company: Safety Components International, Inc.
3190 Pullman Street
Costa Mesa, California 92626
Telephone: (714) 662-7756
Telecopy: (714) 662-7649
Attention: Chief Executive Officer
or to its principal executive offices as set forth on the cover page of its
latest filing with the Securities and Exchange Commission, if different.
To Employee: Thomas W. Cresante
8656 E. Larkspar
Scottsdale, AZ 85260
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or to such other address as is reflected in the Company's records as the
Employee's principal residence.
11. Entire Agreement. This Agreement contains the entire
agreement between the parties hereto with respect to the matters contemplated
herein and supersedes all prior agreements or understandings among the parties
related to such matters.
12. Binding Effect. Except as otherwise provided herein, the
Agreement shall be binding upon and inure to the benefit of the Company and its
successors and assigns and upon Employee. "Successors and assigns" shall mean,
in the case of the Company, any successor pursuant to a merger, consolidation,
or sale, or other transfer of all or substantially all of the assets or capital
stock of the Company.
13. No Assignment. Except as contemplated by Section 12 above,
the Agreement shall not be assignable or otherwise transferable by either party.
14. Amendment or Modification; Waiver. No provision of the
Agreement may be amended or waived unless such amendment or waiver is authorized
by the Board and is agreed to in writing, signed by Employee and by a duly
authorized officer of the Company. Except as otherwise specifically provided in
this Agreement, no waiver by either party hereto of any breach by the other
party hereto of any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of a similar or dissimilar provision
or condition at the same or at any prior or subsequent time.
15. Fees and Expenses. If either party institutes any action
or proceedings to enforce any rights the party has under this Agreement, or for
damages by reason of any alleged breach of any provision of this Agreement, or
for a declaration of each party's rights or obligations hereunder or to set
aside any provision hereof, or for any other judicial remedy, the prevailing
party shall be entitled to reimbursement from the other party for its costs and
expenses incurred thereby, including but not limited to, reasonable attorneys'
fees and disbursements.
16. Governing Law. The validity, interpretation, construction,
performance and enforcement of this Agreement shall be governed by the internal
laws of the State of Delaware, without regard to its conflicts of law rules.
17. Titles. Titles to the Sections in this Agreement are
intended solely for convenience and no provision of this Agreement is to be
construed by reference to the title of any Section.
18. Counterparts. This Agreement may be executed in one or
more counterparts, which together shall constitute one agreement. It shall not
be necessary for each party to sign each counterpart so long as each party has
signed at least one counterpart.
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19. Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and
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provisions of the Agreement or affecting the validity or enforceability of any
of the terms and provisions of the Agreement in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first set forth above.
SAFETY COMPONENTS INTERNATIONAL, INC.
By:
-------------------------------------
Name: Robert A. Zummo
Title: President and Chief Executive Officer
-------------------------------------
Thomas W. Cresante
12
CONSULTING AGREEMENT
Consulting Agreement (this "Agreement"), dated as of the 31st day of
May, 1997, by and between Safety Components International, Inc. (the "Company"),
a Delaware corporation and W. Hardy Myers (the "Consultant").
W I T N E S S E T H
WHEREAS, the Consultant was a party to an Employment Agreement with the
Company, dated as of the 19th day of April, 1994 (the "Employment Agreement");
and
WHEREAS, the Consultant intends to resign as (i) an employee under the
Employment Agreement, (ii) an officer of the Company and certain of its
subsidiaries, (iii) a director of the Company and certain of its subsidiaries,
(iv) an employee of Valentec International Corporation ("Valentec"), (v) a
director of Valentec and certain of its subsidiaries, (vi) an officer of
Valentec and certain of its subsidiaries, (vii) a trustee of Valentec's Employee
Stock Ownership Plan, as amended (the "ESOP"), and (viii) a trustee of the Wells
Restated Profit Sharing Plan (the "Wells Plan"), and the Company desires to
retain the Consultant as a consultant to the Company as provided in this
Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the Company and the Consultant hereby
agree as follows:
1. Resignation from Employment; Termination of Employment Agreement.
Effective as of June 1, 1997 (the "Effective Date") (i) the Consultant resigns
from his position as (a) an employee of the Company under the Employment
Agreement, (b) an officer of the Company and certain of its subsidiaries, (c) a
director of the Company and certain of its subsidiaries, (d) an employee of
Valentec, (e) a director of Valentec and certain of its subsidiaries, (f) an
officer of Valentec and certain of its subsidiaries, (g) a trustee of the ESOP,
and (h) a trustee of the Wells Plan, (ii) shall cease to be an employee,
director or officer of the Company and any of its subsidiaries, (iii) shall
cease to be an employee, director or officer of Valentec and any of its
subsidiaries, and (iv) any rights that either the Company or the Consultant may
have had under the Employment Agreement are hereby terminated. No covenants
shall survive the termination of the Employment Agreement, including without
limitation non-compete, non-solicitation and confidentiality covenants, each of
which is replaced by the covenants contained herein. From and after the date of
commencement of the Term hereof, the rights and obligations of the parties shall
be governed by this Agreement.
2. Term. This Agreement shall commence on June 1, 1997 and shall
terminate on May 31, 1998 (the "Term").
3. Services.
(a) The Consultant agrees that during the Term, he will serve
as a consultant to the Company and in such capacity, perform such services as
the Chief Executive Officer,
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Chief Operating Officer or the Board of Directors of the Company may, from time
to time, reasonably request in connection with the functions of the Company
formerly performed by the Consultant, and such other projects as are mutually
agreed to by the Consultant and the Company. The Consultant shall report to the
Chief Operating Officer of the Company. The Consultant shall be available at
such times and places as are reasonably requested by the Company.
(b) The Consultant shall devote as much time to the
performance of his obligations hereunder as reasonably required, in the judgment
of the Chief Executive Officer or the Chief Operating Officer, in consultation
with the Consultant, to the business and commercial success of the Company;
provided, however, that nothing contained herein shall prevent the Consultant
from accepting another engagement or full-time position and the Consultant shall
be permitted to perform the services required hereunder in a manner which does
not interfere with his ability to fulfill the commitments of such other
engagement or position.
(c) The Consultant shall not be required to travel in
connection with his services to be performed hereunder.
4. Compensation. In consideration of the services provided by the
Consultant hereunder, the Company shall pay to the Consultant on a monthly
basis, compensation of $15,333.34 payable in twelve monthly installments on the
first day of each calendar month, if such day is a business day in the State of
California, otherwise on the next business day thereafter, during the Term of
this Agreement. It is acknowledged and agreed that (i) the Consultant has
received an advance from the Company for his expenses in an amount of $10,000,
(ii) the Consultant shall reconcile such advance against unreimbursed expenses
incurred by him within thirty days of the execution hereof, and (iii) the second
monthly installment to be made by the Company to the Consultant hereunder shall
be adjusted in favor of either the Company or the Consultant, as applicable, to
reflect any resulting difference between amounts so reconciled.
5. Other Employment.
(a) Subject to Section 7 hereof, the Consultant shall be free
to render full-time or part-time advisory, consultant or any other professional
services to other employers, whether as an employee, consultant or otherwise.
(b) Any compensation the Consultant receives from such other
employment or consultancy services shall not be offset against the payments to
be made to the Consultant by the Company hereunder.
6. Benefits.
(a) Pursuant to the requirements of COBRA, the Consultant's
covered dependents, if any, are eligible to continue health insurance coverage
for eighteen (18) months from the date of the Consultant's resignation of
employment from the Company. The Company
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shall bear the Consultant's COBRA expense during the Term hereof. After the Term
hereof, the Consultant, at his sole expense, shall be eligible to continue COBRA
coverage for the remaining six (6) months. The Consultant hereby acknowledges
that he has received the requisite COBRA information and is hereby electing to
continue his health coverage with the Company until he revokes such election by
providing the Company with reasonable prior written notice of such revocation.
(b) As provided in the Employment Agreement, all of the
options granted to the Consultant pursuant to the Company's 1994 Stock Option
Plan, as amended (the "Option Plan") and his Employment Agreement, i.e. 70,000
stock options (the "Options") shall be vested on the Effective Date. The
Consultant shall have ninety (90) days from the termination of this Agreement
(i.e., until August 31, 1998) to exercise the Options. The exercise price of the
Options is in the agreement(s) evidencing the grant of such Options.
(c) Consultant shall be entitled to receive his benefits under
(i) the Company's and Valentec's 401(k) plans (individually a "401(k) Plan", and
collectively the "401(k) Plans"), if any, and (ii) the ESOP. All rights under
the 401(k) Plans and the ESOP shall be governed by the terms of the 401(k) Plans
and the ESOP, as applicable, and the Company's and Valentec's standard
administrative practices.
(d) The Company (i) shall pay the life insurance premium on
the policy maintained by it for the benefit of the Consultant's designated
beneficiaries, in the amount of $3,000,000, which was due and payable on June
12, 1997, and (ii) has paid the insurance premium on the disability policy
maintained by it for the benefit of the Consultant's designated beneficiaries.
Thereafter, the Consultant shall have the right to assume each such policy, but
the Company shall make no further premium payments thereon.
7. Certain Covenants
(a) Confidentiality
The Consultant agrees not to use, disclose or make accessible
to any other person, firm, partnership, corporation or any other entity any
Confidential Information (as herein defined) pertaining to the business of the
Company and Valentec, their respective divisions, subsidiaries and affiliates
(collectively, the "Affiliated Group") except when required to do so by a court
of competent jurisdiction, by any governmental agency having supervisory
authority over the business of the Affiliated Group, or by any administrative
body or legislative body (including a committee thereof) with jurisdiction to
order one or more of the members of the Affiliated Group to divulge, disclose or
make accessible such information. For purposes of the Agreement, "Confidential
Information" shall mean non-public information concerning the Affiliated Group's
financial data, statistical data, strategic plans, business plans, product
development data (or other proprietary product data), customer and supplier
information, information relating to governmental relations, discoveries,
practices, processes, methods, analyses, assessments, reports, data, statistics,
correspondence, business records, business plans, strategies, contacts,
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trade secrets, marketing plans and other non-public, proprietary and
confidential information of the Affiliated Group, that, in any case, is not
otherwise generally available to the public and has not been disclosed by the
Affiliated Group to others not subject to confidentiality agreements.
(b) Non-Solicitation
The Consultant agrees that during the Term and for a period of
twelve (12) months thereafter, without the prior written consent of the Company,
he shall not, on his own behalf or on behalf of any person or entity, directly
or indirectly, hire or solicit the employment of any employee who was employed
by the Company at any time during the six (6) months immediately preceding such
date of hiring or solicitation by the Consultant.
(c) Non-Disparagement
The Consultant and the Company each agree that, except as may
be required by law, neither will at any time in the future, either directly or
indirectly, engage in, any Disparaging Conduct. For purposes of this Agreement,
"Disparaging Conduct" shall mean the publication by the Consultant or the
Company, orally or in writing, of any negative or disparaging statements,
comments, or remarks regarding the other or in the case of the Company, any
member of the Affiliated Group and their respective subsidiaries, affiliates,
directors, officers, or employees, as the case may be.
(d) Non-Competition.
The Consultant agrees that during the Term, without the prior
written consent of the Company, he shall not directly or indirectly, whether as
an owner, stockholder, director, employee, partner, agent, consultant or in any
other individual or representative capacity, (i) carry on, be engaged in or have
any financial interest or otherwise be connected with, any entity which is now
or at the time, has material operations which are engaged in any business
activity competitive (directly or indirectly) with the business of any
Affiliated Group member, including, without limitation, any business which any
member of the Affiliated Group has, as of the Effective Date, a bona fide
intention to engage in in the future, and (ii) approach, contact, solicit, sell
to any supplier or any client or customer of the Affiliated Group, for the
purpose of offering, obtaining, selling, soliciting, diverting or receiving to
or from said individual or firm, business in competition with the Affiliated
Group or orders for products in competition with those of the Affiliated Group.
(e) Confidentiality of Agreement
The Consultant and the Company (other than as required as a
matter of public disclosure under the securities laws) each agree not to
disclose the terms of this Agreement or to otherwise provide a copy of this
Agreement to anyone (other than to professional advisors and as may be required
by applicable law and the Consultant's new employer should such employer request
a copy hereof.)
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(f) Acknowledgments Respecting Confidentiality,
Non-Solicitation Non- Disparagement and Non-Competition Covenants
With respect to the covenants made by the Consultant and the
Company and set forth in this Section (individually a "Covenant" or collectively
the "Covenants"), the Consultant and the Company each acknowledge and agree
that:
(i) the Covenants are in addition to any rights they may have
at law or at equity; and
(ii) the Covenants are reasonable Covenants under the
circumstances, and if, in the opinion of any court of competent jurisdiction,
any Covenant is not reasonable in any respect, such court shall have the right,
power and authority to excise or modify such provision or provisions of such
Covenant as to the court shall appear not reasonable and to enforce (A) the
remainder of the Covenant as so amended and (B) the other Covenants. Each agrees
that any breach of any Covenant contained in this Section 7 would irreparably
injure the non-breaching party. Accordingly, each agrees that the non-breaching
party, in addition to pursuing any other remedies it may have in law or in
equity, may obtain an injunction against the breaching party from any court
having jurisdiction over the matter, restraining any further violation of this
Section 7.
8. Independent Contractor. The relationship of the Consultant to the
Company established by this Agreement is that of an independent contractor, and
nothing contained in this Agreement shall be construed to: (a) give the
Consultant the power to (i) direct or control any activities of the Company, or
(ii) create or assume any obligation on behalf of the Company for any purpose
whatsoever; (b) constitute the Consultant as an employee of the Company or
entitle the Consultant to participate in any employee benefit plans or fringe
benefit plans made available to the Company's employees; or (c) constitute the
Consultant as an agent of the Company.
9. Return of Documents.
(a) Promptly following execution of this Agreement, the
Consultant shall immediately deliver to the Company all plans, designs,
drawings, specifications, listings, manuals, memoranda, projections, minutes,
records, notebooks, computer programs and similar repositories of or containing
Confidential Information, including all copies, then in the Consultant's
possession or control or available from persons outside the Company receiving
such documents from the Consultant, whether prepared by the Consultant or
others. At such time, the Consultant shall not retain any copies or abstracts of
any such documents.
(b) Promptly upon termination of this Agreement, the
Consultant shall immediately deliver to the Company all plans, designs,
drawings, specifications, listings, manuals, memoranda, projections, minutes,
records, notebooks, computer programs and similar repositories of or containing
Confidential Information, including all copies, then in the Consultant's
possession or control or available from persons outside the Company receiving
such documents from the Consultant, whether prepared by the Consultant or
others. Upon such
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termination, the Consultant shall not retain any copies or abstracts of any such
documents.
10. Notices. For the purposes of this Agreement, notices and other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses last given by each party to the other, provided that all notices to
the Company shall be directed to the attention of the Chief Executive Officer of
the Company. All notices and communications shall be deemed to have been
received on the date of delivery thereof or on the third business day after the
mailing thereof, except that notice of change of address shall be effective only
upon receipt.
11. Successors and Assigns.
(a) This Agreement shall be binding upon and shall inure to
the benefit of the Company and its successors and assigns, and the terms the
"Company" and "Affiliated Group" as used herein shall include its successors and
assigns. The terms "successors and assigns" as used herein shall mean a
corporation or other entity acquiring all or substantially all the assets and
business of the Company or the Affiliated Group (including this Agreement)
whether by operation of law or otherwise.
(b) Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Consultant, his heirs, beneficiaries
or legal representatives, except by will or by the laws of descent and
distribution. This Agreement shall be binding upon and inure to the benefit of
the Consultant, his heirs, beneficiaries and legal personal representatives.
12. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Consultant and the Company. No waiver by any party
hereto at any time of any breach by any other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other
party, shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreement or
representation, oral or otherwise, express or implied, with respect to the
subject matter hereof has been made by any party which is not expressly set
forth in this Agreement.
13. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the state of Delaware without giving
effect to the conflict of law principles thereof.
14. Severability. The provision of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
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15. Entire Agreement and Effect on Other Agreements. This Agreement
constitutes the entirety of the agreement between the parties, and supersedes
all prior agreements, understandings and arrangements, oral or written
(including the Employment Agreement), between the parties on the subject matter
hereof. The payments and benefits provided to the Consultant under this
Agreement are in lieu of all other salary or benefit continuation benefits to
which the Consultant may otherwise be entitled under all other agreements,
plans, policies, practices and arrangements (including the Employment
Agreement).
16. Survival. The provisions of Sections 7, 9, 10, 11, 12 13, 14, 15
and 16, shall survive the termination of this Agreement.
17. Taxes. The parties acknowledge and agree that the Company will not
and shall not be obligated to make, and that it is the sole responsibility of
the Consultant to make, all periodic filings and payments required to be made in
connection with withholding taxes, estimated taxes or any other federal, state
or local taxes, payments or filings required to be made or paid in connection
with the monthly payments made to the Consultant hereunder.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Consultant has executed this
Agreement as of the date set forth above.
SAFETY COMPONENTS INTERNATIONAL, INC.
By:
Name:
Title:
W. HARDY MYERS
ACCEPTED AND AGREED:
this day of June, 1997
VALENTEC INTERNATIONAL
CORPORATION
By:
Name:
Title:
8
================================================================================
CREDIT AGREEMENT
dated as of
May 21, 1997
Among
SAFETY COMPONENTS INTERNATIONAL, INC.
PHOENIX AIRBAG GmbH & CO. KG
And
AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL LIMITED,
as Borrowers
THE LENDING INSTITUTIONS NAMED THEREIN
as Lenders
And
KEYBANK NATIONAL ASSOCIATION
as Administrative Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS AND TERMS......................................1
1.1 Certain Defined Terms......................................1
1.2 Computation of Time Periods...............................22
1.3 Accounting Terms..........................................22
1.4 Currency Equivalents......................................22
SECTION 2. AMOUNT AND TERMS OF LOANS.................................23
2.1 Commitments for Loans.....................................23
2.2 Minimum Borrowing Amounts, etc.; Pro Rata Borrowings......24
2.3 Notice of Borrowing.......................................24
2.4 Disbursement of Funds from Borrowings.....................26
2.5 Notes.....................................................27
2.6 Voluntary Conversion of Dollar Denominated Loans..........28
2.7 Interest on Loans.........................................28
2.8 Interest Periods..........................................29
2.9 Increased Costs, Illegality, etc..........................30
2.10 Compensation..............................................33
2.11 Change of Lending Office; Replacement of Lenders..........33
SECTION 3. LETTERS OF CREDIT.........................................34
3.1 Letters of Credit.........................................34
3.2 Letter of Credit Requests: Notices of Issuance............35
3.3 Agreement to Repay Letter of Credit Drawings..............36
3.4 Letter of Credit Participations...........................37
3.5 Increased Costs...........................................39
3.6 Guaranty of Subsidiary Letter or Credit Obligations.......40
SECTION 4. FEES; COMMITMENTS...............................................42
4.1 Fees......................................................42
4.2 Voluntary Reduction of Commitments........................43
4.3 Mandatory Adjustments of Commitments, etc.................43
4.4 Extension of Maturity Date................................43
SECTION 5. PAYMENTS........................................................44
5.1 Voluntary Prepayments.....................................44
5.2 Mandatory Prepayments and Scheduled Repayments............44
5.3 Method and Place of Payment...............................47
5.4 Net Payments..............................................47
SECTION 6. CONDITIONS PRECEDENT............................................49
6.1 Conditions Precedent at Initial Borrowing Date............49
6.2 Conditions Precedent to All Credit Events.................52
<PAGE>
SECTION 7. REPRESENTATIONS AND WARRANTIES..................................53
7.1 Corporate Status, etc.....................................53
7.2 Subsidiaries..............................................53
7.3 Corporate Power and Authority, etc........................53
7.4 No Violation..............................................53
7.5 Governmental Approvals....................................54
7.6 Litigation................................................54
7.7 Use of Proceeds; Margin Regulations.......................54
7.8 Financial Statements, etc.................................54
7.9 No Material Adverse Change................................56
7.10 Tax Returns and Payments..................................56
7.11 Title to Properties, etc..................................56
7.12 Lawful Operations, etc....................................56
7.13 Environmental Matters.....................................57
7.14 Compliance with ERISA.....................................57
7.15 Intellectual Property, etc................................58
7.16 Investment Company Act, etc...............................58
7.17 Burdensome Contracts; Labor Relations.....................58
7.18 Existing Indebtedness.....................................59
7.19 Security Interests........................................59
7.20 True and Complete Disclosure..............................59
SECTION 8. AFFIRMATIVE COVENANTS...........................................60
8.1 Reporting Requirements....................................60
8.2 Books, Records and Inspections............................63
8.3 Insurance.................................................63
8.4 Payment of Taxes..........................................64
8.5 Corporate Franchises......................................64
8.6 Good Repair...............................................65
8.7 Compliance with Statutes, etc.............................65
8.8 Compliance with Environmental Laws........................65
8.9 Fiscal Years, Fiscal Quarters.............................65
8.10 Certain Subsidiaries to Join in Subsidiary Guaranty.......66
8.11 Additional Security; Further Assurances...................66
8.12 Corporate Separateness....................................68
8.13 ERISA.....................................................69
8.14 Hedge Agreements, etc.....................................69
8.15 Senior Debt...............................................70
SECTION 9. NEGATIVE COVENANTS..............................................70
9.1 Changes in Business.......................................70
9.2 Consolidation, Merger or Sale of Assets, etc..............70
9.3 Liens.....................................................72
9.4 Indebtedness..............................................74
<PAGE>
9.5 Advances, Investments, Loans and Guaranty Obligations.....75
9.6 Dividends, etc............................................76
9.7 Total Indebtedness/EBITDA Ratio...........................77
9.8 Fixed Charge Coverage Ratio...............................77
9.9 Capital Expenditures......................................77
9.10 Certain Leases............................................77
9.11 Minimum Consolidated Net Worth............................77
9.12 Prepayments and Refinancings of Subordinated Debt, etc....78
9.13 Transactions with Affiliates..............................78
9.14 Limitation on Certain Restrictions on Subsidiaries........78
9.15 Limitation on Sale and Lease-Back Transactions............79
SECTION 10. EVENTS OF DEFAULT..............................................79
10.1 Events of Default.........................................79
10.2 Acceleration, etc.........................................81
10.3 Application of Liquidation Proceeds.......................82
SECTION 11. THE ADMINISTRATIVE AGENT.......................................82
11.1 Appointment...............................................82
11.2 Delegation of Duties......................................83
11.3 Exculpatory Provisions....................................83
11.4 Reliance by Administrative Agent..........................84
11.5 Notice of Default.........................................84
11.6 Non-Reliance..............................................84
11.7 Indemnification...........................................85
11.8 The Administrative Agent in Individual Capacity...........85
11.9 Successor Administrative Agent............................86
11.10 Other Agents.....................................86
SECTION 12. GUARANTY BY THE COMPANY........................................86
12.1 Guaranty of Subsidiary Borrowings.........................86
12.2 Additional Undertaking....................................86
12.3 Guaranty Unconditional, etc...............................87
12.4 Company Obligations to Remain in Effect; Restoration......87
12.5 Waiver or Acceptance, etc.................................88
12.6 Subrogation...............................................88
12.7 Effect of Stay............................................88
SECTION 13. MISCELLANEOUS..................................................88
13.1 Payment of Expenses, etc..................................88
13.2 Right of Setoff...........................................89
13.3 Notices...................................................89
13.4 Benefit of Agreement......................................90
13.5 No Waiver: Remedies Cumulative............................92
13.6 Payments Pro Rata.........................................92
<PAGE>
13.7 Calculations: Computations................................93
13.8 Governing Law; Submission to Jurisdiction; Venue;
Waiver of Jury Trial.........................93
13.9 Counterparts..............................................94
13.10 Effectiveness.............................................94
13.11 Headings Descriptive......................................94
13.12 Amendment or Waiver.......................................94
13.13 Survival..................................................95
13.14 Domicile of Loans.........................................95
13.15 Confidentiality...........................................95
13.16 Lender Register...........................................96
13.17 Limitations on Liability of the Letter of Credit Issuers..96
13.18 General Limitation of Liability...........................97
13.19 No Duty...................................................97
13.20 Lenders and Administrative Agent Not Fiduciary to
Company, etc...........................................97
13.21 Judgment Currency.........................................97
13.22 Survival of Representations and Warranties................99
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of May 21, 1997, among the following:
(i) SAFETY COMPONENTS INTERNATIONAL, INC., a Delaware
corporation (herein, together with its successors and assigns, the
"Company" or a "Borrower")
(ii) PHOENIX AIRBAG GmbH & CO. KG., a company organized under
the laws of the Federal Republic of Germany (herein, together with its
successors and assigns, the "German Borrower" or a "Borrower"), which
is a Wholly-Owned Subsidiary of the Company;
(iii) AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL
LIMITED, a company organized under the laws of the United Kingdom
(herein, together with its successors and assigns, the "British
Borrower" or a "Borrower"), which is a Wholly-Owned Subsidiary of the
Company;
(iv) the lending institutions listed in Annex I hereto (each a
"Lender" and collectively, the "Lenders"); and
(v) KEYBANK NATIONAL ASSOCIATION, a national banking
association, as administrative agent (the "Administrative Agent"):
PRELIMINARY STATEMENTS:
(1) Unless otherwise defined herein, all capitalized terms used herein
and defined in section 1 are used herein as so defined.
(2) The Borrowers have applied to the Lenders for credit facilities in
order to refinance certain indebtedness of the Borrowers and in order to provide
working capital and funds for other lawful purposes.
(3) Subject to and upon the terms and conditions set forth herein, the
Lenders are willing to make available to the Borrowers the credit facilities
provided for herein.
NOW, THEREFORE, it is agreed:
SECTION 1. DEFINITIONS AND TERMS.
1.1 Certain Defined Terms. As used herein, the following terms shall
have the meanings herein specified unless the context otherwise requires.
Defined terms in this Agreement shall include in the singular number the plural
and in the plural the singular:
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"Additional Security Document" shall have the meaning provided
in section 8.12(a).
"Administrative Agent" shall have the meaning provided in the
first paragraph of this Agreement and shall include any successor to
the Administrative Agent appointed pursuant to section 11.9.
"Affiliate" shall mean, with respect to any person, any other
person directly or indirectly controlling, controlled by, or under
direct or indirect common control with such person. A person shall be
deemed to control a second person if such first person possesses,
directly or indirectly, the power (i) to vote 10% or more of the
securities having ordinary voting power for the election of directors
or managers of such second person or (ii) to direct or cause the
direction of the management and policies of such second person, whether
through the ownership of voting securities, by contract or otherwise.
Notwithstanding the foregoing a director, officer or employee of a
person shall not, solely by reason of such status, be considered an
Affiliate of such person.
"Agreement" shall mean this Credit Agreement, as the same may
be from time to time further modified, amended and/or supplemented.
"Alternative Currency" shall mean and include (i) Pounds
Sterling and Deutsche Marks, if at the time any such currency is
readily and freely transferable and convertible into Dollars; and (ii)
any other lawful currency other than Dollars which is readily and
freely transferable and convertible into Dollars and is acceptable to
the Required Lenders and any applicable Letter of Credit Issuer.
"Applicable Commitment Fee Rate" shall mean 37.50 basis points
per annum, provided that the Applicable Commitment Fee Rate will
automatically reduce to 25 basis points per annum at the effective time
the Applicable Eurocurrency Margin for Revolving Loans is reduced to
100 basis points.
"Applicable Eurocurrency Margin" shall mean (i) in the case of
any Term Loan which is a Eurocurrency Loan, 100 basis points per annum;
and (ii) in the case of any Revolving Loan which is a Eurocurrency
Loan, 125 basis points per annum, provided that if (A) the Company
shall have successfully completed (and shall have received the net
proceeds of) a public offering, Rule 144A offering or private placement
with institutional investors, of at least $50,000,000 principal amount
of its subordinated notes with a weighted average life to maturity
(computed in accordance with standard financial practice) of at least
five years, and shall have provided to the Administrative Agent
evidence satisfactory to the Administrative Agent of such completion
and receipt, and (B) at such time no Default under section 10.1(a) or
Event of Default shall have occurred and be continuing, then the
foregoing 125 basis points per annum shall be reduced to 100 basis
points per annum effective on the first day of the month after which
the Company shall
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have completed such offering or private placement and received the net
proceeds thereof. The Administrative Agent shall notify the Company (on
behalf of all Borrowers) and the Lenders of any such reduction and the
effective date thereof.
"Applicable Lending Office" shall mean, with respect to each
Lender, (i) such Lender's Domestic Lending Office in the case of
Borrowings consisting of Prime Rate Loans and (ii) such Lender's
Eurocurrency Lending Office in the case of Borrowings consisting of
Eurocurrency Loans.
"Asset Sale" shall mean the sale, transfer or other
disposition (including by means of mergers, consolidations, and
liquidations of a corporation, partnership or limited liability company
of the interests therein of the Company or any Subsidiary) by the
Company or any Subsidiary to any person other than the Company or any
Subsidiary of any of their respective assets (other than sales,
transfers or other dispositions of obsolete or excess furniture,
fixtures, equipment or other property, tangible or intangible, in the
ordinary course of business).
"Assignment Agreement" shall mean an Assignment Agreement
substantially in the form of Exhibit J hereto.
"Authorized Officer" shall mean any officer or employee of any
applicable Borrower designated as such in writing to the Administrative
Agent by such Borrower.
"Bankruptcy Code" shall have the meaning provided in section
10.1(g).
"Borrower" shall mean any of the Company, the German Borrower
or the British Borrower, as the case may be.
"Borrowing" shall mean a Revolving Borrowing or a Term Loan
Borrowing, as the case may be.
"Borrowing Subsidiary" shall mean either the German Borrower
or the British Borrower, as the case may be.
"British Borrower" shall have the meaning provided in the
first paragraph of this Agreement.
"Business Day" shall mean (i) for all purposes other than as
covered by clause (ii) below, any day excluding Saturday, Sunday and
any day which shall be in the city in which the applicable Payment
Office is located a legal holiday or a day on which banking
institutions are authorized by law or other governmental actions to
close and (ii) with respect to all notices and determinations in
connection with, and payments of principal and interest on,
Eurocurrency Loans, any day which is a Business Day described in clause
(i)
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and which is also a day on which dealings are carried on in the London
interbank market and banks are open for business in London and in the
country of issue of any Alternative Currency in which any applicable
Eurocurrency Loans are denominated.
"Capital Lease" as applied to any person shall mean any lease
of any property (whether real, personal or mixed) by that person as
lessee which, in conformity with GAAP, is accounted for as a capital
lease on the balance sheet of that person.
"Capitalized Lease Obligations" shall mean all obligations
under Capital Leases of the Company or any of its Subsidiaries in each
case taken at the amount thereof accounted for as liabilities on a
consolidated balance sheet of the Company and its Subsidiaries in
accordance with GAAP.
"Cash Equivalents" shall mean (i) securities issued or
directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof (provided that the
full faith and credit of the United States of America is pledged in
support thereof) having maturities of not more than one year from the
date of acquisition, (ii) U.S. dollar denominated or Eurocurrency
denominated time deposits, certificates of deposit and bankers'
acceptances of (x) any Lender or (y) any bank whose short-term
commercial paper rating from S&P is at least A-1 or the equivalent
thereof or from Moodys is at least P-1 or the equivalent thereof (any
such bank, an "Approved Lender"), in each case with maturities of not
more than 90 days from the date of acquisition, (iii) commercial paper
issued by any Lender or Approved Lender or by the parent company of any
Lender or Approved Lender and commercial paper issued by, or guaranteed
by, any industrial or financial company with a short- term commercial
paper rating of at least A-1 or the equivalent thereof by S&P or at
least P-1 or the equivalent thereof by Moody's, or guaranteed by any
industrial company with a long term unsecured debt rating of at least A
or A2, or the equivalent of each thereof, from S&P or Moody's, as the
case may be, and in each case maturing within 90 days after the date of
acquisition, and (iv) investments in money market funds substantially
all the assets of which are comprised of securities of the types
described in clauses (i) through (iii) above.
"Cash Proceeds" shall mean, with respect to any Asset Sale,
the aggregate cash payments (including any cash received by way of
deferred payment pursuant to a note receivable issued in connection
with such Asset Sale, other than the portion of such deferred payment
constituting interest, but only as and when so received) received by
the Company and/or any Subsidiary from such Asset Sale.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as the same may be amended
from time to time, 42 U.S.C. ss. 9601 et seq.
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"Change of Control" shall mean and include (i) during any
period of two consecutive calendar years, individuals who at the
beginning of such period constituted the Company's Board of Directors
(together with any new directors whose election by the Company's Board
of Directors or whose nomination for election by the Company's
shareholders was approved by a vote of at least a majority of the
directors then still in office who either were directors at the
beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a
majority of the directors then in office (ii) any person or group (as
such term is defined in section 13(d)(3) of the 1934 Act), other than
the Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, and Robert A. Zummo (and trusts
for the benefit of such person, his family and descendants), shall
acquire, directly or indirectly, beneficial ownership (within the
meaning of Rule 13d-3 and 13d-5 of the 1934 Act) of more than 25%, on a
fully diluted basis, of the economic or voting interest in the
Company's capital stock, (iii) Robert A. Zummo (and trusts for the
benefit of such person, his family and descendants) shall cease for any
reason to have beneficial ownership (within the meaning of Rule 13d-3
and 13d-5 of the 1934 Act) of at least 5%, on a fully diluted basis, of
the economic or voting interest in the Company's capital stock, (iv)
during any period of 60 consecutive days, Robert A. Zummo or Jeffrey J.
Kaplan, shall cease, for any reason, to be actively employed as a full
time executive officer of the Company, unless a successor reasonably
acceptable to the Required Lenders shall have been appointed or elected
within four months following said period, in which case the name of
such successor shall be substituted for the name of the person he or
she replaces for purposes of this clause (iv), (v) the shareholders of
the Company approve (A) a merger or consolidation of the Company with
any other person, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding
or by being converted or exchanged for voting securities of the
surviving or resulting entity) more than 75% of the combined voting
power of the voting securities of the Company or such surviving or
resulting entity outstanding after such merger or consolidation, or (B)
a merger or consolidation effected to implement a recapitalization of
the Company (or similar transaction), other than any such transaction
in which no person or group (as hereinabove defined) not excepted from
the provisions of clause (ii) above acquires more than 25% of the
combined voting power, on a fully diluted basis, of the Company's then
outstanding voting securities, (vi) the shareholders of the Company
approve a plan of complete liquidation of the Company or an agreement
or agreements for the sale or disposition by the Company of all or
substantially all of the Company's assets, and/or
(vii) any "change in control" or any similar term as defined in any of
the indentures, credit agreements or other instruments governing any
Indebtedness of the Company or any of its Subsidiaries with an
outstanding principal amount, or providing for commitments to lend in
an outstanding principal amount, of at least $5,000,000 (or the
equivalent amount in any other currency).
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"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and the
rulings issued thereunder. Section references to the Code are to the
Code, as in effect at the Effective Date and any subsequent provisions
of the Code, amendatory thereof, supplemental thereto or substituted
therefor.
"Collateral" shall mean any collateral covered by any Security
Document.
"Collateral Agent" shall mean any Administrative Agent acting
as Collateral Agent for the Lenders pursuant to the Security Documents.
"Commitment" shall mean, with respect to each Lender, its Term
Loan Commitment or its Revolving Commitment, or both if such Lender
shall have both a Term Loan Commitment and a Revolving Commitment.
"Commitment Fee" shall have the meaning provided in section
4.1(a).
"Company" shall have the meaning provided in the first
paragraph of this Agreement.
"Consolidated Capital Expenditures" shall mean, for any
period, the aggregate of all expenditures (whether paid in cash or
accrued as liabilities and including in all events amounts expended or
capitalized under Capital Leases but excluding any amount representing
capitalized interest) by the Company and its Subsidiaries during that
period that, in conformity with GAAP, are or are required to be
included in the property, plant or equipment reflected in the
consolidated balance sheet of the Company and its Subsidiaries.
"Consolidated Net Income" shall mean for any period, the net
income (or loss), without deduction for minority interests, of the
Company and its Subsidiaries on a consolidated basis for such period
taken as a single accounting period determined in conformity with GAAP.
"Consolidated Net Worth" shall mean at any time for the
determination thereof all amounts which, in conformity with GAAP, would
be included under the caption "total stockholders' equity" (or any like
caption) on a consolidated balance sheet of the Company as at such
date.
"Credit Documents" shall mean this Agreement, the Notes, the
Security Documents and any Letter of Credit Document.
"Credit Event" shall mean the making of any Loans and/or the
issuance of any Letter of Credit.
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<PAGE>
"Credit Party" shall mean each Borrower and each Subsidiary
which is a party to any Credit Document.
"Default" shall mean any event, act or condition which with
notice or lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" shall mean any Lender with, respect to
which a Lender Default is in effect.
"Designated Hedge Agreement" shall mean any Hedge Agreement to
which the Company or any of its Subsidiaries is a party which, pursuant
to a written instrument signed by the Required Lenders, has been
designated as a Designated Hedge Agreement so that the Company's or
Subsidiaries's counterparty's credit exposure thereunder will be
entitled to share in the benefits of the Subsidiary Guaranty and the
Security Documents to the extent such Subsidiary Guaranty and Security
Documents provide guarantees or security for creditors of the Company
or any Subsidiary under Designated Hedge Agreements.
"Dividends" shall have the meaning provided in section 9.6.
"Dollars", "U.S. dollars" and the sign "$" each means lawful
money of the United States.
"Domestic Lending Office" shall mean, with respect to any
Lender, the office of such Lender specified as its Domestic Lending
Office in Annex I or in the Assignment Agreement pursuant to which it
became a Lender, or such other office of such Lender as such Lender may
from time to time specify to the Company and the Administrative Agent.
"EBITDA" shall mean, for any period, (A) the sum of the
amounts for such period of, without duplication, (i) Consolidated Net
Income (exclusive of the effect thereon of any foreign currency
translation adjustments made thereto), (ii) provisions for taxes based
on income and franchise taxes, (iii) Total Interest Expense, (vi)
depreciation and amortization, and (v) extraordinary non-cash losses
and non-cash charges, less (B) gains on sales of assets (excluding
sales in the ordinary course of business) and extraordinary gains, all
as determined for the Company and its Subsidiaries on a consolidated
basis in accordance with GAAP.
"Effective Date" shall have the meaning provided in section
13.10.
"Eligible Transferee" shall mean and include a commercial
bank, financial institution or other "accredited investor" (as defined
in SEC Regulation D), in each case which (i) so long as no Default
under section 10.1(a) or Event of Default shall have occurred and be
continuing, and so long as the financial covenants contained in section
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9.7, 9.8, 9.9, 9.10 or 9.11 of this Agreement have not been modified
(or compliance therewith waived) following a deterioration in the
financial condition or results of operations of the Company and its
Subsidiaries, is not disapproved in writing by the Company in a notice
given to a requesting Lender and the Administrative Agent, specifying
the reasons for such disapproval, within five Business Days following
the giving of notice to the Company of the identity of any proposed
transferee (any such disapproval by the Company must be reasonable),
and (ii) is not a direct competitor of the Company or engaged in the
same or similar business as the Company, or any of its respective
Subsidiaries or is not an Affiliate of any such competitors of the
Company or any of its respective Subsidiaries.
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims,
liens, notices of non-compliance or violation, investigations or
proceedings arising under any Environmental Law or any permit issued
under any such law (hereafter "Claims"), including, without limitation,
(a) any and all Claims by governmental or regulatory authorities for
enforcement, cleanup, removal, response, remedial or other actions or
damages pursuant to any applicable Environmental Law, and (b) any and
all Claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief
resulting from the storage, treatment or Release (as defined in CERCLA)
of any Hazardous Materials or arising from alleged injury or threat of
injury to health, safety or the environment.
"Environmental Law" shall mean any applicable Federal, state,
foreign or local statute, law, rule, regulation, ordinance, code,
binding and enforceable guideline, binding and enforceable written
policy and rule of common law now or hereafter in effect and in each
case as amended, and any binding and enforceable judicial or
administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment issued to or rendered
against the Company or any of its Subsidiaries relating to the
environment, employee health and safety or Hazardous Materials,
including, without limitation, CERCLA; RCRA; the Federal Water
Pollution Control Act, 33 U.S.C. ss. 2601 et seq.; the Clean Air Act,
42 U.S.C. ss. 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. ss.
3803 et seq.; the Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 et
seq.; the Emergency Planning and the Community Right-to-Know Act of
1986, 42 U.S.C. ss. 11001 et seq., the Hazardous Material
Transportation Act, 49 U.S.C. ss. 1801 et seq. and the Occupational
Safety and Health Act, 29 U.S.C. ss. 651 et seq. (to the extent it
regulates occupational exposure to Hazardous Materials); and any state
and local or foreign counterparts or equivalents, in each case as
amended from time to time.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and the regulations promulgated
and rulings issued thereunder. Section references to ERISA are to
ERISA, as in effect at the Effective Date
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<PAGE>
and any subsequent provisions of ERISA, amendatory thereof,
supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in
section 3(9) of ERISA) which together with the Company or a Subsidiary
of the Company would be deemed to be a "single employer" (i) within the
meaning of section 414(b),(c), (m) or (o) of the Code or (ii) as a
result of the Company or a Subsidiary of the Company being or having
been a general partner of such person.
"Eurocurrency Lending Office" shall mean, with respect to any
Lender, the office of such Lender specified as its Eurocurrency Lending
Office in Annex I or in the Assignment Agreement pursuant to which it
became a Lender, or such other office or offices (for Eurocurrency
Loans denominated in Dollars or particular Alternative Currencies) of
such Lender as such Lender may from time to time specify to the Company
and the Administrative Agent.
"Eurocurrency Loans" shall mean each Loan, denominated in U.S.
Dollars or in an Alternative Currency, bearing interest at the rates
provided in section 2.7(b).
"Eurocurrency Rate" shall mean with respect to each Interest
Period for a Eurocurrency Loan, (A) either (i) the rate per annum for
deposits in Dollars or in the relevant Alternative Currency for a
maturity most nearly comparable to such Interest Period which appears
on page 3740 or 3750, as applicable, of the Dow Jones Telerate Screen
as of 11:00 A.M. (local time at the Notice Office) on the date which is
two Business Days prior to the commencement of such Interest Period, or
(ii) if such a rate does not appear on such a page, an interest rate
per annum equal to the average (rounded upward to the nearest whole
multiple of 1/16 of 1% per annum, if such average is not such a
multiple) of the rate per annum at which deposits in Dollars or in the
relevant Alternative Currency are offered by each of the Reference
Banks to prime banks in the London interbank Eurocurrency market for
deposits of amounts in same day funds comparable to the outstanding
principal amount of the Eurocurrency Loan for which an interest rate is
then being determined with maturities comparable to the Interest Period
to be applicable to such Eurocurrency Loan, determined as of 11:00 A.M.
(London time) on the date which is two Business Days prior to the
commencement of such Interest Period, in each case divided (and rounded
upward to the nearest whole multiple of 1/16th of 1%) by (B) a
percentage equal to 100% minus the then stated maximum rate of all
reserve requirements (including, without limitation, any marginal,
emergency, supplemental, special or other reserves) applicable to any
member bank of the Federal Reserve System in respect of Eurocurrency
liabilities as defined in Regulation D (or any successor category of
liabilities under Regulation D).
"Event of Default" shall have the meaning provided in section
10.1.
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<PAGE>
"Existing Indebtedness" shall have the meaning provided in
section 7.18.
"Existing Indebtedness Agreements" shall have the meaning
provided in section 7.18.
"Existing Letter of Credit" shall have the meaning provided in
section 3.1(d).
"Federal Funds Effective Rate" shall mean, for any period, a
fluctuating interest rate equal for each day during such period to the
weighted average of the rates on overnight Federal Funds transactions
with members of the Federal Reserve System arranged by Federal Funds
brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is
a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal
Funds brokers of recognized standing selected by the Administrative
Agent.
"Fees" shall mean all amounts payable pursuant to, or referred
to in, section 4.1.
"Fixed Charge Coverage Ratio" shall mean, for any Testing
Period, the ratio of (i) EBITDA less unfunded Consolidated Capital
Expenditures, to (ii) the sum of (A) Total Interest Expense, (B)
scheduled or mandatory repayments, prepayments or redemptions of the
principal of Indebtedness (including required reductions in committed
credit facilities), (C) without duplication of any amount included
under the preceding clause (B), scheduled payments representing the
principal portion of Capitalized Lease Obligations, (D) payments under
the Phoenix Earnout, (E) Dividends, and (F) payments or provisions for
payments of taxes based on income and franchise taxes, in each case for
such Testing Period. In determining the Fixed Charge Coverage Ratio, up
to 80% of the Consolidated Capital Expenditures shall be deemed to be
"funded" for purposes of determining the unfunded amount thereof under
clause (i) above if and to the extent such Consolidated Capital
Expenditures have actually been financed or the Company or any of its
Subsidiaries could have financed the same out of the Unutilized Total
Revolving Commitment.
"Foreign Subsidiary" shall mean any Subsidiary (i) which is
not incorporated in the United States and substantially all of whose
assets and properties are located, or substantially all of whose
business is carried on, outside the United States, or (ii)
substantially all of whose assets consist of Subsidiaries that are
Foreign Subsidiaries as defined in clause (i) of this definition.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect from time to time; it being
understood and agreed that
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<PAGE>
determinations in accordance with GAAP for purposes of section 9,
including defined terms as used therein, are subject (to the extent
provided therein) to section 13.7(a).
"German Borrower" shall have the meaning provided in the first
paragraph of this Agreement.
"Guaranteed Obligations" shall have the meaning provided in
section 12.1.
"Guaranty Obligations" shall mean as to any person (without
duplication) any obligation of such person guaranteeing any
Indebtedness ("primary Indebtedness") of any other person (the "primary
obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such person, whether or not
contingent, (a) to purchase any such primary Indebtedness or any
property constituting direct or indirect security therefor, (b) to
advance or supply funds (i) for the purchase or payment of any such
primary Indebtedness or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth
or solvency of the primary obligor, (c) to purchase property,
securities or services primarily for the purpose of assuring the owner
of any such primary Indebtedness of the ability of the primary obligor
to make payment of such primary Indebtedness, or (d) otherwise to
assure or hold harmless the owner of such primary Indebtedness against
loss in respect thereof, provided, however, that the term Guaranty
Obligation shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. The amount of any
Guaranty Obligation shall be deemed to be an amount equal to the stated
or determinable amount of the primary Indebtedness in respect of which
such Guaranty Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof (assuming
such person is required to perform thereunder) as determined by such
person in good faith.
"Hedge Agreement" shall mean (i) any interest rate swap
agreement, any interest rate cap agreement, any interest rate collar
agreement or other similar agreement or arrangement designed to protect
against fluctuations in interest rates, and (ii) any currency swap
agreement, forward currency purchase agreement or similar agreement or
arrangement designed to protect against fluctuations in currency
exchange rates.
"Hazardous Materials" shall mean (i) any petrochemical or
petroleum products, radioactive materials, asbestos in any form that is
or could become friable, urea formaldehyde foam insulation,
transformers or other equipment that contain dielectric fluid
containing levels of polychlorinated biphenyls, and radon gas; and (ii)
any chemicals, materials or substances defined as or included in the
definition of "hazardous substances", "hazardous wastes", "hazardous
materials", "restricted hazardous materials", "extremely hazardous
wastes", "restrictive hazardous wastes", "toxic substances", "toxic
pollutants", "contaminants" or "pollutants", or words of similar
meaning and regulatory effect under any applicable Environmental Law.
11
<PAGE>
"Indebtedness" of any person shall mean without duplication:
(i) all indebtedness of such person for borrowed
money,
(ii) all bonds, notes, debentures and similar debt
securities of such person,
(iii) the deferred purchase price of capital assets
or services which in accordance with GAAP would be shown on
the liability side of the balance sheet of such person,
(iv) the face amount of all letters of credit issued
for the account of such person and, without duplication, all
drafts drawn thereunder,
(v) all Indebtedness of a second person secured by
any Lien on any property owned by such first person, whether
or not such indebtedness has been assumed,
(vi) all Capitalized Lease Obligations of such
person,
(vii) all obligations of such person to pay a
specified purchase price for goods or services whether or not
delivered or accepted, i.e., take-or-pay and similar
obligations,
(viii) all net obligations of such person under Hedge
Agreements,
(ix) the full outstanding balance of trade
receivables sold with full or limited recourse, other than
solely for purposes of collection of delinquent accounts, and
(x) all Guaranty Obligations of such person
provided that neither trade payables and accrued expenses, in
each case arising in the ordinary course of business, nor obligations
in respect of insurance policies or performance or surety bonds which
themselves are not guarantees of Indebtedness, shall constitute
Indebtedness.
"Initial Borrowing Date" shall mean the date, on or after the
Effective Date, upon which the conditions specified in section 6.1 are
satisfied.
"Interest Period" with respect to any Eurocurrency Loan shall
mean the interest period applicable thereto, as determined pursuant to
section 2.8.
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<PAGE>
"KeyBank" shall mean KeyBank National Association, a national
banking association, together with its successors and assigns.
"Leaseholds" of any person means all the right, title and
interest of such person as lessee or licensee in, to and under leases
or licenses of land, improvements and/or fixtures.
"Lender" shall have the meaning provided in the first
paragraph of this Agreement.
"Lender Default" shall mean (i) the refusal (which has not
been retracted) of a Lender in violation of the requirements of this
Agreement to make available its portion of any incurrence of Loans or
to fund its portion of any unreimbursed payment under section 3.4(c) or
(ii) a Lender having notified the Administrative Agent and/or the
Company that it does not intend to comply with the obligations under
section 2.1 and/or section 3.4(c), in the case of either (i) or (ii) as
a result of the appointment of a receiver or conservator with respect
to such Lender at the direction or request of any regulatory agency or
authority.
"Lender Register" shall have the meaning provided in section
13.16.
"Letter of Credit" shall have the meaning provided in section
3.1(a).
"Letter of Credit Documents" shall have the meaning specified
in section 3.2(a).
"Letter of Credit Fee" shall have the meaning provided in
section 4.1(b).
"Letter of Credit Issuer" shall mean (i) KeyBank; (ii) in
respect of each Existing Letter of Credit, the Lender that has issued
same as of the Effective Date; and/or (iii) any other Lender that is
requested, and agrees, to so act by the Company, and is approved by the
Administrative Agent and the Required Lenders.
"Letter of Credit Outstandings" shall mean, at any time, the
sum, without duplication, of (i) the aggregate Stated Amount of all
outstanding Letters of Credit and (ii) the aggregate amount of all
Unpaid Drawings.
"Letter of Credit Request" shall have the meaning provided in
section 3.2(a).
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to
give any of the foregoing, any conditional sale or other title
retention agreement or any lease in the nature thereof).
"Loan" shall mean a Revolving Loan or Term Loan, as the case
may be.
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<PAGE>
"Margin Stock" shall have the meaning provided in Regulation
U.
"Material Adverse Effect" shall mean a material adverse effect
on the business, operations, property, assets, liabilities or condition
(financial or otherwise) of, when used with reference to the Company,
the Company and its Subsidiaries, taken as a whole, or when used with
reference to any other person, such person and its Subsidiaries, taken
as a whole, as the case may be.
"Material Subsidiary" shall mean, at any time, with reference
to any person, any Subsidiary of such person that (x) has assets at
such time comprising 5% or more of the consolidated assets of such
person and its Subsidiaries or (y) had net income in the most recently
ended fiscal year of such person comprising 5% or more of the
consolidated net income of such person and its Subsidiaries for such
fiscal year.
"Maturity Date" shall mean May 31, 2002, unless earlier
terminated, or extended in accordance with section 4.4.
"Minimum Borrowing Amount" shall mean (i) for Loans which are
Prime Rate Loans, $100,000, with minimum increments thereafter of
$100,000 and (ii) for Loans which are Eurocurrency Loans, $100,000 (or
the substantial equivalent thereof in any Alternative Currency), with
minimum increments thereafter of $100,000 (or the substantial
equivalent thereof in any Alternative Currency).
"Moody's" shall mean Moody's Investors Service, Inc. and its
successors.
"Multiemployer Plan" shall mean a multiemployer plan, as
defined in section 4001(a)(3) of ERISA to which the Company or any
ERISA Affiliate is making or accruing an obligation to make
contributions or has within any of the preceding three plan years made
or accrued an obligation to make contributions.
"Multiple Employer Plan" shall mean an employee benefit plan,
other than a Multiemployer Plan, to which the Company or any ERISA
Affiliate, and one or more employers other than the Company or an ERISA
Affiliate, is making or accruing an obligation to make contributions
or, in the event that any such plan has been terminated, to which the
Company or an ERISA Affiliate made or accrued an obligation to make
contributions during any of the five plan years preceding the date of
termination of such plan.
"Net Cash Proceeds" shall mean, with respect to any Asset
Sale, the Cash Proceeds resulting therefrom net of (i) reasonable and
customary expenses of sale incurred in connection with such Asset Sale,
and other reasonable and customary fees and expenses incurred, and all
state, and local taxes paid or reasonably estimated to be payable by
such person, as a consequence of such Asset Sale and the payment of
principal, premium and
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<PAGE>
interest of Indebtedness secured by the asset which is the subject of
the Asset Sale and required to be, and which is, repaid under the terms
thereof as a result of such Asset Sale, (ii) amounts of any
distributions payable to borders of minority interests in the relevant
person or in the relevant property or assets and (iii) incremental
income taxes paid or payable as a result thereof.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Non-Defaulting Lender"shall mean each Lender other than a
Defaulting Lender.
"Note" shall mean a Term Note or Revolving Note, as the case
may be.
"Notice of Borrowing" shall have the meaning provided in
section 2.3(a).
"Notice of Conversion" shall have the meaning provided in
section 2.6.
"Notice Office" shall mean the office of the Administrative
Agent at 2 Gannett Drive, White Plains, New York 10604, Attention:
Brendan Sachtjen (telephone: (914) 696-2161; facsimile: (914)
694-8463), or such other office, located in a city in the United States
Eastern Time Zone, as the Administrative Agent may designate to the
Company from time to time.
"Obligations" shall mean all amounts, direct or indirect,
contingent or absolute, of every type or description, and at any time
existing, owing to the Administrative Agent or any Lender pursuant to
the terms of this Agreement or any other Credit Document.
"Participant" shall have the meaning provided in section
3.4(a).
"Payment Office" shall mean the office of the Administrative
Agent at 2 Gannett Drive, White Plains, New York 10604, Attention:
Patricia Williams (telephone: (914) 696- 2160; facsimile: (914)
694-8463), or such other office, located in a city in the United States
Eastern Time Zone, as the Administrative Agent may designate to the
Borrowers from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor
thereto.
"Percentage" shall mean, at any time for each Lender with a
Commitment, the percentage obtained by dividing such Lender's
Commitment by the Total Commitment, provided that if the Total
Commitment has been terminated, the Percentage of each Lender shall be
determined by dividing such Lender's Commitment immediately prior to
such termination by the Total Commitment immediately prior to such
termination.
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"Permitted Acquisitions" shall mean and include, exclusive of
expenditures (including the purchase of adjacent land) to expand then
existing facilities owned by the Company or any Subsidiary on the
Effective Date or acquired pursuant to a Permitted Acquisition, and
exclusive of any loans, advances or investments otherwise permitted
pursuant to section 9.5: (i) acquisitions (whether by purchase, lease
or otherwise) of facilities and businesses operated by persons who are
not Subsidiaries of the Company, and (ii) acquisitions of equity or
other similar interests in such persons; provided, that (A) the
Required Lenders consent to such transaction, (B) all of the Lenders
consent to such transaction, if such transaction is actively opposed by
the Board of Directors (or similar governing body) of the selling
person or the person whose equity interests are to be acquired, and (C)
if as a result thereof the Company or any Subsidiary acquires any
equity interest in any person, such person by virtue of such
transaction becomes a Subsidiary of the Company.
"Permitted Liens" shall mean Liens described in section 9.3.
"person" shall mean any individual, partnership, joint
venture, firm, corporation, limited liability company, association,
trust or other enterprise or any government or political subdivision or
any agency, department or instrumentality thereof.
"Phoenix Earnout" shall mean the amounts payable as part of
the purchase price by the Company pursuant to the Stock Purchase
Agreement dated August 6, 1996, pursuant to which the Company acquired
Phoenix, depending on whether annual performance targets for Phoenix
during the years 1996-1998 are met.
"Plan" shall mean any multiemployer or single-employer plan as
defined in section 4001 of ERISA, which is maintained or contributed to
by (or to which there is an obligation to contribute by) the Company or
a Subsidiary of the Company or an ERISA Affiliate, and each such plan
for the five year period immediately following the latest date on which
the Company, or a Subsidiary of the Company or an ERISA Affiliate
maintained, contributed to or had an obligation to contribute to such
plan.
"Pledge Agreement" shall have the meaning provided in section
6.1(c).
"Prime Rate" shall mean, for any period, a fluctuating
interest rate per annum as shall be in effect from time to time which
rate per annum shall at all times be equal to the greater of (i) the
rate of interest established by KeyBank in Cleveland, Ohio, from time
to time, as its prime rate, whether or not publicly announced, which
interest rate may or may not be the lowest rate charged by it for
commercial loans or other extensions of credit; and (ii) the Federal
Funds Effective Rate in effect from time to time plus 1/2 of 1% per
annum.
"Prime Rate Loan" shall mean each Loan, denominated in U. S.
Dollars, bearing interest at the rates provided in section 2.7(a).
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"Prohibited Transaction" shall mean a transaction with respect
to a Plan that is prohibited under section 4975 of the Code or section
406 of ERISA and not exempt under section 4975 of the Code or section
408 of ERISA.
"RCRA" shall mean the Resource Conservation and Recovery Act,
as the same maybe amended from time to time, 42 U.S.C. ss. 6901 d seq.
"Real Property" of any person shall mean all of the right,
title and interest of such person in and to land, improvements and
fixtures, including Leaseholds.
"Reference Banks" shall mean (i) KeyBank and (ii) any other
Lender or Lenders selected as a Reference Bank by the Administrative
Agent and the Required Lenders, provided, that if any of such Reference
Banks is no longer a Lender, such other Lender or Lenders as may be
selected by the Administrative Agent acting on instructions from the
Required Lenders.
"Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System as from time to time in effect
and any successor to all or a portion thereof establishing reserve
requirements.
"Regulation U" shall mean Regulation U of the Board of
Governors of the Federal Reserve System as from time to time in effect
and any successor to all or a portion thereof establishing margin
requirements.
"Reportable Event" shall mean an event described in section
4043(c) of ERISA with respect to a Plan other than those events as to
which the 30-day notice period is waived under subsection .13, .14,
.16, .18, .19 or .20 of PBGC Regulation section 2615.
"Required Lenders" shall mean Non-Defaulting Lenders whose
outstanding Revolving Loans and Unutilized Commitments constitute at
least 66+2/3% of the sum of the total outstanding Revolving Loans and
Unutilized Commitments of Non-Defaulting Lenders (provided that, for
purposes hereof, neither the Company, nor any of its Affiliates, shall
be included in (i) the Lenders holding such amount of the Revolving
Loans or having such amount of the Unutilized Commitments, or (ii)
determining the aggregate unpaid principal amount of the Revolving
Loans or Unutilized Commitments).
"Revolving Borrowing" shall mean the incurrence of Revolving
Loans consisting of one Type of Loan, by any Borrower from all of the
Lenders having Commitments in respect thereof on a pro rata basis on a
given date (or resulting from conversions on a given date), having in
the case of Eurocurrency Loans the same Interest Period.
"Revolving Facility" shall mean the facility evidenced by the
Total Revolving Commitment.
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"Revolving Facility Percentage" shall mean at any time for any
Lender with a Revolving Commitment, the percentage obtained by dividing
such Lender's Revolving Commitment by the Total Revolving Commitment,
provided, that if the Total Revolving Commitment has been terminated,
the Revolving Facility Percentage for each Lender shall be determined
by dividing such Lender's Revolving Commitment immediately prior to
such termination by the Total Revolving Commitment immediately prior to
such termination.
"Revolving Loan" shall have the meaning provided in section
2.1.
"Revolving Commitment" shall mean, with respect to each
Lender, the amount, if any, set forth opposite such Lender's name in
Annex I as its "Revolving Commitment" as the same may be reduced from
time to time pursuant to section 4.2, 4.3 and/or 10 or adjusted from
time to time as a result of assignments to or from such Lender pursuant
to section 13.4.
"Revolving Note" shall have the meaning provided in section
2.5(a).
"Sale and Lease-Back Transaction" shall mean any arrangement
with any person providing for the leasing by the Company or any
Subsidiary of the Company of any property (except for temporary leases
for a term, including any renewal thereof, of not more than one year
and except for leases between the Company and a Subsidiary or between
Subsidiaries), which property has been or is to be sold or transferred
by the Company or such Subsidiary to such person.
"S&P" shall mean Standard & Poor's Ratings Group, a division
of McGraw Hill, Inc., and its successors.
"Scheduled Repayment" shall have the meaning provided in
section 5.2(b).
"SEC" shall mean the United States Securities and Exchange
Commission.
"SEC Regulation D" shall mean Regulation D as promulgated
under the Securities Act of 1933, as amended, as the same may be in
effect from time to time.
"Section 5.4(b)(ii) Certificate" shall have the meaning
provided in section 5.4(b)(ii).
"Security Agreement" shall have the meaning provided in
section 6.1(c).
"Security Documents" shall mean the Security Agreement, the
Pledge Agreement and each other document pursuant to which any Lien or
security interest is granted by any Credit Party to the Collateral
Agent as security for any of the Obligations.
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"Stared Amount" of each Letter of Credit shall mean the
maximum available to be drawn thereunder (regardless of whether any
conditions or other requirements for drawing could then be met).
"Subsidiary" of any person shall mean and include (i) any
corporation more than 50% of whose stock of any class or classes having
by the terms thereof ordinary voting power to elect a majority of the
directors of such corporation (irrespective of whether or not at the
time stock of any class or classes of such corporation shall have or
might have voting power by reason of the happening of any contingency)
is at the time owned by such person directly or indirectly through
Subsidiaries and (ii) any partnership, association, joint venture or
other entity in which such person directly or indirectly through
Subsidiaries, has more than a 50% equity interest at the time. Unless
otherwise expressly provided, all references herein to "Subsidiary"
shall mean a Subsidiary of the Company.
"Subsidiary Guaranty" shall have the meaning provided in
section 6.1(c).
"Subordinated Indebtedness" shall mean any Indebtedness which
has been subordinated to the Obligations in such manner and to such
extent as the Required Lenders may require.
"Term Loan" shall have the meaning provided in section 2.1.
"Term Loan Borrowing" shall mean the incurrence of Term Loans
consisting of one Type of Loan, by the Company from all of the Lenders
having Commitments in respect thereof on a pro rata basis on a given
date (or resulting from conversions on a given date), having in the
case of Eurocurrency Loans the same Interest Period.
"Term Loan Commitment" shall mean, with respect to each
Lender, the amount, if any, set forth opposite such Lender's name in
Annex I as its "Term Loan Commitment" as the same may be reduced from
time to time pursuant to sections 4.2, 4.3 and/or 10 or adjusted from
time to time as a result of assignments to or from such Lender pursuant
to section 13.4.
"Term Loan Facility" shall mean the facility evidenced by the
Total Term Loan Commitment.
"Term Note" shall have the meaning provided in section 2.5(a).
"Testing Period' shall mean (i) for determinations made prior
to March 31, 1998, amounts determined on an annualized basis based on
the fiscal year to date through the fiscal quarter most recently ended,
and (ii) for determinations made thereafter a single period consisting
of the four consecutive fiscal quarters of the Company most recently
ended (whether or not such quarters are all within the same fiscal
year).
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"Total Commitment" shall mean the sum of the Commitments of
the Lenders.
"Total Indebtedness" shall mean the sum (without duplication)
of the following, for the Company and/or any of its Subsidiaries, all
as determined on a consolidated basis of:
(i) all indebtedness for borrowed money,
(ii) all bonds, notes, debentures and similar debt
securities,
(iii) the deferred purchase price of capital assets
or services which in accordance with GAAP would be shown on
the liability side of a consolidated balance sheet of the
Company and its Subsidiaries,
(iv) the face amount of all letters of credit issued
for the account of the Company or any Subsidiary, and, without
duplication, all drafts drawn thereunder,
(v) all Indebtedness of a second person secured by
any Lien on any property owned by such first person, whether
or not such Indebtedness has been assumed,
(vi) all Capitalized Lease Obligations,
(vii) all obligations of the Company or any
Subsidiary to pay a specified purchase price for goods or
services whether or not delivered or accepted, i.e.,
take-or-pay and similar obligations,
(viii) the full outstanding balance of trade
receivables sold with full or limited recourse, other than
solely for purposes of collection of delinquent accounts,
provided that if the structure of any receivables sales
program provides for "over-collateralization", the outstanding
balance of the trade receivables attributable to the
"over-collateralization" may be excluded, and
(ix) all Guaranty Obligations of such person,
provided that neither trade payables and accrued expenses, in each case
arising in the ordinary course of business, nor obligations in respect
of insurance policies or performance or surety bonds which themselves
are not guarantees of Indebtedness, shall be included.
"Total Interest Expense" shall mean, for any period, total
interest expense (including that which is capitalized and that which is
attributable to Capital Leases, in accordance with GAAP) of the Company
and its Subsidiaries on a consolidated basis with
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respect to all outstanding Indebtedness of the Company and its
Subsidiaries including, without limitation, all commissions, discounts
and other fees and charges owed with respect to letters of credit and
net costs under Hedge Agreements, but excluding, however, any
amortization of deferred financing costs, all as determined in
accordance with GAAP.
"Total Revolving Commitment" shall mean the sum of the
Revolving Commitments of the Lenders.
"Total Term Loan Commitment" shall mean the sum of the Term
Loan Commitments of the Lenders.
"Type" shall mean any type of Loan determined with respect to
the interest option applicable thereto, i.e., a Prime Rate Loan or a
Eurocurrency Loan.
"UCC" shall mean the Uniform Commercial Code.
"Unfunded Current liability" of any Plan shall mean the
amount, if any, by which the actuarial present value of the accumulated
plan benefits under the Plan as of the close of its most recent plan
year exceeds the fair market value of the assets allocable thereto,
each determined in accordance with Statement of Financial Accounting
Standards No. 87, based upon the actuarial assumptions used by the
Plan's actuary in the most recent annual valuation of the Plan.
"United States" and "U.S." each means United States of
America.
"Unpaid Drawing" shall have the meaning provided in section
3.3(a).
"Unutilized Commitment" for any Lender at any time shall mean
the excess of (i) such Lender's Commitment at such time over (ii) the
sum of the principal amount of Loans made by such Lender and
outstanding at such time and (y) such Lender's Revolving Facility
Percentage of Letter of Credit Outstandings at such time.
"Unutilized Total Commitment" shall mean, at any time, the
excess of (i) the Total Commitment at such time over (ii) the sum of
(x) the aggregate principal amount of all Loans then outstanding plus
(y) the aggregate Letter of Credit Outstandings at such time.
"Unutilized Total Revolving Commitment"shall mean, at any
time, the excess of (i) the Total Revolving Commitment at such time
over (ii) the sum of (x) the aggregate principal amount of all
Revolving Loans then outstanding plus (y) the aggregate Letter of
Credit Outstandings at such time.
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"Unutilized Total Term Loan Commitment" shall mean, at any
time, the excess of (i) the Total Term Loan Commitment at such time
over (ii) the aggregate principal amount of all Term Loans then
outstanding at such time.
"Value" shall mean, with respect to a Sale and Lease-Back
Transaction, as of any particular time, the amount equal to the greater
of (i) the net proceeds of the sale or transfer of the property leased
pursuant to such Sale and Lease-Back Transaction or (ii) the fair value
in the opinion of the Company, acting in good faith, of such property
at the time of entering into such Sale and Lease-Back Transaction.
"Wholly-Owned Subsidiary" shall mean each Subsidiary of the
Company at least 95% of whose capital stock, equity interests and
partnership interests, other than director's qualifying shares or
similar interests, are owned directly or indirectly by the Company.
"Written", "written" or "in writing" shall mean any form of
written communication or a communication by means of telex, facsimile
transmission, telegraph or cable.
1.2 Computation of Time Periods. In this Agreement in the computation
of periods of time from a specified date to a later specified date, the word
"from" means "from and including" and the words "to" and "until" each means "to
but excluding".
1.3 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles consistent with those applied in the preparation of the financial
statements referred to in section 7.8(a).
1.4 Currency Equivalents. For purposes of this Agreement, except as
otherwise specified herein, (i) the equivalent in Dollars of any Alternative
Currency shall be determined by using the quoted spot rate at which the
Administrative Agent offers to exchange Dollars for such Alternative Currency at
its Payment Office at 9:00 A.M. (local time at the Payment Office) two Business
Days prior to the date on which such equivalent is to be determined, (ii) the
equivalent in any Alternative Currency of any other Alternative Currency shall
be determined by using the quoted spot rate at which the Administrative Agent's
Payment Office offers to exchange such Alternative Currency for the equivalent
in Dollars of such other Alternative Currency at such Payment Office at 9:00
A.M. (local time at the Payment Office) two Business Days prior to the date on
which such equivalent is to be determined, and (iii) the equivalent in any
Alternative Currency of Dollars shall be determined by using the quoted spot
rate at which the Administrative Agent's Payment Office offers to exchange such
Alternative Currency for Dollars at the Payment Office at 9:00 A.M. (local time
at the Payment Office) two Business Days prior to the date on which such
equivalent is to be determined; provided, that (A) the equivalent in Dollars of
each Eurocurrency Loan made in an Alternative Currency shall be recalculated
hereunder on each date that it shall be necessary (or the Administrative Agent
shall elect) to determine the unused portion of each Lender's Commitment, or any
or all Loan or Loans outstanding on such date; (B) the equivalent in Dollars of
any Unpaid Drawing in respect of any Letter of Credit denominated in an
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Alternative Currency shall be determined at the time the drawing under such
Letter of Credit was paid or disbursed by the applicable Letter of Credit
Issuer; (C) for purposes of sections 2.1(a), 3.1(b) and 5.2(a), the equivalent
in Dollars of the Stated Amount of any Letter of Credit denominated in an
Alternative Currency shall be calculated (x) on the date of the issuance of the
respective Letter of Credit, (y) on the first Business Day of each calendar
month thereafter and (z) in any other case where the same is required or
permitted to be calculated, on such other day as the Administrative Agent may,
in its sole discretion, consider appropriate; and (D) for purposes of sections
4.1(b) and (c), the equivalent in Dollars of the Stated Amount of any Letter of
Credit denominated in an Alternative Currency shall be calculated on the first
day of each calendar month in the quarterly period in which the respective
payment is due pursuant to said sections.
SECTION 2. AMOUNT AND TERMS OF LOANS.
2.1 Commitments for Loans. Subject to and upon the terms and conditions
herein set forth, each Lender severally agrees to make a loan or loans (each a
"Loan" and, collectively, the "Loans") to the respective Borrowers, which Loans
shall be drawn, to the extent such Lender has a commitment under a Facility,
under the applicable Facility, as set forth below:
(a) Term Loan Facility. Loans under the Term Loan Facility
(each a "Term Loan" and, collectively, the "Term Loans"): (i) may only
be incurred by the Company; (ii) are to be made pursuant to a Borrowing
on the Initial Borrowing Date; (iii) except as otherwise provided, may,
at the option of the Company, be incurred and maintained as, or
converted into, Term Loans which are Prime Rate Loans, or Eurocurrency
Loans denominated in Dollars, provided that all Term Loans made as part
of the same Borrowing shall, unless otherwise specifically provided
herein, consist of Term Loans of the same Type; and (iv) shall not
exceed for any Lender at the time of incurrence thereof the aggregate
principal amount of the Term Loan Commitment, if any, of such Lender at
such time. Once prepaid or repaid, Term Loans may not be reborrowed.
(b) Revolving Facility. Loans under the Revolving Facility
(each a "Revolving Loan" and, collectively, the "Revolving Loans"): (i)
may be incurred by any Borrower, provided that (A) the aggregate
principal amount of the Revolving Loans of the Company may not exceed
$7,500,000 at any time, and (B) the principal amount of the Revolving
Loans of the German Borrower and the British Borrower may not exceed,
in the aggregate for both such Borrowers, $2,000,000 at any time; (ii)
may be made at any time and from time to time on and after the Initial
Borrowing Date and prior to the Maturity Date; (iii) except as
otherwise provided, may, at the option of the applicable Borrower, be
incurred and maintained as, or converted into, Revolving Loans which
are Prime Rate Loans, or Eurocurrency Loans denominated in Dollars or
in an Alternative Currency, provided that all Revolving Loans made as
part of the same Borrowing shall, unless otherwise specifically
provided herein, consist of Revolving Loans of the same currency and
Type; (iv) may be repaid or prepaid and reborrowed in accordance with
the provisions hereof; and (v) shall not exceed for any Lender at any
time outstanding that aggregate
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principal amount which, when added to the product at such time of (A)
such Lender's Revolving Facility Percentage, times (B) the aggregate
Letter of Credit Outstandings, equals the Revolving Commitment of such
Lender at such time. Revolving Loans to the Company which are
Eurocurrency Loans may only be denominated in Dollars.
2.2 Minimum Borrowing Amounts, etc.; Pro Rata Borrowings. (a) The
aggregate principal amount of each Borrowing by any Borrower shall not be less
than the Minimum Borrowing Amount. More than one Borrowing may be incurred by
any Borrower on any day, provided that (i) if there are two or more Borrowings
on a single day by the same Borrower under the same Facility which consist of
Eurocurrency Loans denominated in the same currency, each such Borrowing shall
have a different initial Interest Period, and at no time shall there be more
than 10 Borrowings of Eurocurrency Loans outstanding hereunder.
(b) All Borrowings under a Facility shall be made by the Lenders having
Commitments under such Facility pro rata on the basis of their respective
Commitments under such Facility. It is understood that no Lender shall be
responsible for any default by any other Lender in its obligation to make Loans
hereunder and that each Lender shall be obligated to make the Loans provided to
be made by it hereunder, regardless of the failure of any other Lender to
fulfill its Commitments hereunder.
2.3 Notice of Borrowing. (a) Whenever any Borrower desires to incur
Loans, the Company (on behalf of any applicable Borrower) shall give the
Administrative Agent at its Notice Office,
(A) prior to 11:00 A.M. (local time at its Notice Office), at
least three Business Days' prior written or telephonic notice (in the
case of telephonic notice, promptly confirmed in writing if so
requested by the Administrative Agent) of each Borrowing of
Eurocurrency Loans denominated in Dollars to be made hereunder,
(B) prior to 11:00 A.M. (local time at its Notice Office), at
least five Business Days' prior written or telephonic notice (in the
case of telephonic notice, promptly confirmed in writing if so
requested by the Administrative Agent) of each Borrowing of Revolving
Loans consisting of Eurocurrency Loans denominated in an Alternative
Currency to be made hereunder, and
(C) prior to 11:00 A.M. (local time at its Notice Office) on
the proposed date thereof written or telephonic notice (in the case of
telephonic notice, promptly confirmed in writing if so requested by the
Administrative Agent) of each Borrowing of Prime Rate Loans to be made
hereunder.
Each such notice (each such notice, a "Notice of Borrowing") shall (if requested
by the Administrative Agent to be confirmed in writing), be substantially in the
form of Exhibit B-1, and in any event shall be irrevocable and shall specify:
(i) the Facility under which the Borrowing is to
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be incurred, (ii) the name of the Borrower which is to incur such Borrowing,
(iii) the aggregate principal amount of the Loans to be made pursuant to such
Borrowing; (iv) the date of the Borrowing (which shall be a Business Day); (v)
whether the Borrowing shall consist of Prime Rate Loans or Eurocurrency Loans;
(vi) if the requested Borrowing consists of Eurocurrency Loans, the Interest
Period to be initially applicable thereto; and (vii) in the case of a requested
Borrowing consisting of Revolving Loans which are Eurocurrency Loans, the
currency, if other than Dollars, in which such Revolving Loans are requested.
The Administrative Agent shall promptly give each Lender which has a commitment
under any applicable Facility written notice (or telephonic notice promptly
confirmed in writing) of each proposed Borrowing under the applicable Facility,
of such Lender's proportionate share thereof and of the other matters covered by
the Notice of Borrowing relating thereto. Each Borrower other than the Company
hereby authorizes the Company to give any Notice of Borrowing on its behalf.
(b) In the case of a proposed Borrowing comprised of Revolving Loans
which are Eurocurrency Loans denominated in an Alternative Currency, the
obligation of each affected Lender to make its Eurocurrency Loan in the
requested Alternative Currency as part of such Borrowing is subject to:
(A) if such requested Alternative Currency is an Alternative
Currency described in clause (i) of the definition of the term
Alternative Currency, the confirmation by the Administrative Agent to
the Company (on behalf of any applicable Borrower) not later than the
fourth Business Day before the requested date of such Borrowing that
such Alternative Currency is readily and freely transferable and
convertible into Dollars, or
(B) if such requested Alternative Currency is not an
Alternative Currency described in clause (i) of the definition of the
term Alternative Currency, the confirmation by such Lender to the
Administrative Agent not later than the fourth Business Day before the
requested date of such Borrowing that such Alternative Currency is
acceptable to such Lender, which confirmation shall be notified
immediately by the Administrative Agent to the Company (on behalf of
any applicable Borrower).
If the Administrative Agent shall not have provided the confirmation referred to
in clause (A) above, or any affected Lender shall not have so provided to the
Administrative Agent the confirmation referred to in clause (B) above, the
Administrative Agent shall promptly notify the Company (on behalf of any
applicable Borrower) and each affected Lender that a Lender has not provided any
such confirmation referred to in such clause (B), whereupon the Company (on
behalf of any applicable Borrower) may, by notice to the Administrative Agent
not later than the third Business Day before the requested date of such
Borrowing, withdraw the Notice of Borrowing relating to such requested
Borrowing. If the Company (on behalf of any applicable Borrower) does so
withdraw such Notice of Borrowing, the Borrowing requested in such Notice of
Borrowing shall not occur and the Administrative Agent shall promptly so notify
each affected Lender. If the Company (on behalf of any applicable Borrower) does
not so withdraw such Notice of Borrowing, the Administrative Agent shall
promptly so notify each affected Lender and such
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Notice of Borrowing shall be deemed to be a Notice of Borrowing which requests a
Borrowing of Revolving Loans comprised of Eurocurrency Loans denominated in
Dollars and in an aggregate amount of Dollars equivalent, on the date the
Administrative Agent so notifies each affected Lender, to the amount of the
originally requested Borrowing in an Alternative Currency; and in such notice by
the Administrative Agent to each affected Lender the Administrative Agent shall
state such aggregate equivalent amount of such Borrowing in Dollars and such
Lender's ratable portion of such Borrowing. Each Borrower other than the Company
hereby authorizes the Company to give or receive on its behalf any notice
referred to above.
(c) Without in any way limiting the obligation of the Company (on
behalf of any applicable Borrower) to confirm in writing any telephonic notice
permitted to be given hereunder, the Administrative Agent may act prior to
receipt of written confirmation without liability upon the basis of such
telephonic notice believed by the Administrative Agent in good faith to be from
an Authorized Officer of the Company entitled to give telephonic notices under
this Agreement on behalf of any applicable Borrower. In each such case, the
Administrative Agent's record of the terms of such telephonic notice shall be
conclusive absent manifest error.
2.4 Disbursement of Funds from Borrowings. (a) No later than 2:00 P.M.
(local time at the Payment Office of the Administrative Agent) on the date
specified in each Notice of Borrowing relating to Eurocurrency Loans, and no
later than 2:00 P.M. (local time at the Payment Office of the Administrative
Agent) on the date specified in each Notice of Borrowing relating to Prime Rate
Loans, each Lender with a Commitment under the applicable Facility relating to
such Loans will make available its pro rata share, if any, of each Borrowing
under such Facility requested to be made on such date in the manner provided
below. All amounts relating to any Borrowing by a Borrower shall be made
available to the Administrative Agent in U.S. dollars or the applicable
Alternative Currency and immediately available funds at the Administrative
Agent's Payment Office and the Administrative Agent promptly will make available
to the applicable Borrower by depositing to its account at such Payment Office,
or at such other account in another financial institution designated by such
Borrower to the Administrative Agent, the aggregate of the amounts so made
available in the currency and type of funds received. Unless the Administrative
Agent shall have been notified by any Lender prior to the date of a Borrowing
that such Lender does not intend to make available to the Administrative Agent
its portion of the Borrowing or Borrowings to be made on such date, the
Administrative Agent may assume that such Lender has made such amount available
to the Administrative Agent on such date of Borrowing, and the Administrative
Agent, in reliance upon such assumption, may (in its sole discretion and without
any obligation to do so) make available to the applicable Borrower a
corresponding amount. If such corresponding amount is not in fact made available
to the Administrative Agent by such Lender and the Administrative Agent has made
available same to the applicable Borrower, the Administrative Agent shall be
entitled to recover such corresponding amount from such Lender. If such Lender
does not pay such corresponding amount forthwith upon the Administrative Agent's
demand therefor, the Administrative Agent shall promptly notify the Company (on
behalf of any applicable Borrower), and the applicable Borrower shall
immediately pay such corresponding amount to the Administrative Agent. The
Administrative
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Agent shall also be entitled to recover from such Lender or the applicable
Borrower, as the case may be, interest on such corresponding amount in respect
of each day from the date such corresponding amount was made available by the
Administrative Agent to the applicable Borrower to the date such corresponding
amount is recovered by the Administrative Agent at a rate per annum equal to (x)
if paid by such Lender, the overnight Federal Funds Effective Rate or (y) if
paid by the applicable Borrower, the then applicable rate of interest,
calculated in accordance with section 2.7, for the respective Loan (but without
any requirement to pay any amounts in respect thereof pursuant to section 2.10).
(b) Nothing herein and no subsequent termination of the Commitments
pursuant to section 4.2 or 4.3 shall be deemed to relieve any Lender from its
obligation to fulfill its commitments hereunder and in existence from time to
time or to prejudice any rights which any Borrower may have against any Lender
as a result of any default by such Lender hereunder.
2.5 Notes. (a) Each applicable Borrower's obligation to pay the
principal of, and interest on, the Loans made to it by each Lender shall be
evidenced (i) if a Term Loan, by a promissory note of the Company substantially
in the form of Exhibit A-1 (each a "Term Note" and, collectively, the "Term
Notes") and (ii) if a Revolving Loan, by a promissory note of the applicable
Borrower substantially in the form of Exhibit A-2 with blanks appropriately
completed in conformity herewith (each a "Revolving Note" and, collectively, the
"Revolving Notes").
(b) The Term Note issued to a Lender with a Term Loan Commitment shall:
(i) be executed by the Company; (ii) be payable to the order of such Lender and
be dated on or prior to the Initial Borrowing Date; (iii) be in a stated
principal amount equal to the Term Loan Commitment of such Lender and be payable
in the principal amount of Term Loans evidenced thereby; (iv) mature on the
Maturity Date; (v) bear interest as provided in section 2.7 in respect of the
Prime Rate Loans or Eurocurrency Loans, as the case may be, evidenced thereby;
(vi) provide for installment payments of principal thereof in accordance with
section 5.2(b); (vii) be subject to mandatory prepayment as provided in section
5.2; and (viii) be entitled to the benefits of this Agreement and the other
Credit Documents.
(c) The Revolving Note issued by any Borrower to a Lender with a
Revolving Commitment shall: (i) be executed by such Borrower; (ii) be payable to
the order of such Lender and be dated on or prior to the Initial Borrowing Date;
(iii) be payable in the principal amount of Revolving Loans evidenced thereby;
(iv) mature on the Maturity Date; (v) bear interest as provided in section 2.7
in respect of the Prime Rate Loans or Eurocurrency Loans, as the case may be,
evidenced thereby; (vi) be subject to mandatory prepayment as provided in
section 5.2; and (vii) be entitled to the benefits of this Agreement and the
other Credit Documents.
(d) Each Lender will note on its internal records the amount of each
Loan made by it and each payment in respect thereof and will, prior to any
transfer of any of the Notes issued to it by any Borrower, endorse on the
reverse side thereof or the grid attached thereto the outstanding
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principal amount of Loans evidenced thereby. Failure to make any such notation
or any error in any such notation shall not affect any Borrower's obligations in
respect of such Loans.
2.6 Voluntary Conversion of Dollar Denominated Loans. Each Borrower
shall have the option to convert on any Business Day all or a portion at least
equal to the applicable Minimum Borrowing Amount of the outstanding principal
amount of its Loans denominated in Dollars of one Type owing by it pursuant to a
single Facility into a Borrowing or Borrowings pursuant to the same Facility of
another Type of Loans denominated in Dollars which can be made pursuant to such
Facility, provided that: (i) no partial conversion of a Borrowing of
Eurocurrency Loans shall reduce the outstanding principal amount of the
Eurocurrency Loans made pursuant to such Borrowing to less than the Minimum
Borrowing Amount applicable thereto; (ii) any conversion of Eurocurrency Loans
into Prime Rate Loans shall be made on, and only on, the last day of an Interest
Period for such Eurocurrency Loans; (iii) Prime Rate Loans may only be converted
into Eurocurrency Loans if no Default under section 10.1(a) or Event of Default
is in existence on the date of the conversion unless the Required Lenders
otherwise agree; and (iv) Borrowings of Eurocurrency Loans resulting from this
section 2.6 shall conform to the requirements of section 2.2. Each such
conversion shall be effected by such Borrower giving the Administrative Agent at
its Notice Office, prior to 11:00 A.M. (local time at such Notice Office), at
least three Business Days' (or prior to 11:00 A.M. (local time at such Notice
Office) same Business Day's, in the case of a conversion into Prime Rate Loans)
prior written notice (or telephonic notice promptly confirmed in writing if so
requested by the Administrative Agent) (each a "Notice of Conversion"),
substantially in the form of Exhibit B-2, specifying the Loans to be so
converted, the Type of Loans to be converted into and, if to be converted into a
Borrowing of Eurocurrency Loans, the Interest Period to be initially applicable
thereto. The Administrative Agent shall give each Lender prompt notice of any
such proposed conversion affecting any of its Loans. For the avoidance of doubt,
the prepayment or repayment of any Revolving Loans out of the proceeds of other
Revolving Loans by a Borrower is not considered a conversion of Revolving Loans
into other Revolving Loans.
2.7 Interest on Loans. (a) The unpaid principal amount of each Loan
which is a Prime Rate Loan shall bear interest from the date of the Borrowing
thereof until maturity (whether by acceleration or otherwise) at a fluctuating
rate per annum which shall at all times be equal to the Prime Rate in effect
from time to time.
(b) The unpaid principal amount of each Loan which is a Eurocurrency
Loan shall bear interest from the date of the Borrowing thereof until maturity
(whether by acceleration or otherwise) at a rate per annum which shall at all
times be the Applicable Eurocurrency Margin (as defined below) for such Loan
plus the relevant Eurocurrency Rate.
(c) Notwithstanding the above provisions, if a Default under section
10.1(a) or Event of Default is in existence, all outstanding amounts of
principal and, to the extent permitted by law, all overdue interest, in respect
of each Loan shall bear interest, payable on demand, at a rate per annum equal
to 2% per annum above the interest rate otherwise applicable thereto. If any
amount
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(other than the principal of and interest on the Loans) payable by any Borrower
under the Credit Documents is not paid when due, such amount shall bear
interest, payable on demand, at a rate per annum equal to the Prime Rate in
effect from time to time plus 2% per annum.
(d) Interest shall accrue from and including the date of any Borrowing
to but excluding the date of any prepayment or repayment thereof and shall be
payable (i) in respect of each Prime Rate Loan, quarterly in arrears on the last
Business Day of March, June, September and December, (ii) in respect of each
Eurocurrency Loan, on the last day of each Interest Period applicable thereto
and, in the case of an Interest Period in excess of three months, on the dates
which are successively three months after the commencement of such Interest
Period, and (iii) in respect of each Loan, on any prepayment or conversion (on
the amount prepaid or converted), at maturity (whether by acceleration or
otherwise) and, after such maturity, on demand.
(e) All computations of interest hereunder shall be made in accordance
with section 13.7(b).
(f) Each Reference Bank agrees to furnish the Administrative Agent
timely information for the purpose of determining the Eurocurrency Rate for any
Borrowing consisting of Eurocurrency Loans. If any one or more of the Reference
Banks shall not timely furnish such information, the Administrative Agent shall
determine the Eurocurrency Rate on the basis of timely information furnished by
the remaining Reference Banks. The Administrative Agent upon determining the
interest rate for any Borrowing shall promptly notify the Company (on behalf of
any applicable Borrower) and the Lenders thereof.
2.8 Interest Periods. (a) At the time the Company (on behalf of any
applicable Borrower) gives a Notice of Borrowing or Notice of Conversion in
respect of the making of, or conversion into, a Borrowing of Eurocurrency Loans
(in the case of the initial Interest Period applicable thereto) or prior to
11:00 A.M. (local time at the applicable Notice Office) on the third Business
Day prior to the expiration of an Interest Period applicable to a Borrowing of
Eurocurrency Loans, it shall have the right (on behalf of any applicable
Borrower) to elect by giving the Administrative Agent written or telephonic
notice (in the case of telephonic notice, promptly confirmed in writing if so
requested by the Administrative Agent) of the Interest Period applicable to such
Borrowing, which Interest Period shall, at the option of the Company (on behalf
of any applicable Borrower), be a one, two, three or six month period.
Notwithstanding anything to the contrary contained above:
(i) the initial Interest Period for any Borrowing of
Eurocurrency Loans shall commence on the date of such Borrowing
(including the date of any conversion from a Borrowing of Prime Rate
Loans) and each Interest Period occurring thereafter in respect of such
Borrowing shall commence on the day on which the next preceding
Interest Period expires;
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(ii) if any Interest Period begins on a day for which there is
no numerically corresponding day in the calendar month at the end of
such Interest Period, such Interest Period shall end on the last
Business Day of such calendar month;
(iii) if any Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day, provided that if any Interest Period
would otherwise expire on a day which is not a Business Day but is a
day of the month after which no further Business Day occurs in such
month, such Interest Period shall expire on the next preceding Business
Day,
(iv) no Interest Period with respect to any Borrowing of Term
Loans may be elected that would extend beyond any date upon which a
Scheduled Repayment is required to be made in respect of such Loans if,
after giving effect to the selection of such Interest Period, the
aggregate principal amount of Term Loans maintained as Eurocurrency
Loans with Interest Periods ending after such date would exceed the
aggregate principal amount of Term Loans permitted to be outstanding
after such Scheduled Repayment;
(v) no Interest Period for any Loan may be selected which
would end after the Maturity Date; and
(vi) no Interest Period may be elected at any time when a
Default under section 10.1(a) or an Event of Default is then in
existence unless the Required Lenders otherwise agree.
(b) If upon the expiration of any Interest Period the Company (on
behalf of any applicable Borrower) has failed to (or may not) elect a new
Interest Period to be applicable to the respective Borrowing of Eurocurrency
Loans as provided above, the Company (on behalf of any applicable Borrower)
shall be deemed to have elected to convert such Borrowing to Prime Rate Loans
effective as of the expiration date of such current Interest Period.
2.9 Increased Costs, Illegality, etc. (a) In the event that (x) in the
case of clause (i) below, the Administrative Agent or (y) in the case of clauses
(ii) and (iii) below, any Lender, shall have determined on a reasonable basis
(which determination shall, absent manifest error, be final and conclusive and
binding upon all parties hereto):
(i) on any date for determining the Eurocurrency Rate for
Eurocurrency Loans for any Interest Period that, by reason of any
changes arising after the Effective Date affecting the interbank
Eurocurrency market, adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis provided for in
the definition of Eurocurrency Rate; or
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(ii) at any time, that such Lender shall incur increased costs
or reductions in the amounts received or receivable hereunder in an
amount which such Lender deems material with respect to any
Eurocurrency Loans (other than any increased cost or reduction in the
amount received or receivable resulting from the imposition of or a
change in the rate of taxes or similar charges) because of any change
since the Effective Date in any applicable law, governmental rule,
regulation, guideline, order or request (whether or not having the
force of law), or in the interpretation or administration thereof and
including the introduction of any new law or governmental rule,
regulation, guideline, order or request (such as, for example, but not
limited to, a change in official reserve requirements, but, in all
events, excluding reserves includable in the Eurocurrency Rate pursuant
to the definition thereof); or
(iii) at any time, that the making or continuance of any
Eurocurrency Loan denominated in Dollars or in an Alternative Currency
has become unlawful by compliance by such Lender in good faith with any
change since the Effective Date in any law, governmental rule,
regulation, guideline or order, or the interpretation or application
thereof, or would conflict with any thereof not having the force of law
but with which such Lender customarily complies;
then, and in any such event, such Lender (or the Administrative Agent in the
case of clause (i) above) shall (x) on such date and (y) within 10 Business Days
of the date on which such event no longer exists give notice (by telephone
confirmed in writing) to the Company (on behalf of any applicable Borrower) and
to the Administrative Agent of such determination (which notice the
Administrative Agent shall promptly transmit to each of the other applicable
Lenders). Thereafter (x) in the case of clause (i) above, Eurocurrency Loans
shall no longer be available until such time as the Administrative Agent
notifies the Company (on behalf of the applicable Borrowers) and the applicable
Lenders that the circumstances giving rise to such notice by the Administrative
Agent no longer exist, and any Notice of Borrowing or Notice of Conversion given
by or on behalf of a Borrower with respect to Eurocurrency Loans which have not
yet been incurred or converted shall be deemed rescinded by such Borrower or, in
the case of a Notice of Borrowing, shall, at the option of the Company (on
behalf of such Borrower), be deemed converted into a Notice of Borrowing for
Prime Rate Loans to be made on the date of Borrowing contained in such Notice of
Borrowing, (y) in the case of clause (ii) above, the applicable Borrower shall
pay to such Lender, upon written demand therefor, such additional amounts (in
the form of an increased rate of, or a different method of calculating, interest
or otherwise as such Lender shall determine) as shall be required to compensate
such Lender, for such increased costs or reductions in amounts receivable
hereunder (a written notice as to the additional amounts owed to such Lender,
showing the basis for the calculation thereof, which basis must be reasonable,
submitted to the Company (on behalf of such Borrower) by such Lender shall,
absent manifest error, be final and conclusive and binding upon all parties
hereto) and (z) in the case of clause (iii) above, the applicable Borrower shall
take one of the actions specified in section 2.9(b) as promptly as possible and,
in any event, within the time period required by law.
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(b) At any time that any Eurocurrency Loan is affected by the
circumstances described in section 2.9(a)(ii) or (iii), the applicable Borrower
may (and in the case of a Eurocurrency Loan affected pursuant to section
2.9(a)(iii) the applicable Borrower shall) either (i) if the affected
Eurocurrency Loan is then being made pursuant to a Borrowing, by giving the
Administrative Agent telephonic notice (confirmed promptly in writing if
requested) thereof on the same date that such Borrower was notified by a Lender
pursuant to section 2.9(a)(ii) or (iii), cancel said Borrowing, convert the
related Notice of Borrowing into one requesting a Borrowing of Prime Rate Loans
or require the affected Lender to make its requested Loan as a Prime Rate Loan,
or (ii) if the affected Eurocurrency Loan is then outstanding, upon at least one
Business Days notice to the Administrative Agent, require the affected Lender to
convert each such Eurocurrency Loan into a Prime Rate Loan, provided that if
more than one Lender is affected at any time, then all affected Lenders must be
treated the same pursuant to this section 2.9(b).
(c) If any Lender shall have determined that after the Effective Date,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged by law with the interpretation or administration thereof, or
compliance by such Lender or its parent corporation with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank, or comparable agency, in each case made
subsequent to the Effective Date, has or would have the effect of reducing by an
amount reasonably deemed by such Lender to be material the rate of return on
such Lender's or its parent corporation's capital or assets as a consequence of
such Lender's commitments or obligations hereunder to a level below that which
such Lender or its parent corporation could have achieved but for such adoption,
effectiveness, change or compliance (taking into consideration such Lender's or
its parent corporation's policies with respect to capital adequacy), then from
time to time, within 15 days after demand by such Lender (with a copy to the
Administrative Agent), each applicable Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender or its parent
corporation for such reduction. Each Lender, upon determining in good faith that
any additional amounts will be payable pursuant to this section 2.9(c), will
give prompt written notice thereof to the Company (who will in turn give notice
to the other Borrowers), which notice shall set forth, in reasonable detail, the
basis of the calculation of such additional amounts, which basis must be
reasonable, although the failure to give any such notice shall not release or
diminish any applicable Borrower's obligations to pay additional amounts
pursuant to this section 2.9(c) upon the subsequent receipt of such notice.
(d) Notwithstanding anything in this Agreement to the contrary, (i) no
Lender shall be entitled to compensation or payment or reimbursement of other
amounts under section 2.9, 3.5 or 5.4 for any amounts incurred or accruing more
than 180 days prior to the giving of notice to the Company of additional costs
or other amounts of the nature described in such sections, and (ii) no Lender
shall demand compensation for any reduction referred to in section 2.9(c) or
payment or reimbursement of other amounts under section 3.5 or 5.4 if it shall
not at the time be the general
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policy or practice of such Lender to demand such compensation, payment or
reimbursement in similar circumstances under comparable provisions of other
credit agreements.
2.10 Compensation. Each applicable Borrower shall compensate each
applicable Lender, upon its written request (which request shall set forth the
detailed basis for requesting and the method of calculating such compensation),
for all reasonable losses, expenses and liabilities (including, without
limitation, any loss, expense or liability incurred by reason of the liquidation
or reemployment of deposits or other funds required by such Lender to fund its
Eurocurrency Loans) which such Lender may sustain: (i) if for any reason (other
than a default by such Lender or the Administrative Agent) a Borrowing of
Eurocurrency Loans by such Borrower does not occur on a date specified therefor
in a Notice of Borrowing or Notice of Conversion (whether or not withdrawn by or
on behalf of such Borrower or deemed withdrawn pursuant to section 2.9(a)); (ii)
if any repayment, prepayment or conversion of any of its Eurocurrency Loans
occurs on a date which is not the last day of an Interest Period applicable
thereto; (iii) if any prepayment of any of its Eurocurrency Loans is not made on
any date specified in a notice of prepayment given by or on behalf of such
Borrower; or (iv) as a consequence of (x) any other default by such Borrower to
repay its Eurocurrency Loans when required by the terms of this Agreement or (y)
an election made pursuant to section 2.9(b).
2.11 Change of Lending Office; Replacement of Lenders. (a) Each Lender
agrees that, upon the occurrence of any event giving rise to the operation of
section 2.9(a)(ii) or (iii), 2.9(c), 3.5 or 5.4 with respect to such Lender, it
will, if requested by the Company (on behalf of any applicable Borrower), use
reasonable efforts (subject to overall policy considerations of such Lender) to
designate another Applicable Lending Office for any Loans or Commitment affected
by such event, provided that such designation is made on such terms that such
Lender and its Applicable Lending Office suffer no economic, legal or regulatory
disadvantage, with the object of avoiding the consequence of the event giving
rise to the operation of any such section.
(b) If any Lender requests any compensation, reimbursement or other
payment under section 2.9(a)(ii) or (iii), 2.9(c) or 3.5 with respect to such
Lender, or if any applicable Borrower is required to pay any additional amount
to any Lender or governmental authority pursuant to section 5.4, or if any
Lender is a Defaulting Lender, then the Company may, at its sole expense and
effort, upon notice to such Lender and the Administrative Agent, require such
Lender to assign and delegate, without recourse (in accordance with the
restrictions contained in section 13.4(b)), all its interests, rights and
obligations under this Agreement to an assignee that shall assume such
obligations (which assignee may be another Lender, if a Lender accepts such
assignment); provided that (i) the Company shall have received the prior written
consent of the Administrative Agent, which consent shall not be unreasonably
withheld, (ii) such Lender shall have received payment of an amount equal to the
outstanding principal of its Loans, accrued interest thereon, accrued fees and
all other amounts payable to it hereunder, from the assignee (to the extent of
such outstanding principal and accrued interest and fees) or any applicable
Borrower (in the case of all other amounts), and (iii) in the case of any such
assignment resulting from a claim for compensation, reimbursement or other
payments required to be made under section
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2.9(a)(ii) or (iii), 2.9(c) or 3.5 with respect to such Lender, or resulting
from any required payments to any Lender or governmental authority pursuant to
section 5.4, such assignment will result in a reduction in such compensation,
reimbursement or payments. A Lender shall not be required to make any such
assignment and delegation if, prior thereto, as a result of a waiver by such
Lender or otherwise, the circumstances entitling the Company to require such
assignment and delegation cease to apply.
(c) Nothing in this section 2.11 shall affect or postpone any of the
obligations of any Borrower or the right of any Lender provided in section 2.9,
3.5 or 5.4.
SECTION 3. LETTERS OF CREDIT.
3.1 Letters of Credit. (a) Subject to and upon the terms and conditions
herein set forth, the Company may request a Letter of Credit Issuer at any time
and from time to time on or after the Initial Borrowing Date and prior to the
date that is 15 Business Days prior to the Maturity Date to issue, for the
account of the Company or any of its Subsidiaries and in support of (i) trade
obligations of the Company and its Subsidiaries incurred in the ordinary course
of business and/or (ii) worker compensation, liability insurance, releases of
contract retention obligations, contract performance guarantee requirements and
other bonding obligations of the Company or any such Subsidiary incurred in the
ordinary course of its business, the Phoenix Earnout, and such other standby
obligations of the Company and its Subsidiaries that are acceptable to the
Letter of Credit Issuer, and subject to and upon the terms and conditions herein
set forth, such Letter of Credit Issuer agrees to issue from time to time,
irrevocable documentary or standby letters of credit denominated in Dollars or
an Alternative Currency in such form as may be approved by such Letter of Credit
Issuer and the Administrative Agent (each such letter of credit (and each
Existing Letter of Credit described in section 3.1(d)), a "Letter of Credit" and
collectively, the "Letters of Credit").
(b) Notwithstanding the foregoing, (i) no Letter of Credit shall be
issued the Stated Amount of which, when added to the Letter of Credit
Outstandings at such time, would exceed either (x) $8,000,000 or (y) when added
to the aggregate principal amount of all Revolving Loans then outstanding, an
amount equal to the Total Revolving Commitment at such time, and (ii) each
Letter of Credit shall have an expiry date (including any renewal periods)
occurring not later than the earlier of (A) one year from the date of issuance
thereof (two years in the case of the Letter of Credit issued to support the
Phoenix Earnout), unless a longer period is approved by the relevant Letter of
Credit Issuer and Lenders (other than any Defaulting Lender) holding a majority
of the Total Revolving Commitment, and (B) 15 Business Days prior to the
Maturity Date, in each case on terms acceptable to the Administrative Agent and
the relevant Letter of Credit Issuer.
(c) Notwithstanding the foregoing, in the event a Lender Default
exists, no Letter of Credit Issuer shall be required to issue any Letter of
Credit unless either (i) such Letter of Credit Issuer has entered into
arrangements satisfactory to it and the Company to eliminate such Letter
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of Credit Issuer's risk with respect to the participation in Letters of Credit
of the Defaulting Lender or Lenders, including by cash such Defaulting Lender's
or Lenders' Percentage of the Letter of Credit Outstandings; or (ii) the
issuance of such Letter of Credit, taking into account the potential failure of
the Defaulting Lender or Lenders to risk participate therein, will not cause the
Letter of Credit Issuer to incur aggregate credit exposure hereunder with
respect to Revolving Loans and Letter of Credit Outstandings in excess of its
Revolving Commitment, and the Company has undertaken for the benefit of such
Letter of Credit Issuer, pursuant to an instrument satisfactory in form and
substance to such Letter of Credit Issuer, not to thereafter incur Loans or
Letter of Credit Outstandings hereunder which would cause the Letter of Credit
Issuer to incur aggregate credit exposure hereunder with respect to Revolving
Loans and Letter of Credit Outstandings in excess of its Revolving Commitment.
(d) Annex VI hereto contains a description of all letters of credit
outstanding on, and to continue in effect after, the Initial Borrowing Date.
Each such letter of credit issued by a bank that is or becomes a Lender under
this Agreement on the Effective Date (each, an "Existing Letter of Credit")
shall constitute a "Letter of Credit" for all purposes of this Agreement,
issued, for purposes of section 3.4(a), on the Initial Borrowing Date, and the
Company, the Administrative Agent and the applicable Lenders hereby agree that,
from and after such date, the terms of this Agreement shall apply to such
Letters of Credit, superseding any other agreement theretofore applicable to
them to the extent inconsistent with the terms hereof.
3.2 Letter of Credit Requests: Notices of Issuance. (a) Whenever it
desires that a Letter of Credit be issued, the Company shall give the
Administrative Agent and the Letter of Credit Issuer written or telephonic
notice (in the case of telephonic notice, promptly confirmed in writing if so
requested by the Administrative Agent) which, if in the form of written notice
shall be substantially in the form of Exhibit B-3, prior to 11:00 A.M. (local
time at its Notice Office) at least three Business Days (or such shorter period
as may be acceptable to the relevant Letter of Credit Issuer) prior to the
proposed date of issuance (which shall be a Business Day) (each a "Letter of
Credit Request"), which Letter of Credit Request shall include such supporting
documents that such letter of Credit Issuer customarily requites in connection
therewith (including, in the case of a Letter of Credit for an account party
other than the Company, an application for, and if applicable a reimbursement
agreement with respect to, such Letter of Credit). Any such documents executed
in connection with the issuance of a Letter of Credit, including the Letter of
Credit itself, are herein referred to as "Letter of Credit Documents". In the
event of any inconsistency between any of the terms or provisions of any Letter
of Credit Document and the terms and provisions of this Agreement respecting
Letters of Credit, the terms and provisions of this Agreement shall control. The
Administrative Agent shall promptly notify each Lender of each Letter of Credit
Request.
(b) Each Letter of Credit Issuer shall, on the date of each issuance of
a Letter of Credit by it, give the Administrative Agent, each applicable Lender
and the Company written notice of the issuance of such Letter of Credit,
accompanied by a copy to the Administrative Agent of the Letter of Credit or
Letters of Credit issued by it. Each Letter of Credit Issuer shall
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provide to the Administrative Agent a quarterly (or monthly if requested by any
applicable Lender) summary describing each Letter of Credit issued by such
Letter of Credit Issuer and then outstanding and an identification for the
relevant period of the daily aggregate Letter of Credit Outstandings represented
by Letters of Credit issued by such Letter of Credit Issuer.
3.3 Agreement to Repay Letter of Credit Drawings. (a) The Company
hereby agrees to reimburse (or cause any Subsidiary for whose account a Letter
of Credit was issued to reimburse) each Letter of Credit Issuer, by making
payment directly to such Letter of Credit Issuer in immediately available funds
at the payment office of such Letter of Credit Issuer, for any payment or
disbursement made by such Letter of Credit Issuer under any Letter of Credit
(each such amount so paid or disbursed until reimbursed, an "Unpaid Drawing")
immediately after, and in any event on the date on which, such Letter of Credit
Issuer notifies the Company (or any such Subsidiary for whose account such
Letter of Credit was issued) of such payment or disbursement (which notice to
the Company (or such Subsidiary) shall be delivered reasonably promptly after
any such payment or disbursement), such payment to be made in Dollars (and in
the amount which is the Dollar equivalent of any such payment or disbursement
made or denominated in an Alternative Currency), with interest on the amount so
paid or disbursed by such Letter of Credit Issuer, to the extent not reimbursed
prior to 1:00 P.M. (local time at the payment office of the Letter of Credit
Issuer) on the date of such payment or disbursement, from and including the date
paid or disbursed to but not including the date such Letter of Credit Issuer is
reimbursed therefor at a rate per annum which shall be the rate then applicable
to Revolving Loans which are Prime Rate Loans (plus an additional 3% per annum
if not reimbursed by the third Business Day after the date of such payment or
disbursement), any such interest also to be payable on demand.
(b) The Company's obligation under this section 3.3 to reimburse, or
cause a Subsidiary to reimburse, each Letter of Credit Issuer with respect to
Unpaid Drawings (including, in each case, interest thereon) shall be absolute
and unconditional under any and all circumstances and irrespective of any
setoff, counterclaim or defense to payment which the Company may have or have
had against such Letter of Credit Issuer, the Administrative Agent, any other
Letter of Credit Issuer or any Lender, including, without limitation, any
defense based upon the failure of any drawing under a Letter of Credit to
conform to the terms of the Letter of Credit or any non- application or
misapplication by the beneficiary of the proceeds of such drawing, provided,
however that the Company shall not be obligated to reimburse, or cause a
Subsidiary to reimburse, a Letter of Credit Issuer for any wrongful payment made
by such Letter of Credit Issuer under a Letter of Credit as a result of acts or
omissions constituting willful misconduct or negligence on the part of such
Letter of Credit Issuer.
3.4 Letter of Credit Participations. (a) Immediately upon the issuance
by a Letter of Credit Issuer of any Letter of Credit (and on the Initial
Borrowing Date with respect to any Existing Letter of Credit), such Letter of
Credit Issuer shall be deemed to have sold and transferred to each Lender with a
Commitment under the Revolving Loan Facility, and each such Lender (each a
"Participant") shall be deemed irrevocably and unconditionally to have purchased
and received from such Letter of Credit Issuer, without recourse or warranty, an
undivided
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interest and participation, to the extent of such Lender's Revolving Facility
Percentage, in such Letter of Credit, each substitute letter of credit, each
drawing made thereunder, the obligations of the Company under this Agreement
with respect thereto (although Letter of Credit Fees shall be payable directly
to the Administrative Agent for the account of the Lenders as provided in
section 4.1(b) and the Participants shall have no right to receive any portion
of any fees of the nature contemplated by section 4.1(c)), the obligations of
any Subsidiary of the Company under any Letter of Credit Documents pertaining
thereto, and any security for, or guaranty pertaining to, any of the foregoing.
Upon any change in the Revolving Commitments of the Lenders pursuant to section
13.4(b), it is hereby agreed that, with respect to all outstanding Letters of
Credit and Unpaid Drawings, there shall be an automatic adjustment to the
participations pursuant to this section 3.4 to reflect the new Revolving
Facility Percentages of the assigning and assignee Lender.
(b) In determining whether to pay under any Letter of Credit, a Letter
of Credit Issuer shall not have any obligation relative to the Participants
other than to determine that any documents required to be delivered under such
Letter of Credit have been delivered and that they appear to comply on their
face with the requirements of such Letter of Credit. Any action taken or omitted
to be taken by a Letter of Credit Issuer under or in connection with any Letter
of Credit if taken or omitted in the absence of gross negligence or willful
misconduct, shall not create for such Letter of Credit Issuer any resulting
liability.
(c) In the event that a Letter of Credit Issuer makes any payment under
any Letter of Credit and the Company shall not have reimbursed (or caused any
applicable Subsidiary to reimburse) such amount in full to such Letter of Credit
Issuer pursuant to section 3.3(a), such Letter of Credit Issuer shall promptly
notify the Administrative Agent, and the Administrative Agent shall promptly
notify each Participant of such failure, and each Participant shall promptly and
unconditionally pay to the Administrative Agent for the account of such Letter
of Credit Issuer, the amount of such Participant's Revolving Facility Percentage
of such payment in U.S. Dollars (the Administrative Agent having determined in
the case of any payment by a Letter of Credit Issuer made in an Alternative
Currency the equivalent thereof in Dollars) and in same day funds, provided,
however, that no Participant shall be obligated to pay to the Administrative
Agent its Revolving Facility Percentage of such unreimbursed amount for any
wrongful payment made by such Letter of Credit Issuer under a Letter of Credit
as a result of acts or omissions constituting willful misconduct or gross
negligence on the part of such Letter of Credit Issuer. If the Administrative
Agent so notifies any Participant required to fund a payment under a Letter of
Credit prior to 11:00 A.M. (local time at its Notice Office) on any Business
Day, such Participant shall make available to the Administrative Agent for the
account of the relevant Letter of Credit Issuer such Participant's Revolving
Facility Percentage of the amount of such payment on such Business Day in same
day funds. If and to the extent such Participant shall not have so made its
Revolving Facility Percentage of the amount of such payment available to the
Administrative Agent for the account of the relevant Letter of Credit Issuer,
such Participant agrees to pay to the Administrative Agent for the account of
such Letter of Credit Issuer, forthwith on demand such amount, together with
interest thereon, for each day from such date until the date such amount is
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paid to the Administrative Agent for the account of such Letter of Credit Issuer
at the Federal Funds Effective Rate. The failure of any Participant to make
available to the Administrative Agent for the account of the relevant Letter of
Credit Issuer its Revolving Facility Percentage of any payment under any Letter
of Credit shall not relieve any other Participant of its obligation hereunder to
make available to the Administrative Agent for the account of such Letter of
Credit Issuer its Revolving Facility Percentage of any payment under any Letter
of Credit on the date required, as specified above, but no Participant shall be
responsible for the failure of any other Participant to make available to the
Administrative Agent for the account of such Letter of Credit Issuer such other
Participant's Revolving Facility Percentage of any such payment.
(d) Whenever a Letter of Credit Issuer receives a payment of a
reimbursement obligation as to which the Administrative Agent has received for
the account of such Letter of Credit Issuer any payments from the Participants
pursuant to section 3.4(c) above, such Letter of Credit Issuer shall pay to the
Administrative Agent and the Administrative Agent shall promptly pay to each
Participant which has paid its Revolving Facility Percentage thereof, in U.S.
dollars and in same day funds, an amount equal to such Participant's Revolving
Facility Percentage of the principal amount thereof and interest thereon
accruing after the purchase of the respective participations, as and to the
extent so received.
(e) The obligations of the Participants to make payments to the
Administrative Agent for the account of each Letter of Credit Issuer with
respect to Letters of Credit shall be irrevocable and not subject to
counterclaim, set-off or other defense or any other qualification or exception
whatsoever and shall be made in accordance with the terms and conditions of this
Agreement under all circumstances, including, without limitation, any of the
following circumstances:
(i) any lack of validity or enforceability of this Agreement
or any of the other Credit Documents;
(ii) the existence of any claim, set-off defense or other
right which the Company (or any Subsidiary) may have at any time
against a beneficiary named in a Letter of Credit, any transferee of
any Letter of Credit (or any person for whom any such transferee may be
acting), the Administrative Agent, any Letter of Credit Issuer, any
Lender, or other person, whether in connection with this Agreement, any
Letter of Credit, the transactions contemplated herein or any unrelated
transactions (including any underlying transaction between the Company
(or any Subsidiary) and the beneficiary named in any such Letter of
Credit), other than any claim which the Company (or any Subsidiary
which is the account party with respect to a Letter of Credit) may have
against any applicable Letter of Credit Issuer for gross negligence or
wilful misconduct of such Letter of Credit Issuer in making payment
under any applicable Letter of Credit;
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(iii) any draft, certificate or other document presented under
the Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security for the
performance or observance of any of the terms of any of the Credit
Documents; or
(v) the occurrence of any Default or Event of Default.
(f) To the extent the Letter of Credit Issuer is not indemnified by the
Company, the Participants will reimburse and indemnify the Letter of Credit
Issuer, in proportion to their respective Revolving Loan Facility Percentages,
for and against any and all liabilities, obligations, losses, damages,
penalties, claims, actions, judgments, costs, expenses or disbursements of
whatsoever kind or nature which may be imposed on, asserted against or incurred
by the Letter of Credit Issuer in performing its respective duties in any way
related to or arising out of its issuance of Letters of Credit, provided that no
Participants shall be liable for any portion of such liabilities, obligations,
losses, damages, penalties, claims, actions, judgments, costs, expenses or
disbursements resulting from the Letter of Credit Issuer's gross negligence or
willful misconduct.
3.5 Increased Costs. If after the Effective Date, the adoption of any
applicable law, rule or regulation, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Letter of Credit Issuer or any Lender with any
request or directive (whether or not having the force of law) by any such
authority, central bank or comparable agency (in each case made subsequent to
the Effective Date) shall either (i) impose, modify or make applicable any
reserve, deposit, capital adequacy or similar requirement against Letters of
Credit issued by such Letter of Credit Issuer or such Lender's participation
therein, or (ii) shall impose on such Letter of Credit Issuer or any Lender any
other conditions affecting this Agreement, any Letter of Credit or such Lender's
participation therein; and the result of any of the foregoing is to increase the
cost to such Letter of Credit Issuer or such Lender of issuing, maintaining or
participating in any Letter of Credit, or to reduce the amount of any sum
received or receivable by such Letter of Credit Issuer or such Lender hereunder
(other than any increased cost or reduction in the amount received or receivable
resulting from the imposition of or a change in the rate of taxes or similar
charges), then, upon demand to the Company by such Letter of Credit Issuer or
such Lender (a copy of which notice shall be sent by such Letter of Credit
Issuer or such Lender to the Administrative Agent), the Company shall pay to
such Letter of Credit Issuer or such Lender such additional amount or amounts as
will compensate any such Letter of Credit Issuer or such Lender for such
increased cost or reduction. A certificate submitted to the Company by any
Letter of Credit Issuer or any Lender, as the case may be (a copy of which
certificate shall be sent by such Letter of Credit Issuer or such Lender to the
Administrative Agent), setting forth, in reasonable detail, the basis for the
determination of such additional amount or amounts necessary to compensate any
Letter of Credit Issuer or such Lender as aforesaid shall be conclusive and
binding on the Company
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absent manifest error, although the failure to deliver any such certificate
shall not release or diminish any of the Company's obligations to pay additional
amounts pursuant to this section 3.5. Reference is hereby made to the provisions
of section 2.9(d) for certain limitations upon the rights of a Letter of Credit
Issuer or Lender under this section.
3.6 Guaranty of Subsidiary Letter or Credit Obligations. (a) The
Company hereby unconditionally guarantees, for the benefit of the Administrative
Agent and the Lenders, the full and punctual payment of the Obligations of each
Subsidiary under each Letter of Credit Document to which such Subsidiary is now
or hereafter becomes a party. Upon failure by any such Subsidiary to pay
punctually any such amount, the Company shall forthwith on demand by the
Administrative Agent pay the amount not so paid at the place and in the currency
and otherwise in the manner specified in this Agreement or any applicable Letter
of Credit Document.
(b) As a separate, additional and continuing obligation, the Company
unconditionally and irrevocably undertakes and agrees, for the benefit of the
Administrative Agent and the Lenders, that, should any amounts not be
recoverable from the Company under section 3.6(a) for any reason whatsoever
(including, without limitation, by reason of any provision of any Credit
Document or any other agreement or instrument executed in connection therewith
being or becoming void, unenforceable, or otherwise invalid under any applicable
law) then, notwithstanding any notice or knowledge thereof by any Lender, the
Administrative Agent, any of their respective Affiliates, or any other person,
at any time, the Company as sole, original and independent obligor, upon demand
by the Administrative Agent, will make payment to the Administrative Agent, for
the account of the Lenders and the Administrative Agent, of all such obligations
not so recoverable by way of full indemnity, in such currency and otherwise in
such manner as is provided in the Credit Documents.
(c) The obligations of the Company under this section shall be
unconditional and absolute and, without limiting the generality of the foregoing
shall not be released, discharged or otherwise affected by the occurrence, one
or more times, of any of the following:
(i) any extension, renewal, settlement, compromise, waiver or
release in respect to any obligation of any Subsidiary under any Letter
of Credit Document, by operation of law or otherwise;
(ii) any modification or amendment of or supplement to this
Agreement, any Note or any other Credit Document;
(iii) any release, non-perfection or invalidity of any direct
or indirect security for any obligation of the Company under this
Agreement, any Note or any other Credit Document or of any Subsidiary
under any Letter of Credit Document;
(iv) any change in the corporate existence, structure or
ownership of any Subsidiary or any insolvency, bankruptcy,
reorganization or other similar proceeding
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affecting any Subsidiary or its assets or any resulting release or
discharge of any obligation of any Subsidiary contained in any Letter
of Credit Document;
(v) the existence of any claim, set-off or other rights which
the Company may have at any time against any Subsidiary, the
Administrative Agent, any Lender or any other person, whether in
connection herewith or any unrelated transactions;
(vi) any invalidity or unenforceability relating to or against
any Subsidiary for any reason of any Letter of Credit Document, or any
provision of applicable law or regulation purporting to prohibit the
payment by any Subsidiary of any Obligations in respect of any Letter
of Credit; or
(vii) any other act or omission to act or delay of any kind by
any Subsidiary, the Administrative Agent, any Lender or any other
person or any other circumstance whatsoever which might, but for the
provisions of this section, constitute a legal or equitable discharge
of the Company's obligations under this section.
(d) The Company's obligations under this section shall remain in full
force and effect until the Commitments shall have terminated and the principal
of and interest on the Notes and all other amounts payable by the Company under
the Credit Documents and by any Subsidiary under the Letter of Credit Documents
shall have been paid in full. If at any time any payment of any of the
Obligations of any Subsidiary in respect of any Letter of Credit Documents is
rescinded or must be otherwise restored or returned upon the insolvency,
bankruptcy or reorganization of such Subsidiary, the Company's obligations under
this section with respect to such payment shall be reinstated at such time as
though such payment had been due but not made at such time.
(e) The Company irrevocably waives acceptance hereof, presentment,
demand, protest and any notice not provided for herein, as well as any
requirement that at any time any action be taken by any person against any
Subsidiary or any other person, or against any collateral or guaranty of any
other person.
(f) Until the indefeasible payment in full of all of the Obligations
and the termination of the Commitments of the Lenders hereunder, the Company
shall have no rights, by operation of law or otherwise, upon making any payment
under this section to be subrogated to the rights of the payee against any
Subsidiary with respect to such payment or otherwise to be reimbursed,
indemnified or exonerated by any Subsidiary in respect thereof.
(g) In the event that acceleration of the time for payment of any
amount payable by any Subsidiary under any Letter of Credit Document is stayed
upon insolvency, bankruptcy or reorganization of such Subsidiary, all such
amounts otherwise subject to acceleration under the terms of any applicable
Letter of Credit Document shall nonetheless be payable by the Company under this
section forthwith on demand by the Administrative Agent.
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SECTION 4. FEES; COMMITMENTS.
4.1 Fees. (a) The Company agrees to pay to the Administrative Agent a
Commitment Fee ("Commitment Fee") for the account of each Non-Defaulting Lender
which has a Revolving Commitment for the period from and including the Effective
Date to, but not including, the Maturity Date or, if earlier, the date upon
which the Total Revolving Commitment has been terminated, computed for each day
at a rate per annum equal to the Applicable Commitment Fee Rate for such day on
such Lender's Unutilized Revolving Commitment for such day. Such Commitment Fee
shall be due and payable in arrears on the last Business Day of each June,
September, December and March and on the Maturity Date or, if earlier, the date
upon which the Total Revolving Commitment has been terminated.
(b) The Company agrees to pay to the Administrative Agent, for the
account of each Non-Defaulting Lender, pro rata on the basis of its Revolving
Facility Percentage, a fee in respect of each Letter of Credit (the "Letter of
Credit Fee"), computed for each day at the rate per annum equal to the
Applicable Eurocurrency Margin then in effect on the Stated Amount of all
Letters of Credit outstanding on such day. Accrued Letter of Credit Fees shall
be due and payable quarterly in arrears on the last Business Day of each March,
June, September and December and on the date on which the Total Revolving
Commitment is terminated.
(c) The Company agrees to pay directly to each Letter of Credit Issuer
upon each drawing under, and/or amendment, extension, renewal or transfer of, a
Letter of Credit issued by it such amount as shall at the time of such drawing,
amendment, extension, renewal or transfer be the administrative charge which
such Letter of Credit Issuer is customarily charging for drawings under or
amendments, extensions, renewals or transfers of, letters of credit issued by
it.
(d) The Company shall pay lo the Administrative Agent on the Effective
Date and thereafter for its own account and/or for distribution to the Lenders
such fees as heretofore agreed by the Borrower and the Administrative Agent.
(e) All computations of Fees shall be made in accordance with section
13.7(b).
4.2 Voluntary Reduction of Commitments. Upon at least three Business
Days' prior written notice (or telephonic notice confirmed in writing) to the
Administrative Agent at its Notice Office (which notice the Administrative Agent
shall promptly transmit to each of the Lenders), the Company shall have the
right (on behalf of all Borrowers), without premium or penalty, to terminate or
to partially and permanently reduce (x) the Unutilized Total Revolving
Commitment, and/or (y) with the consent of each Lender which has a Term Loan
Commitment, the Unutilized Total Term Loan Commitment, provided that (i) any
such termination or reduction shall apply to proportionately and permanently
reduce the Revolving Commitment or Term Loan Commitment, as the case may be, if
any, of each of the affected Lenders, and (ii) any partial reduction of the
Unutilized Total Revolving Commitment or Unutilized Total Term Loan
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Commitment, as the case may be, pursuant to this section 4.2 shall be in the
amount of at least $100,000 (or, if greater, in integral multiples of $100,000)
4.3 Mandatory Adjustments of Commitments, etc. (a) The Total Commitment
(and the Term Loan Commitment and the Revolving Commitment of each Lender) shall
terminate on June 15, 1997, unless the Initial Borrowing Date has occurred on or
prior to such date.
(b) The Total Term Loan Commitment shall (i) be reduced at the time of
each incurrence of Term Loans in an amount equal to the aggregate principal
amount of the Term Loans so incurred; and (ii) terminate (and the Term Loan
Commitment of each Lender shall terminate) on the earlier of (x) the Maturity
Date and (y) the date on which a Change of Control occurs.
(c) The Total Revolving Commitment (and the Revolving Commitment of
each Lender) shall terminate on the earlier of (x) the Maturity Date and (y) the
date on which a Change of Control occurs.
(d) The Total Revolving Commitment shall be permanently reduced,
without premium or penalty, at the time that any mandatory prepayment of
Revolving Loans would be made pursuant to section 5.2(c), (d), (e) or (g) if
Revolving Loans were then outstanding in the full amount of the Total Revolving
Commitment, in an amount at least equal to the required prepayment of principal
of Revolving Loans which would be required to be made in such circumstance. Any
such reduction shall apply to proportionately and permanently reduce the
Revolving Commitment of each of the affected Lenders, and any partial reduction
of the Total Revolving Commitment pursuant to this section 4.3(d) shall be in
the amount of at least $100,000 (or, if greater, in integral multiples of
$100,000). The Company will provide at least three Business Days' prior written
notice (or telephonic notice confirmed in writing) to the Administrative Agent
at its Notice Office (which notice the Administrative Agent shall promptly
transmit to each of the Lenders), of any reduction of the Total Revolving
Commitment pursuant to this section 4.3(d), specifying the date and amount of
the reduction.
4.4 Extension of Maturity Date. At any time after February 1, 2000 and
during the 30 day period following delivery by the Company pursuant to section
8.1(a) of its consolidated financial statements for its fiscal year then most
recently ended, and annually thereafter during the 30 day period following
delivery by the Company of its consolidated financial statements pursuant to
section 8.1(a), the Company may request the Administrative Agent to determine if
all of the Lenders are then willing to extend the Maturity Date for a single
additional year. If the Company so requests, the Administrative Agent will so
advise the Lenders. If the Lenders in their sole discretion are all willing to
so extend the Maturity Date, after taking into account such considerations as
any Lender may deem relevant, the Company, the other Borrowers, the
Administrative Agent and all of the Lenders (including each Letter of Credit
Issuer) shall execute and deliver a definitive written instrument so extending
the Maturity Date. No such extension of the Maturity Date shall be valid or
effective for any purpose unless such definitive written
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instrument is so signed and delivered within 60 days following the giving by the
Administrative Agent of notice to the Lenders that the Company has requested
such an extension.
SECTION 5. PAYMENTS.
5.1 Voluntary Prepayments. Any Borrower shall have the right to prepay
any of its Loans, in whole or in part, without premium or penalty, from time to
time on the following terms and conditions: (i) such Borrower (or the Company on
its behalf) shall give the Administrative Agent at the Notice Office written or
telephonic notice (in the case of telephonic notice, promptly confirmed in
writing if so requested by the Administrative Agent) of its intent to prepay the
Term Loans or the Revolving Loans, as the case may be, the amount of such
prepayment and (in the case of Eurocurrency Loans) the specific Borrowing(s)
pursuant to which made, which notice shall be received by the Administrative
Agent by (x) 11:00 A.M. (local time at the Notice Office) three Business Days
prior to the date of such prepayment, in the case of any prepayment of
Eurocurrency Loans, or (y) 12:00 noon (local time at the Notice Office) on the
date of such prepayment, in the case of any prepayment of Prime Rate Loans, and
which notice shall promptly be transmitted by the Administrative Agent to each
of the affected Lenders; (ii) each partial prepayment of any Borrowing shall be
in an aggregate principal of at least $100,000 or an integral multiple of
$100,000 in excess thereof, in the case of Loans which are Prime Rate Loans, and
at least $100,000 or an integral multiple of $100,000 in excess thereof, in the
case of Loans which are Eurocurrency Loans, provided that no partial prepayment
of Eurocurrency Loans made pursuant to a Borrowing shall reduce the aggregate
principal amount of the Loans outstanding pursuant to such Borrowing to an
amount less than the Minimum Borrowing Amount applicable thereto; (iii) each
prepayment in respect of any Loans made pursuant to a Borrowing shall be applied
pro rata among such Loans; (iv) each prepayment of Eurocurrency Loans pursuant
to this section 5.1 on any date other than the last day of the Interest Period
applicable thereto shall be accompanied by any amounts payable in respect
thereof under section 2.10; and (v) each prepayment of any Term Loans pursuant
to this section 5.1 shall be applied to reduce the then remaining Scheduled
Repayments applicable to such Term Loans in inverse order of maturity.
5.2 Mandatory Prepayments and Scheduled Repayments. (a) If on any date
(after giving effect to any other payments on such date) the sum of (i) the
aggregate outstanding principal amount of Revolving Loans plus (ii) the
aggregate amount of Letter of Credit Outstandings, exceeds the Total Revolving
Commitment as then in effect, the Borrowers shall prepay on such date that
principal amount of Revolving Loans and, after Revolving Loans have been paid in
full, Unpaid Drawings, in an aggregate amount equal to such excess. If, after
giving effect to the prepayment of Revolving Loans and Unpaid Drawings, the
aggregate amount of Letter of Credit Outstandings exceeds the Total Revolving
Commitment as then in effect, the Company shall pay to the Administrative Agent
an amount in cash and/or Cash Equivalents equal to such excess and the
Administrative Agent shall hold such payment as security for the obligations of
the Company hereunder pursuant to a cash collateral agreement to be entered into
in form and substance reasonably satisfactory to the Administrative Agent and
the Company
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(which shall permit certain investments in Cash Equivalents satisfactory to the
Administrative Agent and the Company until the proceeds are applied to the
secured obligations).
(b) On the last Business Day of each March, June, September and
December, commencing on the last Business Day of September 1997 and continuing
through the last Business Day of March 2002, the Company shall be required to,
and shall, repay the principal amount of the Term Loans in the amount of
$750,000, with a final installment of principal being due and payable by the
Company on the Maturity Date in the amount of the then remaining principal
balance of the Term Loans (each such repayment, as the same may be reduced
pursuant to section 5.1 or 5.2(g), a "Scheduled Repayment").
(c) If during any fiscal year of the Company, the Company and its
Subsidiaries have received cumulative aggregate Cash Proceeds from one or more
Asset Sales of at least $1,000,000, not later than the third Business Day
following the date of receipt of any Cash Proceeds in excess of such amount, an
amount at least equal to 100% of the Net Cash Proceeds then received in excess
of such amount shall be applied as a mandatory prepayment of principal of (x)
first, the then outstanding Term Loans and (y) second, once no Term Loans remain
outstanding, the then outstanding Revolving Loans.
(d) Not later than the Business Day following the date of the receipt
thereof by the Company, an amount equal to 100% of the cash proceeds (net of
underwriting discounts and commissions, placement agent commissions and other
customary fees and costs associated therewith) from the public sale or private
placement of subordinated debt securities, or any similar incurrence of
subordinated Indebtedness for borrowed money, by the Company as contemplated by
section 9.4(c), shall be applied as a mandatory prepayment of principal of (x)
first, the then outstanding Term Loans, and (y) second, once no Term Loans
remain outstanding, the then outstanding Revolving Loans.
(e) Not later than the Business Day following the date of the receipt
thereof by the Company and/or any Subsidiary, an amount equal to 100% of the
cash proceeds (net of underwriting discounts and commissions, placement agent
fees and other customary fees and costs associated therewith) from any sale or
issuance of equity securities by the Company or any Subsidiary after the Initial
Borrowing Date (other than (i) any inter-company sale to the Company or any
Subsidiary and (ii) any sale or issuance to management, employees (or key
employees) or directors pursuant to stock option or similar plans for the
benefit of management, employees (key employees) or directors generally) shall
be applied as a mandatory repayment of principal of (x) first, the then
outstanding Term Loans, and (y) second, once no Term Loans remain outstanding,
the then outstanding Revolving Loans.
(f) On the date of which a Change of Control occurs, notwithstanding
anything to the contrary contained in this Agreement, no further Revolving
Borrowings shall be made and the then outstanding principal amount of all Loans,
if any, shall become due and payable and shall be prepaid in full, and the
Company shall contemporaneously either (i) cause all outstanding Letters
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of Credit to be surrendered for cancellation (any such Letters of Credit to be
replaced by letters of credit issued by other financial institutions), or (ii)
the Company shall pay to the Administrative Agent an amount in cash and/or Cash
Equivalents equal to 100% of the Letter of Credit Outstandings and the
Administrative Agent shall hold such payment as security for the obligations of
the Company hereunder pursuant to a cash collateral agreement to be entered into
in form and substance reasonably satisfactory to the Administrative Agent and
the Company (which shall permit certain investments in Cash Equivalents
satisfactory to the Administrative Agent and the Company until the proceeds are
applied to the secured obligations).
(g) If Safety Components International, s.r.o., a Foreign Subsidiary of
the Company, shall not have received by July 31, 1997, proceeds of approximately
$7,500,000 from the incurrence of the Indebtedness referred to in section
9.4(b), the Company and the other Borrowers will immediately prepay any
outstanding Revolving Loans in an aggregate principal amount not less than the
lesser of $7,500,000 and the aggregate principal amount of Revolving Loans then
outstanding.
(h) Each mandatory prepayment of Term Loans pursuant to section 5.2(c),
(d) or (e) shall be applied to reduce the Scheduled Repayments in inverse order
of maturity.
(i) With respect to each prepayment of Loans required by this section
5.2, the Company shall (on behalf of any applicable Borrower) designate the
Types of Loans which are to be prepaid and the specific Borrowing(s) pursuant to
which such prepayment is to be made, provided that (i) the Company shall first
so designate all Loans that are Prime Rate Loans and Eurocurrency Loans with
Interest Periods ending on the date of prepayment prior to designating any other
Eurocurrency Loans for prepayment, (ii) if the outstanding principal amount of
Eurocurrency Loans made pursuant to a Borrowing is reduced below the applicable
Minimum Borrowing Amount as a result of any such prepayment, then all the Loans
outstanding pursuant to such Borrowing shall be converted into Prime Rate Loans,
and (iii) each prepayment of any Loans made pursuant to a Borrowing shall be
applied pro rata among such Loans. In the absence of a designation by the
Company as described in the preceding sentence, the Administrative Agent shall,
subject to the above, make such designation in its sole discretion with a view,
but no obligation, to minimize breakage costs owing under section 2.10. Any
prepayment of Eurocurrency Loans pursuant to this section 5.2 shall in all
events be accompanied by such compensation as is required by section 2.10.
5.3 Method and Place of Payment. Except as otherwise specifically
provided herein, all payments under this Agreement shall be made to the
Administrative Agent for the ratable (based on its pro rata share) account of
the Lenders entitled thereto, not later than 11:00 A.M. (local time at the
Payment Office) on the date when due and shall be made in immediately available
funds and in lawful money of the United States of America (or in the applicable
Alternative Currency, in the case of Revolving Loans denominated in an
Alternative Currency) at the Payment Office, it being understood that written
notice by any Borrower to the Administrative Agent to make a payment from the
funds in such Borrower's account at the Payment Office shall
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constitute the making of such payment to the extent of such funds held in such
account. Any payments under this Agreement which are made later than 11:00 A.M.
(local time at the Payment Office) shall be deemed to have been made on the next
succeeding Business Day. Whenever any payment to be made hereunder shall be
stated to be due on a day which is not a Business Day, the due date thereof
shall be extended to the next succeeding Business Day and, with respect to
payments of principal, interest shall be payable during such extension at the
applicable rate in effect immediately prior to such extension.
5.4 Net Payments. (a) All payments made by any Borrower hereunder,
under any Note or any other Credit Document, will be made without setoff,
counterclaim or other defense. Except as provided for in section 5.4(b), all
such payments will be made free and clear of, and without deduction or
withholding for, any present or future taxes, levies, imposts, duties, fees,
assessments or other charges of whatever nature now or hereafter imposed by any
jurisdiction or by any political subdivision or taxing authority thereof or
therein with respect to such payments (but excluding, except as provided in the
second succeeding sentence, any tax, imposed on or measured by the net income or
net profits of a Lender pursuant to the laws of the jurisdiction under which
such Lender is organized or the jurisdiction in which the principal office or
Applicable Lending Office of such Lender is located or any subdivision thereof
or therein) and all interest, penalties or similar liabilities with respect to
such non excluded taxes, levies imposts, duties, fees, assessments or other
charges (all such nonexcluded taxes levies, imposts, duties, fees assessments or
other charges being referred to collectively as "Taxes"). If any Taxes are so
levied or imposed, the applicable Borrower agrees to pay the full amount of such
Taxes and such additional amounts as may be necessary so that every payment by
it of all amounts due hereunder, under any Note or under any other Credit
Document, after withholding or deduction for or on account of any Taxes will not
be less than the amount provided for herein or in such Note or in such other
Credit Document. If any amounts are payable in respect of Taxes pursuant to the
preceding sentence, the applicable Borrower agrees to reimburse each Lender,
upon the written request of such Lender for taxes imposed on or measured by the
net income or profits of such Lender pursuant to the laws of the jurisdiction in
which such Lender is organized or in which the principal office or Applicable
Lending Office of such Lender is located or under the laws of any political
subdivision or taxing authority of any such jurisdiction in which the principal
office or Applicable Lending Office of such Lender is located and for any
withholding of income or similar taxes imposed by the United States of America
as such Lender shall determine are payable by, or withheld from, such Lender in
respect of such amounts so paid to or on behalf of such Lender pursuant to the
preceding sentence, which request shall be accompanied by a statement from such
Lender setting forth, in reasonable detail, the computations used in determining
such amounts. The applicable Borrower will furnish to the Administrative Agent
within 45 days after the date the payment of any Taxes, or any withholding or
deduction on account thereof, is due pursuant to applicable law certified copies
of tax receipts, or other evidence satisfactory to the Lender, evidencing such
payment by the applicable Borrower. The applicable Borrower will indemnify and
hold harmless the Administrative Agent and each Lender, and reimburse the
Administrative Agent or such Lender upon its written request, for the amount of
any Taxes so levied or imposed and paid or withheld by such Lender.
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(b) Each Lender that is not a United States person (as such term is
defined in section 7701(a)(30) of the Code) for Federal income tax purposes
agrees to provide to each applicable Borrower and the Administrative Agent on or
prior to the Effective Date, or in the cases of a Lender that is an assignee or
transferee of an interest under this Agreement pursuant to section 13.4 (unless
the respective Lender was already a Lender hereunder immediately prior to such
assignment or transfer and such Lender is in compliance with the provisions of
this section 5.4(b)), on the date of such assignment or transfer to such Lender,
(i) two accurate and complete original signed copies of Internal Revenue Service
Form 4224 or 1001 (or successor forms) certifying to such Lender's entitlement
to a complete exemption from United States withholding tax with respect to
payments to be made under this Agreement, any Note or any other Credit Document,
or (ii) if the Lender is not a "bank" within the meaning of section 881(c)(3)(A)
of the Code and cannot deliver either Internal Revenue Service Form 1001 or 4224
pursuant to clause (i) above, (x) a certificate substantially in the form of
Exhibit K (any such certificate, a "Section 5.4(b)(ii) Certificate") and (y) two
accurate and complete original signed copies of Internal Revenue Service Form
W-8 (or successor form) certifying to such Lender's entitlement to a complete
exemption from United States withholding tax with respect to payments of
interest to be made under this Agreement, any Note or any other Credit Document.
In addition, each Lender agrees that from time to time after the Effective Date,
when a lapse in time or change in circumstances renders the previous
certification obsolete or inaccurate in any material respect, it will deliver to
the applicable Borrower and the Administrative Agent two new accurate and
complete original signed copies of Internal Revenue Service Form 4224 or 1001,
or Form W-8 and a Section 5.4(b)(ii) Certificate, as the case may be, and such
other forms as may be required in order to confirm or establish the entitlement
of such Lender to a continued exemption from or reduction in United States
withholding tax with respect to payments under this Agreement, any Note or any
other Credit Document, or it shall immediately notify the applicable Borrower
and the Administrative Agent of its inability to deliver any such Form or
Certificate, in which case such Lender shall not be required to deliver any such
Form or Certificate pursuant to this section 5.4(b). Notwithstanding anything to
the contrary contained in section 5.4(a), but subject to section 13.4(b) and the
immediately succeeding sentence, (x) the applicable Borrower shall be entitled,
to the extent it is required to do so by law, to deduct or withhold income or
other similar taxes imposed by the United States (or any political subdivision
or taxing authority thereof or therein) from interest, fees or other amounts
payable hereunder for the account of any Lender which is not a United States
person (as such term is defined in section 7701(a)(30) of the Code) for United
States federal income tax purposes and which has not provided to the applicable
Borrower such forms that establish a complete exemption from such deduction or
withholding and (y) the applicable Borrower shall not be obligated pursuant to
section 5.4(a) hereof to gross- up payments to be made to a Lender in respect of
income or similar taxes imposed by the United States or any additional amounts
with respect thereto (I) if such Lender has not provided to the applicable
Borrower the Internal Revenue Service forms required to be provided to the
applicable Borrower pursuant to this section 5.4(b) or (II) in the case of a
payment other than interest, to a Lender described in clause (ii) above, to the
extent that such forms do not establish a complete exemption from withholding of
such taxes. Notwithstanding anything to the contrary contained in the preceding
sentence or elsewhere in this section 5.4 and except as specifically provided
for in
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section 13.4(b), the applicable Borrower agrees to pay additional amounts and
indemnify each Lender in the manner set forth in section 5.4(a) (without regard
to the identity of the jurisdiction requiring the deduction or withholding) in
respect of any Taxes deducted or withheld by it as described in the previous
sentence as a result of any changes after the Effective Date in any applicable
law, treaty, governmental rule, regulation, guideline or order, or in the
interpretation thereof, relating to the deducting or withholding of income or
similar Taxes.
(c) If any Lender, in its sole opinion, determines that it has finally
and irrevocably received or been granted a refund in respect of any Taxes paid
as to which indemnification has been paid by the applicable Borrower pursuant to
this section, it shall promptly remit such refund (including any interest
received in respect thereof), net of all out-of-pocket costs and expenses;
provided, that the applicable Borrower agrees to promptly return any such refund
(plus interest) to such Lender in the event such Lender is required to repay
such refund to the relevant taxing authority. Any such Lender shall provide the
applicable Borrower with a copy of any notice of assessment from the relevant
taxing authority (redacting any unrelated confidential information contained
therein) requiring repayment of such refund. Nothing contained herein shall
impose an obligation on any Lender to apply for any such refund.
(d) Reference is hereby made to the provisions of section 2.9(d) for
certain limitations upon the rights of a Lender under this section.
SECTION 6. CONDITIONS PRECEDENT.
6.1 Conditions Precedent at Initial Borrowing Date. The obligation of
the Lenders to make Term Loans and/or Revolving Loans, and of any Letter of
Credit Issuer to issue Letters of Credit, is subject to the satisfaction of each
of the following conditions on the Initial Borrowing Date:
(a) Effectiveness; Notes. On or prior to the Initial Borrowing
Date, (i) the Effective Date shall have occurred and (ii) there shall
have been delivered to the Administrative Agent for the account of each
Lender each appropriate Note executed by each Borrower, in each case,
in the amount, maturity and as otherwise provided herein.
(b) Fees, etc. The Company shall have paid or caused to be
paid all fees required to be paid by it on or prior to such date
pursuant to section 4 hereof and all reasonable fees and expenses of
the Administrative Agent and of special counsel to the Administrative
Agent which have been invoiced on or prior to such date in connection
with the preparation, execution and delivery of this Agreement and the
other Credit Documents and the consummation of the transactions
contemplated hereby and thereby.
(c) Other Credit Documents. The Credit Parties named therein
shall have duly executed and delivered and there shall be in full force
and effect, and original counterparts shall have been delivered to the
Administrative Agent, in sufficient quantities for the
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Administrative Agent and the Lenders, of, (i) the Subsidiary Guaranty
(as modified, amended or supplemented from time to time in accordance
with the terms thereof and hereof, the "Subsidiary Guaranty"),
substantially in the form attached hereto as Exhibit C; (ii) the
Security Agreement (as modified, amended or supplemented from time to
time in accordance with the terms thereof and hereof, the "Security
Agreement"), substantially in the form attached hereto as Exhibit D;
(iii) the Pledge Agreement (as modified, amended or supplemented from
time to time in accordance with the terms thereof and hereof, the
"Pledge Agreement'), substantially in the form attached hereto as
Exhibit E; (iv) the Assignment of Life Insurance Policy as Collateral
(as modified, amended or supplemented from time to time in accordance
with the terms thereof and hereof, the "Assignment of Life Insurance
Policy"), substantially in the form attached hereto as Exhibit F; and
(v) the Agreement on the Creation of a Security Interest in
Receivables, Inventory and Equipment, the Mortgage, and the Open End
Mortgage, Assignment of Leases and Security Agreement, substantially in
the forms attached hereto as Exhibit G-1, G-2 and G- 3.
(d) Recordation of Security Documents, Delivery of Collateral,
Taxes, etc. The Security Documents (or proper notices or financing
statements in respect thereof) shall have been duly recorded, published
and filed in such manner and in such places as is required by law to
establish, perfect, preserve and protect the rights and security
interests of the parties thereto and their respective successors and
assigns, all collateral items required to be physically delivered to
the Collateral Agent thereunder shall have been so delivered,
accompanied by any appropriate instruments of transfer, and all taxes,
fees and other charges then due and payable in connection with the
execution, delivery, recording, publishing and filing of such
instruments and the issue and delivery of the Notes shall have been
paid in full.
(e) Corporate Resolutions and Approvals. The Administrative
Agent shall have received, in sufficient quantity for the
Administrative Agent and the Lenders, certified copies of the
resolutions of the Board of Directors of each Borrower and each other
Credit Party, approving the Credit Documents to which such Borrower or
any such other Credit Party, as the case may be, is or may become a
party, and of all documents evidencing other necessary corporate action
and governmental approvals, if any, with respect to the execution,
delivery and performance by such Borrower or any such other Credit
Party of the Credit Documents to which it is or may become a party.
(f) Incumbency Certificate. The Administrative Agent shall
have received, in sufficient quantity for the Administrative Agent and
the Lenders, a certificate of the Secretary or an Assistant Secretary
of each Borrower and of each other Credit Party, certifying the names
and true signatures of the officers of such Borrower or such other
Credit Party, as the case may be, authorized to sign the Credit
Documents to which such Borrower or such other Credit Party is a party
and any other documents to which such
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Borrower or any such other Credit Party is a party which may be
executed and delivered in connection herewith.
(g) Solvency Certificate. The Administrative Agent shall have
received, in sufficient quantity for the Administrative Agent and the
Lenders, a solvency certificate of the chief financial officer of the
Company, substantially in the form attached hereto as Exhibit H.
(h) Opinion of Counsel. On the Initial Borrowing Date, the
Administrative Agent shall have received an opinion, addressed to the
Administrative Agent and each of the Lenders and dated the Initial
Borrowing Date, from Shereff, Friedman, Hoffman & Goodman, counsel to
the Company, substantially in the form of Exhibit I hereto and covering
such other matters incident to the transactions contemplated hereby as
the Administrative Agent may reasonably request, such opinion to be in
form and substance satisfactory to the Administrative Agent.
(i) Existing Credit Agreements. Contemporaneously with the
initial Borrowing hereunder, the Company and the other borrowers named
therein shall have terminated the commitments of the lenders under the
Loan Agreement, dated as of August 1, 1996, as amended, shall have
prepaid all borrowings thereunder, shall have made effective provision
satisfactory to the Administrative Agent for the termination, or
assignment to the Collateral Agent, of the liens and security
thereunder, and if required in connection with such termination, made
effective provision for any letters of credit issued thereunder to be
supported by Letters of Credit issued hereunder.
(j) Approvals, etc. On the Initial Borrowing Date, (i) all
material governmental and third party approvals in connection with the
transactions contemplated by the Credit Documents and otherwise
referred to herein shall have been obtained and remain in effect, and
all applicable waiting periods shall have expired without any action
being taken by any competent authority (including any court having
jurisdiction) which restrains or prevents such transactions or imposes,
in the judgment of the Required Lenders or the Administrative Agent,
materially adverse conditions upon the consummation of such
transactions; and (ii) there shall be no legal restriction upon any
Lender which prohibits, or imposes any material burdens upon any Lender
in connection with, the extensions of credit contemplated by the Credit
Documents.
(k) Environmental Report re Galion, Ohio Facility. The Lenders
shall have received a report prepared by an environmental consulting
firm acceptable to the Required Lenders concerning the environmental
aspects of the Galion, Ohio Facility, and the Lenders shall be
satisfied in all respects, in their sole discretion, with the scope and
conclusions contained in such report.
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(l) Evidence of Insurance. The Collateral Agent shall have
received certificates of insurance and other evidence, satisfactory to
it, of compliance with the insurance requirements of this Agreement and
the Security Documents.
(m) Proceedings and Documents. All corporate and other
proceedings and all documents incidental to the transactions
contemplated hereby shall be satisfactory in substance and form to the
Administrative Agent and the Lenders and the Administrative Agent and
its special counsel and the Lenders shall have received all such
counterpart originals or certified or other copies of such documents as
the Administrative Agent or its special counsel or any Lender may
reasonably request.
6.2 Conditions Precedent to All Credit Events. The obligations of the
Lenders to make each Term Loan, Revolving Loan and/or of a Letter of Credit
Issuer to issue each Letter of Credit is subject, at the time thereof, to the
satisfaction of the following conditions:
(a) Notice of Borrowing, etc. The Administrative Agent shall
have received a Notice of Borrowing meeting the requirements of section
2.3 with respect to the incurrence of Loans or a Letter of Credit
Request meeting the requirement of section 3.2 with respect to the
issuance of a Letter of Credit.
(b) No Default; Representations and Warranties. At the time
thereof and also after giving effect thereto, (i) there shall exist no
Default or Event of Default and (ii) all representations and warranties
contained herein or in the other Credit Documents shall be true and
correct in all material respects with the same effect as though such
representations and warranties had been made on and as of the date of
such Revolving Loan or issuance of such Letter of Credit, except to the
extent that such representations and warranties expressly relate to an
earlier date.
The acceptance of the benefits of each Loan or issuance of a Letter of Credit
shall constitute a representation and warranty by the applicable Borrower to
each of the Lenders that all of the applicable conditions specified in section
6.1 and/or 6.2, as the case may be, exist as of that time. All of the
certificates, legal opinions and other documents and papers referred to in
section 6.1 or this section 6.2, unless otherwise specified, shall be delivered
to the Administrative Agent for the account of each of the Lenders and, except
for the Notes, in sufficient counterparts for each of the Lenders, and the
Administrative Agent will promptly distribute to the Lenders their respective
Notes and the copies of such other certificates, legal opinions and documents.
SECTION 7. REPRESENTATIONS AND WARRANTIES.
In order to induce the Lenders to enter into this Agreement and to make
the Loans, and/or to issue and/or to participate in the Letters of Credit
provided for herein, the Company makes the following representations and
warranties to, and agreements with, the Lenders, all of which shall survive the
execution and delivery of this Agreement and each Credit Event:
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7.1 Corporate Status, etc. Each of the Company and its Subsidiaries (i)
is a duly organized or formed and validly existing corporation, partnership or
limited liability company, as the case may be, in good standing under the laws
of the jurisdiction of its formation and has the corporate, partnership or
limited liability company power and authority, as applicable, to own its
property and assets and to transact the business in which it is engaged and
presently proposes to engage, and (ii) has duly qualified and is authorized to
do business in all jurisdictions where it is required to be so qualified except
where the failure to be so qualified would not have a Material Adverse Effect.
7.2 Subsidiaries. Annex II hereto lists, as of the date hereof, each
Subsidiary of the Company (and the direct and indirect ownership interest of the
Company therein).
7.3 Corporate Power and Authority, etc. Each Credit Party has the
corporate power and authority to execute, deliver and carry out the terms and
provisions of the Credit Documents to which it is party and has taken all
necessary corporate action to authorize the execution, delivery and performance
of the Credit Documents to which it is party. Each Credit Party has duly
executed and delivered each Credit Document to which it is party and each Credit
Document to which it is party constitutes the legal, valid and binding agreement
or obligation of such Credit Party enforceable in accordance with its terms,
except to the extent that the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws generally affecting creditors' rights and by equitable principles
(regardless of whether enforcement is sought in equity or at law).
7.4 No Violation. Neither the execution, delivery, performance by any
Credit Party of the Credit Documents to which it is party nor compliance with
the terms and provisions thereof, nor the consummation of the loan transactions
contemplated therein (i) will contravene any provision of any law, statute,
rule, regulation, order, writ, injunction or decree of any court or governmental
instrumentality applicable to such Credit Party or its properties and assets,
(ii) will conflict with or result in any breach of, any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in the
creation or imposition of (or the obligation to create or impose) any Lien
(other than the Liens of any Credit Document) upon any of the property or assets
of the Company or any of its Subsidiaries pursuant to the terms of any
promissory note, bond, debenture, indenture, mortgage, deed of trust, credit or
loan agreement, or any other material agreement or other instrument, to which
the Company or any of its Subsidiaries is a party or by which it or any of its
property or assets are bound or to which it may be subject, or (iii) will
violate any provision of the certificate or articles of incorporation, code of
regulations or by-laws, or other charter documents of any Credit Party.
7.5 Governmental Approvals. No order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with, or
exemption by, any foreign or domestic governmental or public body or authority,
or any subdivision thereof, is required to authorize or is required as a
condition to (i) the execution, delivery and performance by any Credit Party of
any
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Credit Document or (ii) the legality, validity, binding effect or enforceability
of any Credit Document, other than the filings and recordings contemplated by
section 7.19.
7.6 Litigation. There are no actions, suits or proceedings pending or,
to, the knowledge of the Company, threatened with respect to the Company or any
of its Subsidiaries (i) that have, or could reasonably be expected to have, a
Material Adverse Effect, or (ii) which question the validity or enforceability
of any of the Credit Documents, or of any action to be taken by any Credit Party
pursuant to any of the Credit Documents.
7.7 Use of Proceeds; Margin Regulations. (a) The proceeds of all Loans
shall be utilized (i) to retire the Indebtedness referred to in sections 6.1(i)
and (j), and (ii) for other lawful purposes not inconsistent with the
requirements of this Agreement.
(b) No part of the proceeds of any Credit Event will be used directly
or indirectly to purchase or carry Margin Stock, or to extend credit to others
for the purpose of purchasing or carrying any Margin Stock. Neither any Credit
Event, nor the use of the proceeds thereof, will violate or be inconsistent with
the provisions of Regulation G, T, U or X of the Board of Governors of the
Federal Reserve System. No Borrower is engaged in the business of extending
credit for the purpose of purchasing or carrying any Margin Stock. At no time
would more than 25% of the value of the assets of the Company or of the Company
and its consolidated Subsidiaries that are subject to any "arrangement" (as such
term is used in section 221.2(g) of such Regulation U) hereunder be represented
by Margin Stock.
7.8 Financial Statements, etc. (a) The Company has furnished to the
Lenders and the Administrative Agent complete and correct copies of (i) the
audited consolidated balance sheets of the Company and its consolidated
subsidiaries as of March 31, 1996 and March 31, 1995 and the related audited
consolidated statements of income, shareholders' equity, and cash flows of the
Company and its consolidated subsidiaries for the fiscal years then ended,
accompanied by the unqualified report thereon of the Company's independent
accountants, as contained in the Annual Reports on Form 10-K of the Company for
each of the fiscal years then ended filed with the SEC; and (ii) the unaudited
condensed consolidated balance sheets of the Company and its consolidated
subsidiaries as of December 31, 1997, and the related consolidated statements of
income and of cash flows of the Company and its consolidated subsidiaries for
the fiscal quarter then ended, as contained in the Form 10-Q Quarterly Report of
the Company filed with the SEC. All such financial statements have been prepared
in accordance with GAAP, consistently applied (except as stated therein), and
fairly present the financial position of the Company and its consolidated
subsidiaries as of the respective dates indicated and the consolidated results
of their operations and cash flows for the respective periods indicated, subject
to adjustments related to deferred product launch costs and the write off of
Citibank finance expenses and subject in the case of any such financial
statements which are unaudited, to normal audit adjustments, none of which will
involve a Material Adverse Effect.
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(b) Each Borrower has received consideration which is the reasonable
equivalent value of the obligations and liabilities that such Borrower has
incurred to the Administrative Agent and the Lenders. Each Borrower now has
capital sufficient to carry on its business and transactions and all business
and transactions in which it is about to engage and is now solvent and able to
pay its debts as they mature and each Borrower, as of the Initial Borrowing
Date, owns property having a value, both at fair valuation and at present fair
salable value, greater than the amount required to pay such Borrower's debts;
and no Borrower is entering into the Credit Documents with the intent to hinder,
delay or defraud its creditors. Without limitation of the foregoing, on and as
of the Initial Borrowing Date, (i) the sum of the assets, at a fair valuation,
of the Company will exceed its debts, (ii) the Company will not have incurred or
intended to, or believe that it will, incur debts beyond its ability to pay such
debts as such debts mature and (iii) the Company will have sufficient capital
with which to conduct its business. For purposes of this section 7.8(b), "debt"
means any liability on a claim, and "claim" means (x) right to payment whether
or not such a right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured
or unsecured; or (y) right to an equitable remedy for breach of performance if
such breach gives rise to a payment, whether or not such right to an equitable
remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured or unsecured.
(c) The Company has delivered to the Lenders prior to the execution and
delivery of this Agreement (i) a copy of the Company's Report on Form 10-K as
filed (without Exhibits) with the SEC for its fiscal year ended March 31, 1996,
which contains a general description of the business and affairs of the Borrower
and its Subsidiaries, and (ii) financial projections prepared by management of
the Company for the Company and its Subsidiaries for the fiscal years 1998 and
1999 which take into account, on a pro forma basis, the acquisition of Valentec
International Corporation (the "Financial Projections"). The Financial
Projections were prepared on behalf of the Company in good faith after taking
into account the existing and historical levels of business activity of the
Company and its Subsidiaries, historical financial information with respect to
the properties and business acquired in the acquisition of Valentec
International Corporation, as supplied by the sellers, known trends, including
general economic trends, and all other information, assumptions and estimates
considered by management of the Company and its Subsidiaries to be pertinent
thereto, taking into account the fact that such management is not intimately
familiar with the properties and business acquired in the acquisition of
Valentec International Corporation. The Financial Projections were considered by
management of the Company, as of such date of preparation, to be realistically
achievable; provided, that no representation or warranty is made as to the
impact of future general economic conditions or as to whether the Company's
projected consolidated results as set forth in the Financial Projections will
actually be realized; and provided, further, that the Company undertakes no
responsibility for the accuracy of any historical information concerning the
business or operations acquired in the acquisition of Valentec International
Corporation which is included in the Financial Projections. No facts are known
to the Company at the date hereof which, if reflected in the Financial
Projections, would result in a material adverse change in the assets,
liabilities, results of operations or cash flows reflected therein.
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7.9 No Material Adverse Change. Since December 31, 1996, there has been
no change in the condition, business or affairs of the Company and its
Subsidiaries taken as a whole, or their properties and assets considered as an
entirety, except for changes none of which, individually or in the aggregate,
has had or could reasonably be expected to have a Material Adverse Effect.
7.10 Tax Returns and Payments. Each of the Company and each of its
Subsidiaries has filed all federal income tax returns and all other material tax
returns, domestic and foreign, required to be filed by it and has paid all
material taxes and assessments payable by it which have become due, other than
those not yet delinquent and except for those contested in good faith. The
Company and each of its Subsidiaries has established on its books such charges,
accruals and reserves in respect of taxes, assessments, fees and other
governmental charges for all fiscal periods as are required by GAAP. The Company
knows of no proposed assessment for additional federal, foreign or state taxes
for any period, or of any basis therefor, which, individually or in the
aggregate, taking into account such charges, accruals and reserves in respect
thereof as the Company and its Subsidiaries have made, could reasonably be
expected to have a Material Adverse Effect.
7.11 Title to Properties, etc. The Company and each of its Subsidiaries
has good and marketable title, in the case of real property, and good title (or
valid leasehold interests, in the case of any leased property), in the case of
all other property, to all of its properties and assets free and clear of Liens
other than Liens permitted by section 9.3. The interests of the Company and each
of its Subsidiaries in the properties reflected in the most recent balance sheet
referred to in section 7.8, taken as a whole, were sufficient, in the judgment
of the Company, as of the date of such balance sheet for purposes of the
ownership and operation of the businesses conducted by the Company and such
Subsidiaries.
7.12 Lawful Operations, etc. Except for known situations or incidents
which are reserved for on the most recent consolidated balance sheet referred to
in section 7.8 or which, if not so reserved, could not reasonably be expected to
have a Material Adverse Effect, the Company and each of its Subsidiaries is in
full compliance with all material requirements imposed by law, whether federal
or state, including (without limitation) Environmental Laws and zoning
ordinances.
7.13 Environmental Matters. (a) The Company and each of its
Subsidiaries is in compliance with all Environmental Laws governing its business
except to the extent that any such failure to comply (together with any
resulting penalties, fines or forfeitures) would not reasonably be expected to
have a Material Adverse Effect. All licenses, permits, registrations or
approvals required for the business of the Company and each of its Subsidiaries,
as conducted as of the Initial Borrowing Date, under any Environmental Law have
been secured and the Company and each of its Subsidiaries is in substantial
compliance therewith, except for such licenses, permits, registrations or
approvals the failure to secure or to comply therewith is not reasonably likely
to have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries has received
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written notice, or otherwise knows, that it is in any respect in noncompliance
with breach of or default under any applicable writ, order, judgment,
injunction, or decree to which the Company or such Subsidiary is a party or
which would affect the ability of the Company or such Subsidiary to operate any
real property and no event has occurred and is continuing which, with the
passage of time or the giving of notice or both, would constitute noncompliance,
breach of or default thereunder, except in each such case, such noncompliance,
breaches or defaults as would not reasonably be expected to, in the aggregate,
have a Material Adverse Effect. There are as of the Initial Borrowing Date no
Environmental Claims pending or, to the best knowledge of the Company,
threatened wherein an unfavorable decision, ruling or finding would reasonably
be expected to have a Material Adverse Effect. There are no facts,
circumstances, conditions or occurrences on any Real Property now or at any time
owned, leased or operated by the Company or any of its Subsidiaries or on any
property adjacent to any such Real Property, which are known by the Company or
as to which the Company or any such Subsidiary has received written notice, that
could reasonably be expected (i) to form the basis of an Environmental Claim
against the Company or any of its Subsidiaries or any Real Property of the
Company or any of its Subsidiaries, or (ii) to cause such Real Property to be
subject to any restrictions on the ownership, occupancy, use or transferability
of such Real Property under any Environmental Law, except in each such case,
such Environmental Claims or restrictions that individually or in the aggregate
would not reasonably be expected to have a Material Adverse Effect.
(b) Hazardous Materials have not at any time been (i) generated, used,
treated or stored on, or transported to or from, any Real Property of the
Company or any of its Subsidiaries or (ii) released on any such Real Property,
in each case where such occurrence or event is not in compliance with
Environmental Laws and is reasonably likely to have a Material Adverse Effect.
7.14 Compliance with ERISA. Compliance by the Company with the
provisions hereof and Credit Events contemplated hereby will not involve any
prohibited transaction within the meaning of ERISA or section 4975 of the Code.
The Company and each of its Subsidiaries, (i) has fulfilled all obligations
under minimum funding standards of ERISA and the Code with respect to each Plan
that is not a Multiemployer Plan or a Multiple Employer Plan, (ii) has satisfied
all respective contribution obligations in respect of each Multiemployer Plan
and each Multiple Employer Plan, (iii) is in compliance in all material respects
with all other applicable provisions of ERISA and the Code with respect to each
Plan, each Multiemployer Plan and each Multiple Employer Plan, and (iv) has not
incurred any liability under the Title IV of ERISA to the PBGC with respect to
any Plan, any Multiemployer Plan, any Multiple Employer Plan, or any trust
established thereunder. No Plan or trust created thereunder has been terminated,
and there have been no Reportable Events, with respect to any Plan or trust
created thereunder or with respect to any Multiemployer Plan or Multiple
Employer Plan, which termination or Reportable Event will or could result in the
termination of such Plan, Multiemployer Plan or Multiple Employer Plan and give
rise to a Material Adverse Effect in respect thereof. Neither the Company nor
any ERISA Affiliate is at the date hereof, or has been at any time within the
two years preceding the date hereof, an employer required to contribute to any
Multiemployer Plan or Multiple Employer Plan, or a "contributing sponsor" (as
such term is defined in section 4001 of ERISA) in any
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Multiemployer Plan or Multiple Employer Plan. Neither the Company nor any ERISA
Affiliate has any contingent liability with respect to any post-retirement
"welfare benefit plan" (as such term is defined in ERISA) except as has been
disclosed to the Lenders in writing.
7.15 Intellectual Property, etc. The Company and each of its
Subsidiaries has obtained or has the right to use all material patents,
trademarks, servicemarks, trade names, copyrights, licenses and other rights
with respect to the foregoing necessary for the present and planned future
conduct of its business, without any known conflict with the rights of others,
except for such patents, trademarks, servicemarks, trade names, copyrights,
licenses and rights, the loss of which, and such conflicts, which in any such
case individually or in the aggregate would not reasonably be expected to have a
Material Adverse Effect.
7.16 Investment Company Act, etc. Neither the Company nor any of its
Subsidiaries is subject to regulation with respect to the creation or incurrence
of Indebtedness under the Investment Company Act of 1940, as amended, the
Interstate Commerce Act, as amended, the Federal Power Act, as amended, the
Public Utility Holding Company Act of 1935, as amended, or any applicable state
public utility law.
7.17 Burdensome Contracts; Labor Relations. The Company and the
Subsidiaries (i) are not subject to any materially burdensome contract,
agreement, corporate restriction, judgment, decree or order, (ii) are not
parties to any labor dispute, (iii) are not subject to any material strikes,
slow downs, workouts or other concerted interruptions of operations by employees
of the Company or any Subsidiary, whether or not relating to any labor
contracts, (iv) are not subject to any significant pending or, to the knowledge
of the Company, threatened, unfair labor practice complaint, before the National
Labor Relations Board, and (v) are not subject to any pending or, to the
knowledge of the Company, threatened, grievance or significant arbitration
proceeding arising out of or under any collective bargaining agreement, (vi) are
not subject to any significant pending or, to the knowledge of the Company,
threatened, significant strike, labor dispute, slowdown or stoppage, and (vii)
to the knowledge of the Company, no union representation question exists with
respect to the employees of the Company or any of its Subsidiaries, except (with
respect to any matter specified in any of the above clauses), for such matters
as, individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
7.18 Existing Indebtedness. Annex III sets forth a true and complete
list, as of the date or dates set forth therein, of all Indebtedness of the
Company and each of its Subsidiaries which (i) has an outstanding principal
amount of at least $1,000,000 (all such Indebtedness, whether or not so listed,
the "Existing Indebtedness") or (ii) is secured by any Lien on any property of
the Company or any Subsidiary, and which will be outstanding on the Initial
Borrowing Date after giving effect to the initial Borrowing hereunder, other
than the Indebtedness created under the Credit Documents. The Company has
provided to the Administrative Agent prior to the date of execution hereof true
and complete copies of all agreements and instruments governing the Indebtedness
listed on Annex III (the "Existing Indebtedness Agreements").
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7.19 Security Interests. Once executed and delivered, and until
terminated in accordance with the terms thereof, each of the Security Documents
creates, as security for the obligations purported to be secured thereby, a
valid and enforceable perfected security interest in and Lien on all of the
Collateral subject thereto from time to time, in favor of the Collateral Agent
for the benefit of the Secured Creditors referred to in the Security Documents,
superior to and prior to the rights of all third persons and subject to no other
Liens (except that the Collateral under the Security Agreement may be subject to
Permitted Liens). No filings or recordings are required in order to perfect the
security interests created under any Security Document except for filings or
recordings required in connection with any such Security Document which shall
have been made, or for which satisfactory arrangements have been made, upon or
prior to the execution and delivery thereof. All recording, stamp, intangible or
other similar taxes required to be paid by any person under applicable legal
requirements or other laws applicable to the property encumbered by the Security
Documents in connection with the execution, delivery, recordation, filing,
registration, perfection or enforcement thereof have been paid.
7.20 True and Complete Disclosure. All factual information (taken as a
whole) heretofore or contemporaneously furnished by or on behalf of the Company
or any of its Subsidiaries in writing to the Administrative Agent or any Lender
for purposes of or in connection with this Agreement or any transaction
contemplated herein, other than the Financial Projections (as to which
representations are made only as provided in section 7.8), is, and all other
such factual information (taken as a whole) hereafter furnished by or on behalf
of such person in writing to any Lender will be, true and accurate in all
material respects on the date as of which such information is dated or certified
and not incomplete by omitting to state any material fact necessary to make such
information (taken as a whole) not misleading at such time in light of the
circumstances under which such information was provided, except that any such
future information consisting of financial projections prepared by management of
the Company is only represented herein as being based on good faith estimates
and assumptions believed by such persons to be reasonable at the time made, it
being recognized by the Lenders that such projections as to future events are
not to be viewed as facts and that actual results during the period or periods
covered by any such projections may differ materially from the projected
results. As of the Effective Date, there is no fact known to the Company or any
of its Subsidiaries which has, or could reasonably be expected to have, a
Material Adverse Effect which has not theretofore been disclosed to the Lenders.
SECTION 8. AFFIRMATIVE COVENANTS.
The Company hereby covenants and agrees that so long as this Agreement
is in effect and until such time as the Total Commitment has been terminated, no
Notes are outstanding and the Loans, together with interest, Fees and all other
Obligations hereunder, have been paid in full:
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8.1 Reporting Requirements. The Company will furnish to each Lender and
the Administrative Agent:
(a) Annual Financial Statements. As soon as available and in
any event within 105 days after the close of each fiscal year of the
Company, the consolidated and consolidating balance sheets of the
Company and its consolidated Subsidiaries as at the end of such fiscal
year and the related consolidated and consolidating statements of
income and consolidated statements of stockholder's equity and of cash
flows for such fiscal year, in each case setting forth comparative
figures for the preceding fiscal year, all in reasonable detail and
accompanied by the opinion with respect to such consolidated financial
statements of independent public accountants of recognized national
standing selected by the Company, which opinion shall be unqualified
and shall (i) state that such accountants audited such consolidated
financial statements in accordance with generally accepted auditing
standards, that such accountants believe that such audit provides a
reasonable basis for their opinion, and that in their opinion such
consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Company and its
consolidated subsidiaries as at the end of such fiscal year and the
consolidated results of their operations and cash flows for such fiscal
year in conformity with generally accepted accounting principles, or
(ii) contain such statements as are customarily included in unqualified
reports of independent accountants in conformity with the
recommendations and requirements of the American Institute of Certified
Public Accountants (or any successor organization).
(b) Quarterly Financial Statements. As soon as available and
in any event within 60 days after the close of each of the first three
quarterly accounting periods in each fiscal year of the Company, the
unaudited, condensed consolidated and consolidating balance sheets of
the Company and its consolidated Subsidiaries as at the end of such
quarterly period and the related unaudited, condensed consolidated and
consolidating statements of income and consolidated statements of cash
flows for such quarterly period, and setting forth, in the case of such
unaudited consolidated statements of income and of cash flows,
comparative figures for the related periods in the prior fiscal year
(except to the extent that a business or Subsidiary was not owned in
such prior year), and which shall be certified on behalf of the Company
by the Chief Financial Officer or other Authorized Officer of the
Company, subject to changes resulting from normal year-end audit
adjustments.
(c) Officer's Compliance Certificates. At the time of the
delivery of the financial statements provided for in sections 8.1(a)
and (b), a certificate on behalf of the Company of the Chief Financial
Officer or other Authorized Officer of the Company to the effect that,
to the best knowledge of the Company, no Default or Event of Default
exists or, if any Default or Event of Default does exist, specifying
the nature and extent thereof, which certificate shall set forth the
calculations required to establish compliance with the provisions of
sections 9.4, 9.5, 9.6, 9.7, 9.8, 9.9, 9.10 and 9.11 of this Agreement.
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(d) Notice of Default, Litigation or Certain Matters Involving
Major Customers. Promptly, and in any event within three Business Days,
in the case of clause (i) below, or 10 Business Days, in the case of
clause (ii) or (ii) below, after the Company or any of its Subsidiaries
obtains knowledge thereof, notice of
(i) the occurrence of any event which constitutes a
Default or Event of Default, which notice shall specify the
nature thereof, the period of existence thereof and what
action the Company proposes to take with respect thereto,
(ii) any litigation or governmental or regulatory
proceeding pending against the Company or any of its
Subsidiaries which is likely to have a Material Adverse Effect
or a material adverse effect on the ability of the Company to
perform its obligations hereunder or under any other Credit
Document, and
(iii) any significant adverse change in the Company's
or any Subsidiary's relationship with, or any significant
event or circumstance which is likely to adversely affect the
Company's or any Subsidiary's relationship with, any customer
representing more than 10% of the Company's consolidated
revenues during its most recent fiscal year, and which adverse
change is reasonably likely to have a Material Adverse Effect.
(e) Auditors' Internal Control Comment Letters, etc. Promptly
upon receipt thereof, a copy of each letter or memorandum commenting on
internal accounting or auditing controls or procedures which is
submitted to the Company by its independent accountants in connection
with any annual audit made by them of the books of the Company.
(f) ERISA. Promptly, and in any event within 10 Business Days
after the Company, any Subsidiary of the Company or any ERISA Affiliate
becomes aware of the occurrence of any of the following, the Company
will deliver to each of the Lenders a certificate on behalf of the
Company of an Authorized Officer of the Company setting forth the full
details as to such occurrence and the action, if any, that the Company,
such Subsidiary or such ERISA Affiliate is required or proposes to
take, together with any notices required or proposed to be given to or
filed with or by the Company, the Subsidiary, the ERISA Affiliate, the
PBGC, a Plan participant or the Plan administrator with respect
thereto:
(i) that a Reportable Event has occurred with respect
to any Plan;
(ii) the institution of any steps by the Company, any
ERISA Affiliate, the PBGC or any other person to terminate any
Plan which has funding requirements;
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(iii) the institution of any steps by the Company or
any ERISA Affiliate to withdraw from any Plan;
(iv) the institution of any steps by the Company or
any Subsidiary to withdraw from any Multiemployer Plan or
Multiple Employer Plan, if such withdrawal could result in
withdrawal liability (as described in Part 1 of Subtitle E of
Title IV of ERISA) in excess of $1,000,000;
(v) a non-exempt "prohibited transaction" within the
meaning of section 406 of ERISA in connection with any Plan;
(vi) that a Plan has an Unfunded Current Liability
exceeding $1,000,000;
(vii) any material increase in the contingent
liability of the Company or any Subsidiary with respect to any
post-retirement welfare liability; or
(viii) the taking of any action by, or the
threatening of the taking of any action by, the Internal
Revenue Service, the Department of Labor or the PBGC with
respect to any of the foregoing.
(g) Environmental Matters. Promptly upon, and in any event
within 10 Business Days after, an officer of the Company or any of its
Subsidiaries obtains knowledge thereof, notice of any of the following
environmental matters which involves any reasonable likelihood (in the
Company's reasonable judgment) of resulting in a Material Adverse
Effect: (i) any pending or threatened (in writing) Environmental Claim
against the Company or any of its Subsidiaries or any Real Property
owned or operated by the Company or any of its Subsidiaries; (ii) any
condition or occurrence on or arising from any Real Property owned or
operated by the Company or any of its Subsidiaries that (A) results in
noncompliance by the Company or any of its Subsidiaries with any
applicable Environmental Law or (B) would reasonably be expected to
form the basis of an Environmental Claim against the Company or any of
its Subsidiaries or any such Real Property; (iii) any condition or
occurrence on any Real Property owned, leased or operated by the
Company or any of its Subsidiaries that could reasonably be expected to
cause such Real Property to be subject to any restrictions on the
ownership, occupancy, use or transferability by the Company or any of
its Subsidiaries of such Real Property under any Environmental Law; and
(iv) the taking of any removal or remedial action in response to the
actual or alleged presence of any Hazardous Material on any Real
Property owned, leased or operated by the Company or any of its
Subsidiaries as required by any Environmental Law or any governmental
or other administrative agency. All such notices shall describe in
reasonable detail the nature of the Environmental Claim and the
Company's or such Subsidiary's response thereto.
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(h) SEC Reports and Registration Statements. Promptly upon
transmission thereof or other filing with the SEC, copies of all
registration statements (other than the exhibits thereto and any
registration statement on Form S-8 or its equivalent) and annual,
quarterly or current reports that the Company or any of its
Subsidiaries files with the SEC.
(i) Other Information. With reasonable promptness, such other
information or documents (financial or otherwise) relating to the
Company or any of its Subsidiaries as any Lender may reasonably request
from time to time.
8.2 Books, Records and Inspections. The Company will, and will cause
each of its Subsidiaries to, (i) keep proper books of record and account, in
which full and correct entries shall be made of all financial transactions and
the assets and business of the Company or such Subsidiaries, as the case may be,
in accordance with GAAP; and (ii) permit during regular business hours, upon at
least five Business Days' notice to the Chief Financial Officer or any other
Authorized Officer of the Company, officers and designated representatives of
the Administrative Agent or any of the Lenders to visit and inspect any of the
properties or assets of the Company and any of its Subsidiaries in whomsoever's
possession (but only to the extent the Company or such Subsidiary has the right
to do so to the extent in the possession of another person), and to examine the
books of account of the Company and any of its Subsidiaries and discuss the
affairs, finances and accounts of the Company and of any of its Subsidiaries
with, and be advised as to the same by, its and their officers and independent
accountants and independent actuaries, if any, all at such reasonable times and
intervals and to such reasonable extent as the Administrative Agent or any of
the Lenders may request.
8.3 Insurance. (a) The Company will, and will cause each of its
Subsidiaries to, (b) maintain insurance coverage by such insurers and in such
forms and amounts and against such risks as are generally consistent with the
insurance coverage maintained by the Company and its Subsidiaries at the date
hereof, and (c) forthwith upon any Lender's written request, furnish to such
Lender such information about such insurance as such Lender may from time to
time reasonably request, which information shall be prepared in form and detail
satisfactory to such Lender and certified by an Authorized Officer of the
Company.
(d) The Company will, and will cause each of its Subsidiaries to, at
all times keep their respective property which is subject to the Lien of any
Security Document insured in favor of the Collateral Agent, and all policies or
certificates (or certified copies thereof) with respect to such insurance (and
any other insurance maintained by the Company or any such Subsidiary) (i) shall
be endorsed to the Collateral Agent's satisfaction for the benefit of the
Collateral Agent (including, without limitation, by naming the Collateral Agent
as loss payee (with respect to Collateral) or, to the extent permitted by
applicable law, as an additional insured), (ii) shall state that such insurance
policies shall not be canceled without 30 days' prior written notice thereof (or
10 days' prior written notice in the case of cancellation for the non-payment of
premiums) by the respective insurer to the Collateral Agent, (iii) shall provide
that the respective insurers irrevocably waive any and all rights of subrogation
with respect to the Collateral Agent and the Lenders, and (iv)
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shall in the case of any such certificates or endorsements in favor of the
Collateral Agent, be deposited with the Collateral Agent. In no event shall the
Company be required to deposit the actual insurance policies with the Collateral
Agent. The Administrative Agent shall deliver copies of any certificates of
insurance to a Lender upon such Lender's request.
(e) Without limitation of the foregoing, the Company will maintain in
full force and effect with an insurance company acceptable to the Required
Lenders a key man life insurance policy on the life of Robert A. Zummo in the
amount of at least $2,500,000, which insurance policy shall at all times be
subject to the Assignment of Life Insurance Policy.
(f) If the Company or any of its Subsidiaries shall fail to maintain
all insurance in accordance with this section 8.3, or if the Company or any of
its Subsidiaries shall fail to so endorse and deposit all policies or
certificates with respect thereto, the Administrative Agent and/or the
Collateral Agent shall have the right (but shall be under no obligation), upon
prior notice to the Company, to procure such insurance and the Company agrees to
reimburse the Administrative Agent or the Collateral Agent, as the case may be,
for all costs and expenses of procuring such insurance.
8.4 Payment of Taxes. The Company will pay and discharge, and will
cause each of its Subsidiaries to pay and discharge, all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits, or
upon any properties belonging to it, prior to the date on which penalties attach
thereto, and all lawful claims which, if unpaid, might become a Lien or charge
upon any properties of the Company or any of its Subsidiaries; provided that
neither the Company nor any of its Subsidiaries shall be required to pay any
such tax, assessment, charge, levy or claim which is being contested in good
faith and by proper proceedings if it has maintained adequate reserves with
respect thereto in accordance with GAAP; and provided, further, that the Company
will not be considered to be in default of any of the provisions of this
sentence if the Company or any Subsidiary fails to pay any such amount which,
individually or in the aggregate, is immaterial.
8.5 Corporate Franchises. The Company will do, and will cause each of
its Subsidiaries to do, or cause to be done, all things necessary to preserve
and keep in full force and effect its corporate existence, rights and authority,
provided that any transaction permitted by section 9.2 will not constitute a
breach of this section 8.5.
8.6 Good Repair. The Company will, and will cause each of its
Subsidiaries to, ensure that its material properties and equipment used or
useful in its business in whomsoever's possession they may be, are kept in good
repair, working order and condition, normal wear and tear excepted, and that
from time to time there are made in such properties and equipment all needful
and proper repairs, renewals, replacements, extensions, additions, betterments
and improvements, thereto, to the extent and in the manner customary for
companies in similar businesses.
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8.7 Compliance with Statutes, etc. The Company will, and will cause
each of its Subsidiaries to, comply, in all material respects, with all
applicable statutes, regulations and orders of, and all applicable restrictions
imposed by, all governmental bodies, domestic or foreign, in respect of the
conduct of its business and the ownership of its property, other than those the
noncompliance with which would not have, and which would not be reasonably
expected to have, a Material Adverse Effect or a material adverse effect on the
ability of the Company to perform its obligations under any Credit Document.
8.8 Compliance with Environmental Laws. Without limitation of the
covenants contained in section 8.7, the Company will comply, and will cause each
of its Subsidiaries to comply, in all material respects, with all Environmental
Laws applicable to the ownership, lease or use of all Real Property now or
hereafter owned, leased or operated by the Company or any of its Subsidiaries,
will promptly pay or cause to be paid all costs and expenses incurred in
connection with such compliance, and will keep or cause to be kept all such Real
Property free and clear of any Liens imposed pursuant to such Environmental Laws
which are not permitted under section 9.3. Neither the Company nor any of its
Subsidiaries will generate, use, treat, store, release or dispose of, or permit
the generation, use, treatment, storage, release or disposal of, Hazardous
Materials on any Real Property now or hereafter owned, leased or operated by the
Company or any of its Subsidiaries or transport or permit the transportation of
Hazardous Materials to or from any such Real Property other than in compliance
with applicable Environmental Laws and in the ordinary course of business,
except for such noncompliance as would not have, and which would not be
reasonably expected to have, a Material Adverse Effect or a material adverse
effect on the ability of the Company to perform its obligations under any Credit
Document. If required to do so under any applicable order of any governmental
agency, the Company will undertake, and cause each of its Subsidiaries to
undertake, any clean up, removal, remedial or other action necessary to remove
and clean-up any Hazardous Materials from any Real Property owned, leased or
operated by the Company or any of its Subsidiaries in accordance with, in all
material respects, the requirements of all applicable Environmental Laws and in
accordance with, in all material respects, such orders of all governmental
authorities, except to the extent that the Company or such Subsidiary is
contesting such order in good faith and by appropriate proceedings and for which
adequate reserves have been established to the extent required by GAAP.
8.9 Fiscal Years, Fiscal Quarters. The Company will, for consolidated
financial reporting purposes, continue to use March 31 as the end of its fiscal
year and June 30, September 30, and December 31 as the end of its fiscal
quarters. If the Company shall change any of its Subsidiaries' fiscal years or
fiscal quarters (other than the fiscal year or fiscal quarters of a person which
becomes a Subsidiary, made at the time such person becomes a Subsidiary to
conform to the Company's fiscal year and fiscal quarters), the Company will
promptly, and in any event within 30 days following any such change, deliver a
notice to the Administrative Agent and the Lenders describing such change and
any material accounting entries made in connection therewith and stating whether
such change will have any impact upon any financial computations to be made
hereunder, and if any such impact is foreseen, describing in reasonable detail
the nature and extent of such impact. If the Required Lenders determine that any
such change will have any impact
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upon any financial computations to be made hereunder which is adverse to the
Lenders, the Company will, if so requested by the Administrative Agent, enter
into an amendment to this Agreement, in form and substance satisfactory to the
Administrative Agent and the Required Lenders, modifying any of the financial
covenants or related provisions hereof in such manner as the Required Lenders
determine is necessary to eliminate such adverse effect.
8.10 Certain Subsidiaries to Join in Subsidiary Guaranty. (a) In the
event that at any time after the Initial Borrowing Date the Company has any
Material Subsidiary which is not a party to the Subsidiary Guaranty, the Company
will notify the Administrative Agent in writing of such event, identifying the
Material Subsidiary in question and referring specifically to the rights of the
Administrative Agent and the Lenders under this section. The Company will,
within 30 days following request therefor from the Administrative Agent (who may
give such request on its own initiative or upon request by the Required
Lenders), cause such Material Subsidiary to deliver to the Administrative Agent,
in sufficient quantities for the Lenders, (i) a joinder supplement, satisfactory
in form and substance to the Administrative Agent and the Required Lenders, duly
executed by such Material Subsidiary, pursuant to which such Material Subsidiary
joins in the Subsidiary Guaranty as a guarantor thereunder, and (ii) if such
Material Subsidiary is a corporation, resolutions of the Board of Directors of
such Material Subsidiary, certified by the Secretary or an Assistant Secretary
of such Material Subsidiary as duly adopted and in full force and effect,
authorizing the execution and delivery of such joinder supplement, or if such
Material Subsidiary is not a corporation, such other evidence of the authority
of such Material Subsidiary to execute such joinder supplement as the
Administrative Agent may reasonably request.
(b) Notwithstanding the foregoing or the provisions of section 8.11
hereof, the Company shall not be required to cause a Foreign Subsidiary to join
in the Subsidiary Guaranty or to become a party to an Additional Security
Document if (i) to do so would subject the Company to liability for additional
United States income taxes by virtue of section 956 of the Code in an amount the
Company considers material, and (ii) the Company provides the Administrative
Agent with documentation, including computations prepared by the Company's
internal tax officer, its independent accountants or tax counsel, acceptable to
the Required Lenders, in support thereof.
8.11 Additional Security; Further Assurances. (a) In the event that the
Company or any Subsidiary at any time owns or holds an interest in any Real
Property or any other property or interest which is not at the time included in
the Collateral and is not subject to a Permitted Lien securing Indebtedness, the
Company will, or will cause such Subsidiary to, within 20 days following request
by the Collateral Agent (who may make such request on its own initiative or upon
instructions from the Required Lenders), grant the Collateral Agent for the
benefit of the Secured Creditors (as defined in the Security Documents) security
interests and mortgages (each an "Additional Security Document") in such
interests or properties of the Company or any Subsidiary, subject to obtaining
any required consents from third parties (including third party lessors and
co-venturers) necessary to be obtained for the granting of a Lien on the
interests or assets involved (with the Company hereby agreeing to use its
reasonable best efforts to obtain such consents), and subject to the provisions
of section 8.10(b). Each Additional Security
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Document (i) shall be granted pursuant to documentation satisfactory in form and
substance to the Administrative Agent and the Collateral Agent, which
documentation shall in the case of Real Property or interests therein be
accompanied by such Phase I environmental assessments, surveys and surveyor's
certifications, a mortgage policy of title insurance, consents of landlords and
other supporting documentation requested by and satisfactory in form and
substance to the Administrative Agent and the Collateral Agent; and (ii) shall
constitute a valid and enforceable perfected Lien upon the interests or
properties so included in the Collateral, superior to and prior to the rights of
all third persons and subject to no other Liens except those permitted by
section 9.3 or otherwise agreed by the Administrative Agent at the time of
perfection thereof and (in the case of Real Property or interests therein) such
other encumbrances as may be set forth in the mortgage policy, if any, relating
to such Additional Security Document which shall be delivered to the Collateral
Agent together with such Additional Security Document and which shall be
satisfactory in form and substance to the Collateral Agent. The Company, at its
sole cost and expense, will cause each Additional Security Document or
instruments related thereto to be duly recorded or filed in such manner and in
such places as are required by law to establish, perfect, preserve and protect
the Liens created thereby required to be granted pursuant to the Additional
Security Document, and will pay or cause to be paid in full all taxes, fees and
other charges payable in connection therewith.
(b) Within 60 days following the Initial Borrowing Date, the Company
will, and will cause any of its applicable Subsidiaries to, (i) contribute to
the capital of a newly formed Delaware corporation ("Intermediate Holding Co."),
which shall be a direct Wholly-Owned Subsidiary of the Company, all of the stock
and Indebtedness of each Subsidiary which is a corporation organized under the
laws of a country other than the United States (the "Contributed Stock and
Debt") which is owned by the Company or any Subsidiary, pursuant to a tax free
reorganization (or other tax free transaction) under the Code, and (ii) enter
into an amendment to the Pledge Agreement, satisfactory in form and substance to
the Administrative Agent, pursuant to which, among other things, (A) the Company
pledges all of the outstanding capital stock of Intermediate Holding Co., and
(B) the 65% of the outstanding capital stock of each such foreign corporation,
which was previously pledged under the Pledge Agreement by other Pledgors, is
pledged thereunder by Intermediate Holding Co.
(c) The Company will, and will cause each of its Subsidiaries to, at
the expense of the Company, make, execute, endorse, acknowledge, file and/or
deliver to the Collateral Agent from time to time such conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, and other
assurances or instruments and take such further steps relating to the Collateral
covered by any of the Security Documents as the Collateral Agent may reasonably
require. If at any time the Collateral Agent determines, based on applicable
law, that all applicable taxes (including, without limitation, mortgage
recording taxes or similar charges) were not paid in connection with the
recordation of any mortgage or deed of trust, the Company shall promptly pay the
same upon demand. Furthermore, the Company shall cause to be delivered to the
Collateral Agent such opinions of local counsel, appraisals, title insurance,
surveys, environmental assessments, consents of landlords, lien waivers from
landlords or mortgagees and other related
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documents as may be reasonably requested by the Administrative Agent or the
Collateral Agent in connection therewith, all of which documents shall be in
form and substance satisfactory to the Administrative Agent and the Collateral
Agent, except that no title insurance or surveys shall be required for any
leasehold properties (unless the lessee has a nominal or bargain purchase
option).
(d) The Company will if requested by any Lender at any time, in order
to meet any legal requirement applicable to such Lender, provide to
Administrative Agent, the Collateral Agent and the Lenders, at the sole cost and
expense of the Company, appraisals and other supporting documentation relating
to any mortgage or deed of trust delivered as an Additional Security Document
hereunder, as specified by any Lender, meeting the appraisal and other
documentation requirements of the Real Estate Reform Amendments of the Financial
Institution Reform, Recovery and Enforcement Act of 1989, as amended, or any
other legal requirements applicable to any Lender, which in the case of any such
appraisal shall be prepared by one or more valuation firms of national standing,
acceptable to the Required Lenders, utilizing appraisal standards satisfying
such Amendments, Act or other legal requirements.
(e) The Company will provide the Administrative Agent with sufficient
copies of each Additional Security Document and any additional supporting
documents delivered in connection therewith for distribution of copies thereof
to the Lenders, and the Administrative Agent will promptly so distribute such
copies.
8.12 Corporate Separateness. The Company will take, and will cause each
of its Subsidiaries to take, all such action as is necessary to keep the
operations of the Company and its Subsidiaries separate and apart from those of
each Subsidiary which has outstanding Indebtedness, including, without
limitation, ensuring that all customary formalities regarding corporate
existence, including holding regular board of directors' meetings and
maintenance of corporate records, are followed. All financial statements of the
Company and its Subsidiaries provided to creditors will clearly evidence the
corporate separateness of the Company and its other Subsidiaries from each
Subsidiary which has Indebtedness outstanding. Finally, neither the Company nor
any of its other Subsidiaries will take any action, or conduct its affairs in a
manner which is likely to result in the corporate existence of a Subsidiary
which has Indebtedness outstanding, on the one hand, and the Company and its
other Subsidiaries, on the other hand, being ignored, or in the assets and
liabilities of the Company or any of its other Subsidiaries being substantively
consolidated with those of a Subsidiary which has Indebtedness outstanding in a
bankruptcy, reorganization or other insolvency proceeding. No action or
indemnity, or provision of support in the form of a letter of credit, expressly
permitted by this Agreement will breach this covenant.
8.13 ERISA. As soon as possible and, in any event, within 10 days after
the Company, any Subsidiary of the Company or any ERISA Affiliate knows or has
reason to know of the occurrence of any of the following, the Company will
deliver to each of the Lenders a certificate of the chief financial officer of
the Company setting forth the full details as to such occurrence and the action,
if any, that the Company, such Subsidiary or such ERISA Affiliate is required or
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proposes to take, together with any notices required or proposed to be given to
or filed with or by the Company, the Subsidiary, the ERISA Affiliate, the PBGC,
a Plan participant or the Plan administrator with respect thereto: that a
Reportable Event has occurred; that an accumulated funding deficiency, within
the meaning of section 412 of the Code or section 302 of ERISA, has been
incurred or an application may be or has been made for a waiver or modification
of the minimum funding standard (including any required installment payments) or
an extension of any amortization period under section 412 of the Code or section
303 or 304 of ERISA with respect to a Plan; that any contribution required to be
made with respect to a Plan has not been timely made; that a Plan has been or
may be terminated, reorganized, partitioned or declared insolvent under Title IV
of ERISA; that a Plan has an Unfunded Current Liability; that proceedings may be
or have been instituted to terminate or appoint a trustee to administer a Plan
which is subject to Title IV of ERISA; that a proceeding has been instituted
pursuant to section 515 of ERISA to collect a delinquent contribution to a Plan;
that the Company, any Subsidiary of the Company or any ERISA Affiliate will or
may incur any liability (including any indirect, contingent, or secondary
liability) to or on account of the termination of or withdrawal from a Plan
under section 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with
respect to a Plan under section 401(a)(29), 4971, 4975 or 4980 of the Code or
section 409 or 502(i) or 502(1) of ERISA or with respect to a group health plan
(as defined in section 607(1) of ERISA or section 4980B(g)(2) of the Code) under
section 4980B of the Code; or that the Company or any Subsidiary of the Company
may incur any material liability pursuant to any employee welfare benefit plan
(as defined in section 3(1) of ERISA) that provides benefits to retired
employees or other former employees (other than as required by section 601 of
ERISA) or any Plan.
8.14 Hedge Agreements, etc. The Company may, and may permit any of its
Subsidiaries to, enter into Hedge Agreements (i) in order to provide protection
to the Company or any such Subsidiary from fluctuations and other changes in
interest rates and currency exchange rates, as and to the extent considered
reasonably necessary by the Company, but no such Hedge Agreement shall expose
the Company or its Subsidiaries to predominantly speculative risks unrelated to
the amount of Indebtedness or assets intended to be subject to coverage on a
notional basis under any such Hedge Agreement; and (ii) in the case of any Hedge
Agreement entered into after the Effective Date, only if the proposed form
thereof (including any proposed pricing or other material terms) has been
provided to the Administrative Agent contemporaneously with the entry into such
Hedge Agreement.
8.15 Senior Debt. The Company will at all times ensure that (a) the
claims of the Lenders in respect of the Obligations of the Company will not be
subordinate to, and will in all respects at least rank pari passu with, the
claims of every other senior secured or unsecured creditor of the Company, and
(b) any Indebtedness subordinated in any manner to the claims of any senior
secured or unsecured creditor of the Company will be subordinated in like manner
to such claims of the Lenders.
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SECTION 9. NEGATIVE COVENANTS.
The Company hereby covenants and agrees that on the Effective Date and
thereafter for so long as this Agreement is in effect and until such time as the
Total Commitment has been terminated, no Notes remain outstanding and the Loans,
together with interest, Fees and all other Obligations incurred hereunder are
paid in full:
9.1 Changes in Business. Neither the Company nor any of its
Subsidiaries will engage in any business if, as a result, the general nature of
the business, taken on a consolidated basis, which would then be engaged in by
the Company and its Subsidiaries, would be substantially changed from the
general nature of the business engaged in by the Company and its Subsidiaries on
the date hereof, which includes the production of automotive airbag systems and
components thereof, it being understood that the vertical integration of
businesses into the Company in order to avoid reliance on outside suppliers
shall not be considered a substantial change in the Company's business.
9.2 Consolidation, Merger or Sale of Assets, etc. The Company will not,
and will not permit any Subsidiary to, wind up, liquidate or dissolve its
affairs, or enter into any transaction of merger or consolidation or sell or
otherwise dispose of any of its property or assets (but excluding any sale or
disposition of obsolete or excess furniture, fixtures or equipment or excess
vacant land in the ordinary course of business), or purchase, lease or otherwise
acquire (in one transaction or a series of related transactions) all or any part
of the property or assets of any person (excluding any purchases, leases or
other acquisitions of property or assets in, and for use in, the ordinary course
of business) or agree to do any of the foregoing at any future time, except that
the following shall be permitted:
(a) Capital Expenditures: Consolidated Capital Expenditures
permitted by section 9.9;
(b) Permitted Investments: the investments permitted pursuant
to section 9.5;
(c) Certain Intercompany Mergers, etc.: if no Default or Event
of Default shall have occurred and be continuing or would result
therefrom, (i) the merger or consolidation of any Wholly-Owned
Subsidiary with or into the Company or another Wholly-Owned Subsidiary,
so long as in any merger or consolidation involving any Borrower the
Borrower is the surviving or continuing corporation, or the liquidation
or dissolution of any Subsidiary, or (ii) the transfer or other
disposition of any property by the Company to any Wholly-Owned
Subsidiary or by any Wholly-Owned Subsidiary to the Company or any
other Wholly-Owned Subsidiary of the Company;
(d) Valentec International Transaction: the acquisition of
Valentec International Corporation pursuant to the Stock Purchase
Agreement (the "Valentec Stock Purchase Agreement"), among Robert A.
Zummo, Francis X. Suozzi, the Valentec International
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Corporation Employee Stock Ownership Plan, and the Company, in
compliance with all applicable laws, provided that, (i) there shall
have been no amendment to or other modification of the terms or
conditions since the date hereof of the Valentec Stock Purchase
Agreement, or any waiver of performance of any of the terms thereof,
which in the opinion of the Required Lenders is materially adverse;
(ii) the Indebtedness for borrowed money of Valentec International
Corporation under the credit facility with Congress Financial
Corporation (Western) shall have been repaid or prepaid in full, any
commitments for further borrowings thereunder terminated, and any
related Liens discharged; (iii) all material governmental and third
party approvals shall have been obtained; and (iv) none of the proceeds
of any Loan is used to pay any indebtedness of Valentec International
Corporation under the credit facility with Coutts & Co. AG;
(e) Permitted Acquisitions: if no Default or Event of Default
shall have occurred and be continuing or would result therefrom, the
Company or any Subsidiary may make any Permitted Acquisition, provided
that any consents of the Required Lenders (or all Lenders) required by
the terms of the definition of the term Permitted Acquisition shall
first have been obtained and the Administrative Agent shall have
confirmed in writing that such consents have been obtained;
(f) Permitted Dispositions: if no Default or Event of Default
shall have occurred and be continuing or would result therefrom, the
Company or any of its Subsidiaries may (i) sell any property, land or
building (including any related receivables or other intangible assets)
to any person which is not a Subsidiary of the Company, or (ii) sell
the entire capital stock (or other equity interests) and Indebtedness
of any Subsidiary owned by the Company or any other Subsidiary to any
person which is not a Subsidiary of the Company, or (iii) permit any
Subsidiary to be merged or consolidated with a person which is not an
Affiliate of the Company, or (iv) consummate any other Asset Sale with
a person who is not a Subsidiary of the Company; provided that (A) the
consideration for such transaction represents fair value (as determined
by management of the Company), and at least 90% of such consideration
consists of cash, (B) in the case of any such transaction involving
consideration in excess of $1,000,000, at least five Business Days
prior to the date of completion of such transaction the Company shall
have delivered to the Administrative Agent an officer's certificate
executed on behalf of the Company by an Authorized Officer of the
Company, which certificate shall contain a description of the proposed
transaction, the date such transaction is scheduled to be consummated,
the estimated purchase price or other consideration for such
transaction, financial information pertaining to compliance with the
preceding clause (A), and which shall (if requested by the
Administrative Agent) include a certified copy of the draft or
definitive documentation pertaining thereto, and (C) contemporaneously
therewith, the Company prepays Loans as and to the extent contemplated
by section 5.2(c); and
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(g) Leases: the Company or any of its Subsidiaries may enter
into leases of property or assets not constituting Permitted
Acquisitions in the ordinary course of business not otherwise in
violation of this Agreement.
To the extent the Required Lenders (or all of the Lenders as shall be required
by section 13.12) waive the provisions of this section 9.2 with respect to the
sale, transfer or other disposition of any Collateral, or any Collateral is
sold, transferred or disposed of as permitted by this section 9.2, (i) such
Collateral shall be sold, transferred or disposed of free and clear of the Liens
created by the respective Security Documents; (ii) if such Collateral includes
all of the capital stock of a Subsidiary which is a Party to the Subsidiary
Guaranty or other Security Document, such capital stock shall be released from
the Pledge Agreement and such Subsidiary shall be released from the Subsidiary
Guaranty; and (iii) the Administrative Agent and the Collateral Agent shall be
authorized to take actions deemed appropriate by them in order to effectuate the
foregoing.
9.3 Liens. The Company will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets of any kind (real or personal, tangible or
intangible) of the Company or any such Subsidiary whether now owned or hereafter
acquired, or sell any such property or assets subject to an understanding or
agreement, contingent or otherwise, to repurchase such property or assets
(including sales of accounts receivable or notes with or without recourse to the
Company or any of its Subsidiaries, other than for purposes of collection in the
ordinary course of business) or assign any right to receive income, or file or
permit the filing of any financing statement under the UCC or any other similar
notice of Lien under any similar recording or notice statute, except that the
foregoing restrictions shall not apply to:
(a) Liens for taxes not yet delinquent or Liens for taxes
being contested in good faith and by appropriate proceedings for which
adequate reserves (in the good faith judgment of the management of the
Company) have been established;
(b) Liens in respect of property or assets imposed by law
which were incurred in the ordinary course of business, such as
carriers', warehousemen's, materialmen's and mechanics' Liens and other
similar Liens arising in the ordinary course of business, which do not
in the aggregate materially detract from the value of such property or
assets or materially impair the use thereof in the operation of the
business of the Company or any Subsidiary;
(c) Liens created by this Agreement or the other Credit
Documents;
(d) Liens (i) in existence on the Initial Borrowing Date which
are listed, and the Indebtedness secured thereby and the property
subject thereto on the Initial Borrowing Date described, in Annex IV,
or (ii) arising out of the refinancing, extension, renewal or refunding
of any Indebtedness secured by any such Liens, provided that the
principal amount of such Indebtedness is not increased and such
Indebtedness is not secured by any additional assets;
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(e) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under section
10.1(f);
(f) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security; and mechanic's Liens, carrier's Liens, and other Liens to
secure the performance of tenders, statutory obligations, contract
bids, government contracts, performance and return-of-money bonds and
other similar obligations, incurred in the ordinary course of business
(exclusive of obligations in respect of the payment for borrowed
money), whether pursuant to statutory requirements, common law or
consensual arrangements;
(g) Leases or subleases granted to others not interfering in
any material respect with the business of the Company or any of its
Subsidiaries and any interest or title of a lessor under any lease not
in violation of this Agreement;
(h) easements, rights-of-way, zoning or deed restrictions,
minor defects or irregularities in title and other similar charges or
encumbrances not interfering in any material respect with the ordinary
conduct of the business of the Company or any of its Subsidiaries;
(i) Liens created by virtue of Capitalized Lease Obligations
or other leases not in violation of the requirements of this Agreement,
provided that such Liens are only in respect of the property or assets
subject to, and secure only, the respective Capital Lease or other
lease (and any other Capital Lease or other lease with the same or a
related group of lessors);
(j) Liens placed upon Real Property, improvements thereto and
related fixtures and equipment or machinery, in each case located in
the Czech Republic, provided the Indebtedness secured thereby is
permitted by section 9.4(b); and
(k) Liens (i) placed upon Real Property, improvements thereto,
equipment or machinery used in the ordinary course of business of the
Company or any Subsidiary at the time of (or within 270 days after) the
acquisition or completion of construction thereof by the Company or any
such Subsidiary to secure Indebtedness incurred to pay all or a portion
of the purchase price or construction cost thereof, or (ii) existing on
property or other assets at the time acquired by the Company or any
Subsidiary or on assets of a person at the time such person first
becomes a Subsidiary of the Company (other than any such Liens which
were created at the time of or in contemplation of the acquisition of
such assets or person by the Company or any of its Subsidiaries);
provided (A) in the case of any such acquisition of a person, any such
Lien attaches only to the property and assets of such person, (B) in
the case of any such acquisition of property or assets by the Company
or any Subsidiary, any such Lien attaches only to the property and
assets so acquired or
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constructed and not to any other property or assets of the Company or
any Subsidiary, and (C) the Indebtedness secured by any such Lien is
permitted by section 9.4(c).
9.4 Indebtedness. The Company will not, and will not permit any of its
Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness of the Company or any of its Subsidiaries, except:
(a) Indebtedness incurred pursuant to this Agreement and the
other Credit Documents;
(b) Indebtedness of Automotive Safety Components
International, s.r.o., a Foreign Subsidiary, in the original aggregate
principal amount of approximately $7,500,000 (or the equivalent in any
applicable currency or currencies), used to finance Real Property,
improvements and related properties subject to Liens permitted by
section 9.3(j), and an unsecured guaranty by the Company of such
Indebtedness; and any refinancing, extension, renewal or refunding of
any such Indebtedness not involving an increase in the principal amount
thereof or a reduction of more than 10% in the remaining weighted
average life to maturity thereof (computed in accordance with standard
financial practice);
(c) Indebtedness of the Company or any Subsidiary (i) subject
to Liens permitted by section 9.3(k), or (ii) in respect of Capital
Leases; provided that the aggregate principal amount of such
Indebtedness (and the principal portion of any Capital Leases) incurred
in any fiscal year shall not exceed an amount equal to 80% of
Consolidated Capital Expenditures for such year; and any refinancing,
extension, renewal or refunding of any such Indebtedness not involving
an increase in the principal amount thereof or a reduction of more than
10% in the remaining weighted average life to maturity thereof
(computed in accordance with standard financial practice);
(d) unsecured Subordinated Indebtedness of the Company in the
aggregate principal amount of up to $5,000,000 (or such larger amount
as may be approved by the Required Lenders), having a weighted average
life to maturity (computed in accordance with standard financial
practice) at the time of incurrence thereof in excess of 5 years,
incurred pursuant to a public offering, Rule 144A offering, or private
placement with institutional investors, of the Company's subordinated
unsecured debt securities;
(e) to the extent not otherwise permitted pursuant to the
foregoing clauses, Indebtedness of Foreign Subsidiaries of the Company,
and Indebtedness of branches of the Company that are incorporated under
the laws of a country other than the United States, not in excess of
$500,000 (or the equivalent in any applicable currency or currencies)
outstanding at any time;
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(f) Existing Indebtedness, to the extent not otherwise
permitted pursuant to the foregoing clauses; and any refinancing,
extension, renewal or refunding of any such Existing Indebtedness not
involving an increase in the principal amount thereof or a reduction of
more than 10% in the remaining weighted average life to maturity
thereof (computed in accordance with standard financial practice);
(g) Indebtedness of the Company or any Subsidiary under Hedge
Agreements;
(h) Indebtedness of the Company to any of its Subsidiaries,
and Indebtedness of any of the Company's Subsidiaries to the Company or
to another Subsidiary of the Company, in each case to the extent
permitted under section 9.5; and
(i) Guaranty Obligations permitted under section 9.5.
9.5 Advances, Investments, Loans and Guaranty Obligations. The Company
will not, and will not permit any of its Subsidiaries to, (a) lend money or
credit or make advances to any person, (b) purchase or acquire any stock,
obligations or securities of, or any other interest in, or make any capital
contribution to, any person, (c) create, acquire or hold any Subsidiary, (d) be
or become a party to any joint venture or partnership, or (e) be or become
obligated under any Guaranty Obligations (other than those created in favor of
the Lenders pursuant to the Credit Documents), except:
(i) the Company or any of its Subsidiaries may invest in cash
and Cash Equivalents;
(ii) any endorsement of a check or other medium of payment for
deposit or collection, or any similar transaction in the normal course
of business;
(iii) the Company and its Subsidiaries may acquire and hold
receivables owing to them in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms;
(iv) investments acquired by the Company or any of its
Subsidiaries (A) in exchange for any other investment held by the
Company or any such Subsidiary in connection with or as a result of a
bankruptcy, workout, reorganization or recapitalization of the issuer
of such other investment, or (B) as a result of a foreclosure by the
Company or any of its Subsidiaries with respect to any secured
investment or other transfer of title with respect to any secured
investment in default;
(v) any unsecured guaranty by the Company of the Indebtedness
described in section 9.4(b), (c) or (e);
(vi) investments of the Company and its Subsidiaries in Hedge
Agreements;
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(vii) the existing investments and guarantees described on
Annex V hereto;
(viii) existing investments in Foreign Subsidiaries and
Subsidiaries which are not Wholly-Owned Subsidiaries (and any increases
thereof attributable to increases in retained earnings)
(ix) investments in the capital of Wholly-Owned Subsidiaries
which are not Foreign Subsidiaries;
(x) loans and advances by any Subsidiary of the Company to the
Company, provided that the Indebtedness represented thereby constitutes
Subordinated Indebtedness;
(xi) to the extent not permitted by the foregoing clauses,
loans and advances by the Company or by any Subsidiary of the Company
to, or other investments in, any person (including, without limitation,
Subsidiaries of the Company and employees, officers and directors of
the Company and its Subsidiaries); provided that the cumulative
aggregate amount of all such loans, advances and investments after
March 31, 1997, after giving effect to any repayment of any such loans
or advances, shall not exceed $500,000 at any time outstanding; and
(xii) Guaranty Obligations of (A) the Company or any
Subsidiary in respect of leases which are not prohibited by under this
Agreement and (B) the Company or any Subsidiary in respect of any other
person (other than in respect of Indebtedness for borrowed money)
arising as a matter of applicable law because the Company or such
Subsidiary is or is deemed to be a general partner of such other
person, or arising in the ordinary course of business, shall be
permitted.
9.6 Dividends, etc. The Company will not declare or pay any dividends
(other than dividends payable solely in common stock of the Company) on, or make
any other distribution or payment on account of (other than in shares of the
common stock of the Company), and the Company will not, and will not permit any
of its Subsidiaries to, purchase, redeem, retire or otherwise acquire, any
shares of any class of the capital stock of the Company, whether now or
hereafter outstanding (all of the foregoing "Dividends"), except that if no
Event of Default shall have occurred or be continuing or would result therefrom,
the Company may repurchase shares of its common stock for cash consideration,
provided that the cumulative aggregate cash consideration so expended after
March 31, 1997 does not exceed $500,000.
9.7 Total Indebtedness/EBITDA Ratio. The Company will not at any time
permit the ratio of (i) the amount of Total Indebtedness at such time to (ii)
EBITDA for any Testing Period, to exceed 2.50 to 1.00.
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9.8 Fixed Charge Coverage Ratio. The Company will not permit its Fixed
Charge Coverage Ratio for any Testing Period to be less than the ratio shown
below for any applicable period:
Period Ratio
Initial Borrowing Date
through March 31, 2000 1.00 to 1.00
Thereafter 1.20 to 1.00
================================ ================================
9.9 Capital Expenditures. The Company will not, and will not permit any
of its Subsidiaries to, make or incur Consolidated Capital Expenditures during
any fiscal year of the Company, commencing with its fiscal year ended March 31,
1998, in an aggregate amount in excess of $8,000,000.
9.10 Certain Leases. The Company will not (a) permit the aggregate
payments (excluding any property taxes, insurance or maintenance obligations
paid by the Company and its Subsidiaries as additional rent or lease payments)
by the Company and its Subsidiaries on a consolidated basis under agreements to
rent or lease any personal property for a period exceeding 12 months (including
any renewal or similar option periods), other than pursuant to Capital Leases,
to exceed $1,000,000 in any fiscal year of the Company; or (b) permit the
aggregate fair value of property leased by the Company and/or its Subsidiaries
pursuant to one or more Capital Leases from any single lessor (or related group
of lessors), determined at the time of any applicable Capital Lease, to exceed
$5,000,000.
9.11 Minimum Consolidated Net Worth. The Company will not permit its
Consolidated Net Worth, without regard to foreign currency translation
adjustments subsequent to March 31, 1997, at any time to be less than
$37,000,000, except that (i) effective as of the end of the Borrower's fiscal
quarter ended June 30, 1997, and as of the end of each fiscal quarter
thereafter, the foregoing amount (as it may from time to time be increased as
herein provided), shall be increased by 100% of Consolidated Net Income for the
fiscal quarter ended on such date, if any (there being no reduction in the case
of any such Consolidated Net Income which reflects a deficit); and (ii) the
foregoing amount (as it may from time to time be increased as herein provided),
shall be decreased by the amount of Dividends paid in accordance with section
9.6.
9.12 Prepayments and Refinancings of Subordinated Debt, etc. The
Company will not, and will not permit any of its Subsidiaries to, make (or give
any notice in respect thereof) any voluntary or optional payment or prepayment
or redemption or acquisition for value of (including, without limitation, by way
of depositing with the trustee with respect thereto money or securities before
due for the purpose of paying when due) or exchange of, or refinance or refund,
any
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Subordinated Indebtedness of the Company referred to in section 9.4(c); provided
that the Company may refinance or refund any such Subordinated Indebtedness if
the aggregate principal amount thereof is not increased, the weighted average
life to maturity thereof (computed in accordance with standard financial
practice) is not reduced by more than 10%, and there is no change in the
subordination provisions applicable thereto which is materially adverse to the
Lenders.
9.13 Transactions with Affiliates. The Company will not, and will not
permit any Subsidiary to, enter into any transaction or series of transactions
with any Affiliate (other than, in the case of the Company, any Subsidiary, and
in the case of a Subsidiary, the Company or another Subsidiary) other than in
the ordinary course of business of and pursuant to the reasonable requirements
of the Company's or such Subsidiary's business and upon fair and reasonable
terms no less favorable to the Company or such Subsidiary than would obtain in a
comparable arm's- length transaction with a person other than an Affiliate,
except (i) loans, advances and investments permitted by section 9.5, (ii) sales
of goods to an Affiliate for use or distribution outside the United States which
in the good faith judgment of the Company complies with any applicable legal
requirements of the Code, or (iii) agreements and transactions with and payments
to officers, directors and shareholders which are either (A) entered into in the
ordinary course of business and not prohibited by any of the provisions of this
Agreement, or (B) entered into outside the ordinary course of business, approved
by the directors or shareholders of the Company, and not prohibited by any of
the provisions of this Agreement.
9.14 Limitation on Certain Restrictions on Subsidiaries. The Company
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
contractual encumbrance or restriction in or on the ability of any such
Subsidiary to (a) pay dividends or make any other distributions on its capital
stock or any other interest or participation in its profits owned by the Company
or any Subsidiary of the Company, or pay any Indebtedness owed to the Company or
a Subsidiary of the Company, (b) make loans or advances to the Company or any of
the Company's other Subsidiaries, or transfer any of its property or assets to
the Company or any of the Company's other Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (i) applicable law,
(ii) this Agreement and the other Credit Documents, (iii) customary provisions
restricting subletting or assignment of any lease governing a leasehold interest
of a Subsidiary of the Company, (iv) customary provisions restricting assignment
of any licensing agreement entered into by any Subsidiary of the Company in the
ordinary course of business, (v) customary provisions restricting the transfer
of assets subject to Liens permitted under section 9.3(k), (vi) encumbrances and
restrictions contained in the Existing Indebtedness Agreements as in effect on
the Effective Date and customary restrictions governing any of the Indebtedness
of a Subsidiary permitted pursuant to section 9.4, (vii) any document relating
to Indebtedness secured by a Lien permitted by section 9.3, insofar as the
provisions thereof limit grants of junior liens on the assets securing such
Indebtedness, and (viii) any operating lease or Capital Lease, insofar as the
provisions thereof limit grants of a security interest in, or other assignments
of, the related leasehold interest to any other person.
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9.15 Limitation on Sale and Lease-Back Transactions. The Company will
not, nor will it permit any Subsidiary to, enter into any Sale and Lease-Back
Transaction involving any individual property (or related group of properties as
part of the same Sale and Lease-Back Transaction) having a Value over $1,000,000
unless either (a) the Company or such Subsidiary would be entitled to incur
Indebtedness secured by a Lien on such property pursuant to section 9.4(c), or
(b) the Company shall prepay Term Loans, or voluntarily and permanently reduce
the Unutilized Total Revolving Commitment, by an amount at least equal to the
Value of such Sale and Lease-Back Transaction.
SECTION 10. EVENTS OF DEFAULT.
10.1 Events of Default. Upon the occurrence of any of the following
specified events (each an "Event of Default"):
(a) Payments: any Borrower shall (i) default in the payment when due of
any principal of the Loans or any reimbursement obligation in respect of any
Unpaid Drawing; or (ii) default in the payment when due of any interest on the
Loans or any Fees or any other amounts owing hereunder or under any other Credit
Document, and such default shall continue for five days; or
(b) Representations, etc.: any representation, warranty or statement
made by the Company or any other Credit Party herein or in any other Credit
Document or in any statement or certificate delivered or required to be
delivered pursuant hereto or thereto shall prove to be untrue in any material
respect on the date as of which made or deemed made; or
(c) Covenants: the Company shall (i) default in the due performance or
observance by it of any term, covenant or agreement contained in section 9.2,
9.3, 9.4, 9.5, 9.6, 9.7, 9.8, 9.9, 9.10 or 9.11 of this Agreement, or (ii)
default in the due performance or observance by it of any term, covenant or
agreement (other than those referred to in clause (a) or (b) above or the
preceding clause (i) of this clause (c)) contained in this Agreement or any
other Credit Document and such default shall continue unremedied for a period of
at least 30 days after notice by the Administrative Agent or the Required
Lenders; or
(d) Cross Default Under Other Agreements: the Company or any of its
Subsidiaries shall (i) default in any payment with respect to any Indebtedness
(other than the Obligations) having an unpaid principal amount of $1,000,000 or
greater, and such default shall continue after the applicable grace period, if
any, specified in the agreement or instrument relating to such Indebtedness, or
(ii) default in the observance or performance of any agreement or condition
relating to any such Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto (and all grace periods applicable to
such observance, performance or condition shall have expired), or any other
event shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders) to
cause any such Indebtedness to become due prior to its stated maturity; or any
such Indebtedness of the
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Company or any of its Subsidiaries shall be declared to be due and payable, or
shall be required to be prepaid (other than by a regularly scheduled required
prepayment or redemption, prior to the stated maturity thereof); or
(e) Other Credit Documents: the Subsidiary Guaranty or any Security
Document (once executed and delivered) shall cease for any reason (other than
termination in accordance with its terms) to be in full force and effect; or any
Credit Party shall default in any payment obligation thereunder; or any Credit
Party shall default in any material respect in the due performance and
observance of any other obligation thereunder and such default shall continue
unremedied for a period of at least 30 days after notice by the Administrative
Agent or the Required Lenders; or any Credit Party shall (or seek to) disaffirm
or otherwise limit its obligations thereunder otherwise than in strict
compliance with the terms thereof; or
(f) Judgments: one or more judgments or decrees shall be entered
against the Company and/or any of its Subsidiaries involving a liability
(whether or not covered by insurance) of $500,000 or more in the aggregate for
all such judgments and decrees for the Company and its Subsidiaries and any such
judgments or decrees shall not have been vacated, discharged or stayed or bonded
pending appeal within 30 days from the entry thereof; or
(g) Bankruptcy, etc.: any Borrower or any of its Material Subsidiaries
shall commence a voluntary case concerning itself under Title 11 of the United
States Code entitled "Bankruptcy," as now or hereafter in effect, or any
successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced
against any Borrower or any of its Material Subsidiaries and the petition is not
controverted within 10 days, or is not dismissed within 60 days, after
commencement of the case; or a custodian (as defined in the Bankruptcy Code) is
appointed for, or takes charge of, all or substantially all of the property of
any Borrower or any of its Material Subsidiaries; or any Borrower or any of its
Material Subsidiaries commences (including by way of applying for or consenting
to the appointment of, or the taking of possession by, a rehabilitator,
receiver, custodian, trustee, conservator or liquidator (collectively, a
"conservator") of itself or all or any substantial portion of its property) any
other proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency, liquidation, rehabilitation,
conservatorship or similar law of any jurisdiction whether now or hereafter in
effect relating to any Borrower or any of its Material Subsidiaries; or any such
proceeding is commenced against any Borrower or any of its Material Subsidiaries
to the extent such proceeding is consented by such person or remains undismissed
for a period of 60 days; or any Borrower or any of its Material Subsidiaries is
adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or any Borrower or any of its
Material Subsidiaries suffers any appointment of any conservator or the like for
it or any substantial part of its property which continues undischarged or
unstayed for a period of 60 days; or any Borrower or any of its Material
Subsidiaries makes a general assignment for the benefit of creditors; or any
corporate (or similar organizational) action is taken by any Borrower or any of
its Material Subsidiaries for the purpose of effecting any of the foregoing; or
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(h) ERISA: (i) any of the events described in clauses (i) through
(viii) of section 8.1(f) shall have occurred; or (ii) there shall result from
any such event or events the imposition of a lien, the granting of a security
interest, or a liability or a material risk of incurring a liability; and (iii)
any such event or events or any such lien, security interest or liability,
individually, and/or in the aggregate, in the opinion of the Required Lenders,
has had, or could reasonably be expected to have, a Material Adverse Effect; or
(i) Material Adverse Effect: any event or circumstance shall occur or
exist which has a Material Adverse Effect upon the Company, as compared to the
business, operations, property, assets, liabilities or condition (financial or
otherwise) of the Company and its Subsidiaries as reflected in the financial
statements referred to in section 7.8.
10.2 Acceleration, etc. Upon the occurrence of any Event of Default,
and at any time thereafter, if any Event of Default shall then be continuing,
the Administrative Agent shall, upon the written request of the Required
Lenders, by written notice to the Company (which shall in turn immediately
furnish a copy of the same to the other Borrowers), take any or all of the
following actions, without prejudice to the rights of the Administrative Agent
or any Lender to enforce its claims against any Borrower, except as otherwise
specifically provided for in this Agreement (provided that, if an Event of
Default specified in section 10.1(g) shall occur with respect to any Borrower,
the result which would occur upon the giving of written notice by the
Administrative Agent as specified in clauses (i) and (ii) below shall occur
automatically without the giving of any such notice): (i) declare the Total
Commitment terminated, whereupon the Commitment of each Lender shall forthwith
terminate immediately without any other notice of any kind; (ii) declare the
principal of and any accrued interest in respect of all Loans, all Unpaid
Drawings and all obligations owing hereunder and thereunder to be, whereupon the
same shall become, forthwith due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by each
Borrower; (iii) terminate any Letter of Credit which may be terminated in
accordance with its terms; and (iv) direct the Company to pay (and the Company
hereby agrees that on receipt of such notice or upon the occurrence of an Event
of Default with respect to any Borrower under section 10.1(g), it will pay) to
the Administrative Agent an amount of cash equal to the aggregate Stated Amount
of all Letters of Credit then outstanding (such amount to be held as security
after the Borrower's reimbursement obligations in respect thereof).
10.3 Application of Liquidation Proceeds. All monies received by the
Administrative Agent or any Lender from the exercise of remedies hereunder or
under the other Credit Documents or under any other documents relating to this
Agreement shall, unless otherwise required by the terms of the other Credit
Documents or by applicable law, be applied as follows:
(i) first, to the payment of all expenses (to the extent not
paid by the Borrowers) incurred by the Administrative Agent and the
Lenders in connection with the exercise of such remedies, including,
without limitation, all reasonable costs and expenses of collection,
attorneys' fees, court costs and any foreclosure expenses;
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(ii) second, to the payment pro rata of interest then accrued
on the outstanding Loans;
(iii) third, to the payment pro rata of any fees then accrued
and payable to the Administrative Agent, any Letter of Credit Issuer or
any Lender under this Agreement in respect of the Loans or the Letter
of Credit Outstandings;
(iv) fourth, to the payment pro rata of (A) the principal
balance then owing on the outstanding Loans, (B) the amounts then due
under Designated Hedge Agreements to creditors of the Company or any
Subsidiary, subject to confirmation by the Administrative Agent of any
calculations of termination or other payment amounts being made in
accordance with normal industry practice, and (C) the Stated Amount of
the Letter of Credit Outstandings (to be held and applied by the
Administrative Agent as security for the reimbursement obligations in
respect thereof);
(v) fifth, to the payment to the Lenders of any amounts then
accrued and unpaid under sections 2.9, 2.10 and 3.5 hereof, and if such
proceeds are insufficient to pay such amounts in full, to the payment
of such amounts pro rata;
(vi) sixth, to the payment pro rata of all other amounts owed
by the Borrowers to the Administrative Agent, to any Letter of Credit
Issuer or any Lender under this Agreement or any other Credit Document,
and to any counterparties under Designated Hedge Agreements of the
Company and its Subsidiaries, and if such proceeds are insufficient to
pay such amounts in full, to the payment of such amounts pro rata; and
(vii) finally, any remaining surplus after all of the
Obligations have been paid in full, to the Borrowers or to whomsoever
shall be lawfully entitled thereto.
SECTION 11. THE ADMINISTRATIVE AGENT.
11.1 Appointment. Each Lender hereby irrevocably designates and
appoints KeyBank as Administrative Agent (such term to include, for the purposes
of this section 11, KeyBank acting as Collateral Agent) to act as specified
herein and in the other Credit Documents, and each such Lender hereby
irrevocably authorizes KeyBank as the Administrative Agent for such Lender, to
take such action on its behalf under the provisions of this Agreement and the
other Credit Documents and to exercise such powers and perform such duties as
are expressly delegated to the Administrative Agent by the terms of this
Agreement and the other Credit Documents, together with such other powers as are
reasonably incidental thereto. The Administrative Agent agrees to act as such
upon the express conditions contained in this section 11. Notwithstanding any
provision to the contrary elsewhere in this Agreement, the Administrative Agent
shall not have any duties or responsibilities, except those expressly set forth
herein or in the other Credit Documents, nor any fiduciary relationship with any
Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or otherwise
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exist against the Administrative Agent. The provisions of this section 11 are
solely for the benefit of the Administrative Agent, and the Lenders, and the
Company and its Subsidiaries shall not have any rights as a third party
beneficiary of any of the provisions hereof. In performing its functions and
duties under this Agreement, the Administrative Agent shall act solely as agent
of the Lenders and does not assume and shall not be deemed to have assumed any
obligation or relationship of agency or trust with or for the Company or any of
its Subsidiaries.
11.2 Delegation of Duties. The Administrative Agent may execute any of
its duties under this Agreement or any other Credit Document by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent shall
not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care except to the extent
otherwise required by section 11.3.
11.3 Exculpatory Provisions. Neither the Administrative Agent nor any
of its respective officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such person under or in connection with this Agreement (except
for its or such person's own gross negligence or willful misconduct) or (ii)
responsible in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by the Company or of its Subsidiaries or any
of their respective officers contained in this Agreement, any other Credit
Document or in any certificate, report, statement or other document referred to
or provided for in, or received by the Administrative Agent under or in
connection with, this Agreement or any other Credit Document or for any failure
of the Company or any Subsidiary of the Company or any of their respective
officers to perform its obligations hereunder or thereunder. The Administrative
Agent shall not be under any obligation to any Lender to ascertain or to inquire
as to the observance or performance of any of the agreements contained in, or
conditions of, this Agreement, or to inspect the properties, books or records of
the Company or any of its Subsidiaries. The Administrative Agent shall not be
responsible to any Lender for the effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of this Agreement or any Credit
Document or for any representations, warranties, recitals or statements made
herein or therein or made in any written or oral statement or in any financial
or other statements, instruments, reports, certificates or any other documents
in connection herewith or therewith furnished or made by the Administrative
Agent to the Lenders or by or on behalf of the Company or any of its
Subsidiaries to the Administrative Agent or any Lender or be required to
ascertain or inquire as to the performance or observance of any of the terms,
conditions, provisions, covenants or agreements contained herein or therein or
as to the use of the proceeds of the Loans or of the existence or possible
existence of any Default or Event of Default.
11.4 Reliance by Administrative Agent. The Administrative Agent shall
be entitled to rely, and shall be fully protected in relying, upon any note,
writing, resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, facsimile transmission, telex or teletype message, statement, order or
other document or conversation believed by it, in good faith, to be genuine
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and correct and to have been signed, sent or made by the proper person or
persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Company or any of its Subsidiaries), independent
accountants and other experts selected by the Administrative Agent. The
Administrative Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Credit Document unless it shall first
receive such advice or concurrence of the Required Lenders as it deems
appropriate or it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Administrative Agent shall
in all cases be fully protected in acting, or in refraining from acting, under
this Agreement and the other Credit Documents in accordance with a request of
the Required Lenders, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders.
11.5 Notice of Default. The Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received notice from a Lender or
any Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event that
the Administrative Agent receives such a notice, the Administrative Agent shall
give prompt notice thereof to the Lenders. The Administrative Agent shall take
such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders, provided that unless and until the
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Lenders.
11.6 Non-Reliance. Each Lender expressly acknowledges that neither the
Administrative Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates have made any representations or warranties to
it and that no act by the Administrative Agent hereinafter taken, including any
review of the affairs of the Company or any of its Subsidiaries, shall be deemed
to constitute any representation or warranty by the Administrative Agent to any
Lender. Each Lender represents to the Administrative Agent that it has,
independently and without reliance upon the Administrative Agent, or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
assets, operations, property, financial and other conditions, prospects and
creditworthiness of the Company and its Subsidiaries and made its own decision
to make its Loans hereunder and enter into this Agreement. Each Lender also
represents that it will, independently and without reliance upon the
Administrative Agent, or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement, and to make such investigation as it deems necessary to inform
itself as to the business, assets, operations, property, financial and other
conditions, prospects and creditworthiness of the Company and its Subsidiaries.
The Administrative Agent shall not have any duty or responsibility to provide
any Lender with any credit or other information concerning the business,
operations, assets, property, financial and other conditions, prospects or
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creditworthiness of the Company or any of its Subsidiaries which may come into
the possession of the Administrative Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.
11.7 Indemnification. The Lenders agree to indemnify the Administrative
Agent in its capacity as such ratably according to their respective Loans and
Unutilized Commitments, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, reasonable
expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the
Obligations) be imposed on, incurred by or asserted against the Administrative
Agent in its capacity as such in any way relating to or arising out of this
Agreement or any other Credit Document, or any documents contemplated by or
referred to herein or the transactions contemplated hereby or any action taken
or omitted to be taken by the Administrative Agent under or in connection with
any of the foregoing, but only to the extent that any of the foregoing is not
paid by the Borrowers, provided that no Lender shall be liable to the
Administrative Agent for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements to the extent resulting solely from the Administrative
Agent's gross negligence or willful misconduct. If any indemnity furnished to
the Administrative Agent for any purpose shall, in the opinion of the
Administrative Agent, be insufficient or become impaired, the Administrative
Agent may call for additional indemnity and cease, or not commence, to do the
acts indemnified against until such additional indemnity is furnished. The
agreements in this section 11.7 shall survive the payment of all Obligations.
11.8 The Administrative Agent in Individual Capacity. The
Administrative Agent and its Affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Company, its Subsidiaries
and their Affiliates as though not acting as Administrative Agent hereunder.
With respect to the Loans made by it and all Obligations owing to it, the
Administrative Agent shall have the same rights and powers under this Agreement
as any Lender and may exercise the same as though it were not the Administrative
Agent, and the terms "Lender" and "Lenders" shall include the Administrative
Agent in its individual capacity.
11.9 Successor Administrative Agent. The Administrative Agent may
resign as the Administrative Agent upon 20 days' notice to the Lenders and the
Company (which shall in turn immediately furnish a copy of the same to the other
Borrowers). The Required Lenders shall appoint from among the Lenders a
successor Administrative Agent for the Lenders subject to prior approval by the
Company (such approval not to be unreasonably withheld or delayed), whereupon
such successor agent shall succeed to the rights, powers and duties of the
Administrative Agent, and the term "Administrative Agent" shall include such
successor agent effective upon its appointment, and the resigning Administrative
Agent's rights, powers and duties as the Administrative Agent shall be
terminated, without any other or further act or deed on the part of such former
Administrative Agent or any of the parties to this Agreement. After the retiring
Administrative Agent's resignation hereunder as the Administrative Agent, the
provisions
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of this section 11 shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was Administrative Agent under this Agreement.
11.10 Other Agents. Any Lender identified herein as a Co-Agent,
Syndication Agent or any other corresponding title, other than "Administrative
Agent or "Collateral Agent", shall have no right, power, obligation, liability,
responsibility or duty under this Agreement or any other Credit Document except
those applicable to all Lenders as such. Each Lender acknowledges that it has
not relied, and will not rely, on any Lender so identified in deciding to enter
into this Agreement or in taking or not taking any action hereunder.
SECTION 12. GUARANTY BY THE COMPANY.
12.1 Guaranty of Subsidiary Borrowings. The Company hereby
unconditionally guarantees, for the benefit of the Administrative Agent and the
Lenders, the full and punctual payment by each Borrowing Subsidiary of all
Indebtedness of each Borrowing Subsidiary incurred pursuant to this Agreement
(herein, the "Guaranteed Obligations"). Upon failure by any Borrowing Subsidiary
to pay punctually any such amount, the Company shall forthwith on demand by the
Administrative Agent pay the amount not so paid at the place and in the currency
and otherwise in the manner specified in this Agreement.
12.2 Additional Undertaking. As a separate, additional and continuing
obligation, the Company unconditionally and irrevocably undertakes and agrees,
for the benefit of the Administrative Agent and the Lenders, that, should any
amounts not be recoverable from the Company under section 12.1 for any reason
whatsoever (including, without limitation, by reason of any provision of any
Credit Document or any other agreement or instrument executed in connection
therewith being or becoming void, unenforceable, or otherwise invalid under any
applicable law) then, notwithstanding any notice or knowledge thereof by any
Lender, the Administrative Agent, any of their respective Affiliates, or any
other person, at any time, the Company as sole, original and independent
obligor, upon demand by the Administrative Agent, will make payment to the
Administrative Agent, for the account of the Lenders and the Administrative
Agent, of all such obligations not so recoverable by way of full indemnity, in
such currency and otherwise in such manner as is provided in the Credit
Documents.
12.3 Guaranty Unconditional, etc. The obligations of the Company under
this section shall be unconditional and absolute and, without limiting the
generality of the foregoing, shall not be released, discharged or otherwise
affected by the occurrence, one or more times, of any of the following:
(i) any extension, renewal, settlement, compromise, waiver or
release in respect to any Guaranteed Obligation of any Borrowing
Subsidiary under any agreement or instrument, by operation of law or
otherwise;
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(ii) any modification or amendment of or supplement to this
Agreement, any Note, any other Credit Document, or any agreement or
instrument evidencing or relating to any Guaranteed Obligation;
(iii) any release, non-perfection or invalidity of any direct
or indirect security for any Guaranteed Obligation of any Borrowing
Subsidiary under any agreement or instrument evidencing or relating to
any Guaranteed Obligation;
(iv) any change in the corporate existence, structure or
ownership of any Borrowing Subsidiary or any insolvency, bankruptcy,
reorganization or other similar proceeding affecting any Borrowing
Subsidiary or its assets or any resulting release or discharge of any
obligation of any Borrowing Subsidiary contained in any agreement or
instrument evidencing or relating to any Guaranteed Obligation;
(v) the existence of any claim, set-off or other rights which
the Company may have at any time against any Borrower Subsidiary, the
Administrative Agent, any Lender or any other person, whether in
connection herewith or any unrelated transactions;
(vi) any invalidity or unenforceability relating to or against
any Borrowing Subsidiary for any reason of any agreement or instrument
evidencing or relating to any Guaranteed Obligation, or any provision
of applicable law or regulation purporting to prohibit the payment by
any Borrowing Subsidiary of any Guaranteed Obligations; or
(vii) any other act or omission to act or delay of any kind by
any Borrowing Subsidiary, the Administrative Agent, any Lender or any
other person or any other circumstance whatsoever which might, but for
the provisions of this section, constitute a legal or equitable
discharge of the Borrower's obligations under this section.
12.4 Company Obligations to Remain in Effect; Restoration. The
Company's obligations under this section shall remain in full force and effect
until the Commitments shall have terminated and the principal of and interest on
the Notes and all other amounts payable by the Company under the Credit
Documents shall have been paid in full. If at any time any payment of any of the
Guaranteed Obligations of any Borrowing Subsidiary in respect of any Guaranteed
Obligations is rescinded or must be otherwise restored or returned upon the
insolvency, bankruptcy or reorganization of such Borrowing Subsidiary, the
Company's obligations under this section with respect to such payment shall be
reinstated at such time as though such payment had been due but not made at such
time.
12.5 Waiver or Acceptance, etc. The Company irrevocably waives
acceptance hereof, presentment, demand, protest and any notice not provided for
herein, as well as any requirement that at any time any action be taken by any
person against any Borrowing Subsidiary or any other person, or against any
collateral or guaranty of any other person.
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12.6 Subrogation. Until the indefeasible payment in full of all of the
Obligations and the termination of the Commitments of the Lenders hereunder, the
Company shall have no rights, by operation of law or otherwise, upon making any
payment under this section to be subrogated to the rights of the payee against
any Borrowing Subsidiary with respect to such payment or otherwise to be
reimbursed, indemnified or exonerated by any Borrowing Subsidiary in respect
thereof.
12.7 Effect of Stay. In the event that acceleration of the time for
payment of any amount payable by any Borrowing Subsidiary under any Guaranteed
Obligation is stayed upon insolvency, bankruptcy or reorganization of such
Borrowing Subsidiary, all such amounts otherwise subject to acceleration under
the terms of any applicable agreement or instrument evidencing or relating to
any Guaranteed Obligation shall nonetheless be payable by the Company under this
section forthwith on demand by the Administrative Agent.
SECTION 13. MISCELLANEOUS.
13.1 Payment of Expenses, etc. The Company agrees to: (i) whether or
not the transactions herein contemplated are consummated, pay all reasonable
out-of-pocket costs and expenses of the Administrative Agent in connection with
the negotiation, preparation, execution and delivery of the Credit Documents and
the documents and instruments referred to therein and any amendment, waiver or
consent relating thereto (including, without limitation, the reasonable fees and
disbursements of Jones, Day, Reavis & Pogue, special counsel to the
Administrative Agent), and of the Administrative Agent and each of the Lenders
in connection with the enforcement of the Credit Documents and the documents and
instruments referred to therein (including, without limitation, the reasonable
fees and disbursements of counsel for the Administrative Agent and for each of
the Lenders); (ii) in the event of the bankruptcy, insolvency, rehabilitation or
other similar proceeding in respect of the Company or any of its Subsidiaries,
pay all costs of collection and defense, including reasonable attorneys' fees in
connection therewith and in connection with any appellate proceeding or
post-judgment action involved therein, which shall be due and payable together
with all required service or use taxes; (iii) pay and hold each of the Lenders
harmless from and against any and all present and future stamp and other similar
taxes with respect to the foregoing matters and save each of the Lenders
harmless from and against any and all liabilities with respect to or resulting
from any delay or omission (other than to the extent attributable to such
Lender) to pay such taxes; and (iv) indemnify each Lender, its officers,
directors, employees, representatives and agents (collectively, the
"Indemnitees") from and hold each of them harmless against any and all losses,
liabilities, claims, damages or expenses reasonably incurred by any of them as a
result of, or arising out of, or in any way related to, or by reason of (a) any
investigation, litigation or other proceeding (whether or not any Lender is a
party thereto) related to the entering into and/or performance of any Credit
Document or the use of the proceeds of any Loans hereunder or the consummation
of any transactions contemplated in any Credit Document, other than any such
investigation, litigation or proceeding arising out of transactions solely
between any of the Lenders or the Administrative Agent, transactions solely
involving the assignment by a Lender of all or a portion of its Loans and
Commitment, or the
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granting of participations therein, as provided in this Agreement, or arising
solely out of any examination of a Lender by any regulatory authority having
jurisdiction over it, or (b) any Environmental Claim in respect of any Real
Property owned, leased or at any time operated by the Company or any of its
Subsidiaries, including, in each case, without limitation, the reasonable fees
and disbursements of counsel incurred in connection with any such investigation,
litigation or other proceeding (but excluding any such losses, liabilities,
claims, damages or expenses to the extent incurred by reason of the negligence
or willful misconduct of the person to be indemnified or of any other Indemnitee
who is such person or an Affiliate of such person). To the extent that the
undertaking to indemnify, pay or hold harmless any person set forth in the
preceding sentence may be unenforceable because it is violative of any law or
public policy, the Company shall make the maximum contribution to the payment
and satisfaction of each of the indemnified liabilities which is permissible
under applicable law.
13.2 Right of Setoff. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence of an Event of Default, each Lender is hereby
authorized at any time or from time to time, without presentment, demand,
protest or other notice of any kind to any Borrower or to any other person, any
such notice being hereby expressly waived, to set off and to appropriate and
apply any and all deposits (general or special) and any other Indebtedness at
any time held or owing by such Lender (including, without limitation, by
branches and agencies of such Lender wherever located) to or for the credit or
the account of any Borrower against and on account of the Obligations and
liabilities of the Borrowers (or any of them) to such Lender under this
Agreement or under any of the other Credit Documents, including, without
limitation, all interests in Obligations purchased by such Lender pursuant to
section 13.4(b), and all other claims of any nature or description arising out
of or connected with this Agreement or any other Credit Document, irrespective
of whether or not such Lender shall have made any demand hereunder and although
said Obligations, liabilities or claims, or any of them, shall be contingent or
unmatured.
13.3 Notices. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, facsimile transmission or cable communication)
and mailed, telegraphed, telexed, transmitted, cabled or delivered, (a) if to
any Borrower, to such Borrower at 99 Main Street, Nyack, New York 10960,
attention: Jeffrey J. Kaplan, Executive Vice President & Chief Financial Officer
(facsimile: (914) 348-7677); (b) if to any Lender at its address specified for
such Lender on Annex I hereto; (c) if to the Administrative Agent, at its Notice
Address; or (d) at such other address as shall be designated by any party in a
written notice to the other parties hereto. All such notices and communications
shall be mailed, telegraphed, telexed, telecopied, or cabled or sent by
overnight courier, and shall be effective when received.
13.4 Benefit of Agreement. (a) This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns, provided that no Borrower may assign or
transfer any of its rights or obligations hereunder without the prior written
consent of all the Lenders. Each Lender may at any time grant
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participations in any of its rights hereunder or under any of the Notes to
another financial institution or any other "accredited investor" (as defined in
SEC Regulation D), provided that in the case of any such participation, (i) the
participant shall not have any rights under this Agreement or any of the other
Credit Documents, including rights of consent, approval or waiver (the
participant's rights against such Lender in respect of such participation to be
those set forth in the agreement executed by such Lender in favor of the
participant relating thereto), (ii) such Lender's obligations under this
Agreement (including, without limitation, its Commitment hereunder) shall remain
unchanged, (iii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iv) such Lender shall
remain the holder of any Note for all purposes of this Agreement and (v) the
Borrowers, the Administrative Agent, and the other Lenders shall continue to
deal solely and directly with the selling Lender in connection with such
Lender's rights and obligations under this Agreement, and all amounts payable by
the Borrowers hereunder shall be determined as if such Lender had not sold such
participation, except that the participant shall be entitled to the benefits of
sections 2.9, 2.10 and 5.4 of this Agreement to the extent that such Lender
would be entitled to such benefits if the participation had not been entered
into or sold, and, provided further, that no Lender shall transfer, grant or
sell any participation under which the participant shall have rights to approve
any amendment to or waiver of this Agreement or any other Credit Document except
to the extent such amendment or waiver would (x) extend the final scheduled
maturity of the Loans in which such participant is participating (it being
understood that any waiver of the making of, or the application of any
amortization payment or other prepayment or the method of any application of any
prepayment to the amortization of the Loans shall not constitute an extension of
the final maturity date thereof), or reduce the rate or extend the time of
payment of interest or Fees thereon (except in connection with a waiver of the
applicability of any post-default increase in interest rates), or reduce the
principal amount thereof, or increase such participant's participating interest
in any Commitment over the amount thereof then in effect (it being understood
that a waiver of any Default or Event of Default or of any mandatory prepayment
or a mandatory reduction in the Total Commitment, or a mandatory prepayment,
shall not constitute a change in the terms of any Commitment) or (y) release
substantially all of the Collateral, or release any Credit party from any
obligations under any Security Document or the Subsidiary Guaranty, except in
accordance with the explicit terms hereof or thereof, or (z) consent to the
assignment or transfer by any Borrower of any of its rights and obligations
under this Agreement.
(b) Notwithstanding the foregoing, (x) any Lender may assign all or a
portion of its Loans and/or Commitments, which does not have to be pro rata
among the Facilities, and its rights and obligations hereunder to another Lender
that is not a Defaulting Lender, or to an Affiliate of any Lender (including
itself) which is not a Defaulting Lender which is a commercial bank, financial
institution or other "accredited investor" (as defined in SEC Regulation D), and
(y) any Lender may assign all, or if less than all, a portion equal to at least
$5,000,000 in the aggregate for the assigning Lender or assigning Lenders, of
its Loans and/or Commitments and its rights and obligations hereunder, which
assignment does not have to be pro rata between the Facilities, to one or more
Eligible Transferees, each of which assignees shall become a party to this
Agreement as a Lender by execution of an Assignment Agreement, provided that,
(i) at the
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time of any such assignment Annex I shall be deemed modified to reflect the
Commitments of such new Lender and of the existing Lenders, (ii) upon surrender
of the old Notes, new Notes will be issued, at the Company's expense, to such
new Lender and to the assigning Lender, such new Notes to be in conformity with
the requirements of section 2.5 (with appropriate modifications) to the extent
needed to reflect the revised Commitments, (iii) in the case of clause (y) only,
the consent of the Administrative Agent and each Letter of Credit Issuer shall
be required in connection with any such assignment (which consent shall not be
unreasonably withheld or delayed), and (iv) the Administrative Agent shall
receive at the time of each such assignment, from the assigning or assignee
Lender, the payment of a non-refundable assignment fee of $3,000 and, provided
further, that such transfer or assignment will not be effective until recorded
by the Administrative Agent on the Lender Register maintained by it as provided
herein. To the extent of any assignment pursuant to this section 13.4(b), the
assigning Lender shall be relieved of its obligations hereunder with respect to
its assigned Commitments. At the time of each assignment pursuant to this
section 13.4(b) to a person which is not already a Lender hereunder and which is
not a United States person (as such term is defined in section 7701(a)(30) of
the Code) for Federal income tax purposes, the respective assignee Lender shall
provide to the Company and the Administrative Agent the appropriate Internal
Revenue Service Forms (and, if applicable, a Section 5.4(b)(ii) Certificate)
described in section 5.4(b). To the extent that an assignment of all or any
portion of a Lender's Commitment and related outstanding Obligations pursuant to
this section 13.4(b) would, at the time of such assignment, result in increased
costs under section 2.9 from those being charged by the respective assigning
Lender prior to such assignment, then the applicable Borrower shall not be
obligated to pay such increased costs (although the applicable Borrower shall be
obligated to any other increased costs of the type described above resulting
from changes after the date of the respective assignment). Nothing in this
section 13.4(b) shall prevent or prohibit any Lender from pledging its Notes or
Loans to a Federal Reserve Bank in support of borrowings made by such Lender
from such Federal Reserve Bank.
(c) Notwithstanding any other provisions of this section 13.4, no
transfer or assignment of the interests or obligations of any Lender hereunder
or any grant of participation therein shall be permitted if such transfer,
assignment or grant would require any Borrower to file a registration statement
with the SEC or to qualify the Loans under the "Blue Sky" laws of any State.
(d) Each Lender initially party to this Agreement hereby represents,
and each person that became a Lender pursuant to an assignment permitted by this
section 13.4 will, upon its becoming party to this Agreement, represent that it
is a commercial lender, other financial institution or other "accredited"
investor (as defined in SEC Regulation D) which makes or acquires loans in the
ordinary course of its business and that it will make or acquire Loans for its
own account in the ordinary course of such business, provided that subject to
the preceding sections 13.4(a) and (b), the disposition of any promissory notes
or other evidences of or interests in Indebtedness held by such Lender shall at
all times be within its exclusive control.
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13.5 No Waiver: Remedies Cumulative. No failure or delay on the part of
the Administrative Agent or any Lender in exercising any right, power or
privilege hereunder or under any other Credit Document and no course of dealing
between any Borrower and the Administrative Agent or any Lender shall operate as
a waiver thereof; nor shall any single or partial exercise of any right, power
or privilege hereunder or under any other Credit Document preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder or thereunder. The rights and remedies herein expressly provided are
cumulative and not exclusive of any rights or remedies which the Administrative
Agent or any Lender would otherwise have. No notice to or demand on any Borrower
in any case shall entitle such Borrower to any other or further notice or demand
in similar or other circumstances or constitute a waiver of the rights of the
Administrative Agent or the Lenders to any other or further action in any
circumstances without notice or demand.
13.6 Payments Pro Rata. (a) The Administrative Agent agrees that
promptly after its receipt of each payment from or on behalf of any Borrower in
respect of any Obligations, it shall distribute such payment to the Lenders
(other than any Lender that has expressly waived in writing its right to receive
its pro rata share thereof) pro rata based upon their respective shares, if any,
of the Obligations with respect to which such payment was received. As to any
such payment received by the Administrative Agent prior to 1:00 P.M. (local time
at its Payment Office) in funds which are immediately available on such day, the
Administrative Agent will use all reasonable efforts to distribute such payment
in immediately available funds on the same day to the Lenders as aforesaid.
(b) Each of the Lenders agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of, or interest
on, the Loans or Fees, of a sum which with respect to the related sum or sums
received by other Lenders is in a greater proportion than the total of such
Obligation then owed and due to such Lender bears to the total of such
Obligation then owed and due to all of the Lenders immediately prior to such
receipt, then such Lender receiving such excess payment shall purchase for cash
without recourse or warranty from the other Lenders an interest in the
Obligations to such Lenders in such amount as shall result in a proportional
participation by all of the Lenders in such amount, provided that if all or any
portion of such excess amount is thereafter recovered from such Lender, such
purchase shall be rescinded and the purchase price restored to the extent of
such recovery, but without interest.
(c) Notwithstanding anything to the contrary contained herein, the
provisions of the preceding sections 13.6(a) and (b) shall be subject to the
express provisions of this Agreement which require, or permit, differing
payments to be made to Lenders which are not Defaulting Lenders, as opposed to
Defaulting Lenders.
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13.7 Calculations: Computations. (a) The financial statements to be
furnished to the Lenders pursuant hereto shall be made and prepared in
accordance with GAAP consistently applied throughout the periods involved
(except as set forth in the notes thereto or as otherwise disclosed in writing
by the Company to the Lenders); provided, that if at any time the computations
determining compliance with section 9 utilize accounting principles different
from those utilized in the financial statements furnished to the Lenders, such
computations shall set forth in reasonable detail a description of the
differences and the effect upon such computations.
(b) All computations of interest on Eurocurrency Loans and Prime Rate
Loans hereunder and all computations of Commitment Fees, Letter of Credit Fees
and other Fees hereunder shall be made on the actual number of days elapsed over
a year of 360 days.
13.8 Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury
Trial. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. TO THE
FULLEST EXTENT PERMITTED BY LAW, EACH BORROWER HEREBY UNCONDITIONALLY AND
IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY JURISDICTION OTHER
THAN THE STATE OF NEW YORK GOVERNS THIS AGREEMENT OR ANY OF THE OTHER CREDIT
DOCUMENTS. Any legal action or proceeding with respect to this Agreement or any
other Credit Document may be brought in the Courts of the State of New York, or
of the United States for the Southern District of New York, and, by execution
and delivery of this Agreement, each Borrower hereby irrevocably accepts for
itself and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. Each Borrower hereby further irrevocably
consents to the service of process out of any of the aforementioned courts in
any such action or proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to such Borrower at its address for notices
pursuant to section 13.3, such service to become effective 30 days after such
mailing or at such earlier time as may be provided under applicable law. Nothing
herein shall affect the right of the Administrative Agent or any Lender to serve
process in any other manner permitted by law or to commence legal proceedings or
otherwise proceed against the Borrower in any other jurisdiction.
(b) Each Borrower hereby irrevocably waives any objection which it may
now or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement or any other
Credit Document brought in the courts referred to in section 13.8(a) above and
hereby further irrevocably waives and agrees not to plead or claim in any such
court that any such action or proceeding brought in any such court has been
brought in an inconvenient forum.
(c) Each of the parties to this Agreement hereby irrevocably waives all
right to a trial by jury in any action, proceeding or counterclaim arising out
of or relating to this Agreement, the other Credit Documents or the transactions
contemplated hereby or thereby.
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13.9 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same agreement. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and the
Administrative Agent.
13.10 Effectiveness. This Agreement shall become effective on the date
(the "Effective Date")on which each Borrower and each of the Lenders shall have
signed a copy hereof (whether the same or different copies) and shall have
delivered the same to the Administrative Agent at the Notice Office of the
Administrative Agent or, in the case of the Lenders, shall have given to the
Administrative Agent telephonic (confirmed in writing), written telex or
facsimile transmission notice (actually received) at such office that the same
has been signed and mailed to it.
13.11 Headings Descriptive. The headings of the several sections and
other portions of this Agreement are inserted for convenience only and shall not
in any way affect the meaning or construction of any provision of this
Agreement.
13.12 Amendment or Waiver. Neither this Agreement nor any terms hereof
or thereof may be changed, waived, discharged or terminated unless such change,
waiver, discharge or termination is in writing signed by the Borrowers and the
Required Lenders, provided that no such change, waiver, discharge or termination
shall, without the consent of each Lender (other than a Defaulting Lender)
affected thereby, (i) extend any interim or final maturity date provided for
herein (including any extension of any interim maturity date to be effected in
accordance with section 4.4 hereof) applicable to a Loan or a Commitment under a
Facility (it being understood that any waiver of the making of, or application
of any prepayment of or the method of application of any amortization payment or
other prepayment to, the amortization of, the Loans shall not constitute an
extension of such final maturity thereof), reduce the rate or extend the time of
payment of interest (other than as a result of waiving the applicability of any
post-default increase in interest rates) or Fees thereon, or reduce the
principal amount thereof, or increase the Commitment of any Lender over the
amount thereof then in effect (it being understood that a waiver of any Default
or Event of Default or of any mandatory prepayment or a mandatory reduction in
the Total Commitment shall not constitute a change in the terms of any
Commitment of any Lender), (ii) release the Company from any obligations as a
guarantor of its Subsidiaries' obligations under any Credit Document, (iii)
release any Credit Party from the Subsidiary Guaranty, except in connection with
a transaction permitted by section 9.2(f), (iv) release all or substantially all
of the Collateral (in each case except as expressly provided in the Credit
Documents), (v) change the definition of the term "Change of Control" or any of
the provisions of section 5.2(f) which are applicable upon a Change of Control,
(vi) change the definition of the term "Permitted Acquisition" or any of the
provisions of section 9.2(e) which are applicable to a Permitted Acquisition,
(vii) amend, modify or waive any provision of this section 13.12, or section
11.7, 13.1, 13.4, 13.6 or 13.7(b), (viii) reduce the percentage specified in, or
otherwise modify, the definition of Required Lenders, or (ix) consent to the
assignment or transfer by any
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Borrower of any of its rights and obligations under this Agreement. No provision
of section 3 or 11 may be amended without the consent of (x) any Letter of
Credit Issuer adversely affected thereby or (y) the Administrative Agent,
respectively.
13.13 Survival. All indemnities set forth herein including, without
limitation, in sections 2.9, 2.10, 3.5, 11.7 and 13.1, shall survive the
execution and delivery of this Agreement and the making, prepayment and
repayment of Loans.
13.14 Domicile of Loans. Each Lender may transfer and carry its Loans
at, to or for the account of any branch office, subsidiary or affiliate of such
Lender, provided that no Borrower shall be responsible for costs arising under
section 2.9 resulting from any such transfer (other than a transfer pursuant to
section 2.11) to the extent not otherwise applicable to such Lender prior to
such transfer.
13.15 Confidentiality. Subject to section 13.4, the Lenders shall hold
all non-public information obtained pursuant to the requirements of this
Agreement which has been identified as such by any Borrower in accordance with
its customary procedure for handling confidential information of this nature and
in accordance with safe and sound banking practices and in any event may make
disclosure reasonably required by any bona fide transferee or participant in
connection with the contemplated transfer of any Loans or Commitment or
participation therein (provided that each such prospective transferee and/or
participant shall execute an agreement for the benefit of the Borrowers with
such prospective transferor Lender containing provisions substantially identical
to those contained in this section 13.15), to its auditors, attorneys or as
required or requested by any governmental agency or representative thereof or
pursuant to legal process, provided that, unless specifically prohibited by
applicable law or court order, each Lender shall notify the Company of any
request by any governmental agency or representative thereof (other than any
such request in connection with an examination of the financial condition of
such Lender by such governmental agency) for disclosure of any such non-public
information prior to disclosure of such information, and provided further that
in no event shall any Lender be obligated or required to return any materials
furnished by or on behalf of the Company or any of its Subsidiaries. Each
Borrower hereby agrees that the failure of a Lender to comply with the
provisions of this section 13.15 shall not relieve any Borrower of any of the
obligations to such Lender under this Agreement and the other Credit Documents.
13.16 Lender Register. Each Borrower hereby designates the
Administrative Agent to serve as its agent, solely for purposes of this section
13.16, to retain a copy of each Assignment Agreement delivered to and accepted
by it and to maintain a register (the "Lender Register") on or in which it will
record the names and addresses of the Lenders, and the Commitments from time to
time of each of such Lenders to such Borrower, the Loans made to such Borrower
by each of such Lenders and each repayment or prepayment in respect of the
principal amount of such Loans of each such Lender. Failure to make any such
recordation, or (absent manifest error) any error in such recordation, shall not
affect such Borrower's obligations in respect of such Loans. With respect to any
Lender, the transfer of the Commitments of such
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Lender and the rights to the principal of, and interest on, any Loan made
pursuant to such Commitments shall not be effective until such transfer is
recorded on the Lender Register maintained by the Administrative Agent with
respect to ownership of such Commitments and Loans and prior to such recordation
all amounts owing to the transferor with respect to such Commitments and Loans
shall remain owing to the transferor. The registration of assignment or transfer
of all or part of any Commitments and Loans shall be recorded by the
Administrative Agent on the Lender Register only upon the acceptance by the
Administrative Agent of a properly executed and delivered Assignment Agreement
pursuant to section 13.4(b). Each Borrower agrees to indemnify the
Administrative Agent from and against any and all losses, claims, damages and
liabilities of whatsoever nature which may be imposed on, asserted against or
incurred by such Administrative Agent in performing its duties under this
section 13.16. The Lender Register shall be available for inspection by any
Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
13.17 Limitations on Liability of the Letter of Credit Issuers. The
Company assumes all risks of the acts or omissions of any beneficiary or
transferee of any Letter of Credit with respect to its use of such Letters of
Credit. Neither any Letter of Credit Issuer nor any of its officers or directors
shall be liable or responsible for: (a) the use which may be made of any Letter
of Credit or any acts or omissions of any beneficiary or transferee in
connection therewith; (b) the validity, sufficiency or genuineness of documents,
or of any endorsement thereon, even if such documents should prove to be in any
or all respects invalid, insufficient, fraudulent or forged; (c) payment by a
Letter of Credit Issuer against presentation of documents that do not comply
with the terms of a Letter of Credit, including failure of any documents to bear
any reference or adequate reference to such Letter of Credit; or (d) any other
circumstances whatsoever in making or failing to make payment under any Letter
of Credit, except that the Company (or a Subsidiary which is the account party
in respect of the Letter of Credit in question) shall have a claim against a
Letter of Credit Issuer, and a Letter of Credit Issuer shall be liable to the
Company (or such Subsidiary), to the extent of any direct, but not
consequential, damages suffered by the Company (or such Subsidiary) which the
Company (or such Subsidiary) proves were caused by (i) such Letter of Credit
Issuer's willful misconduct or gross negligence in determining whether documents
presented under a Letter of Credit comply with the terms of such Letter of
Credit or (ii) such Letter of Credit Issuer's willful failure to make lawful
payment under any Letter of Credit after the presentation to it of documentation
strictly complying with the terms and conditions of such Letter of Credit. In
furtherance and not in limitation of the foregoing, a Letter of Credit Issuer
may accept documents that appear on their face to be in order, without
responsibility for further investigation.
13.18 General Limitation of Liability. No claim may be made by any
Borrower, any Lender, the Administrative Agent, any Letter of Credit Issuer or
any other person against the Administrative Agent, any Letter of Credit Issuer,
or any other Lender or the Affiliates, directors, officers, employees, attorneys
or agents of any of them for any damages other than actual compensatory damages
in respect of any claim for breach of contract or any other theory of liability
arising out of or related to the transactions contemplated by this Agreement or
any of the
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other Credit Documents, or any act, omission or event occurring in connection
therewith; and each Borrower, each Lender, each Administrative Agent and each
Letter of Credit Issuer hereby, to the fullest extent permitted under applicable
law, waives, releases and agrees not to sue or counterclaim upon any such claim
for any special, consequential or punitive damages, whether or not accrued and
whether or not known or suspected to exist in its favor.
13.19 No Duty. All attorneys, accountants, appraisers, consultants and
other professional persons (including the firms or other entities on behalf of
which any such person may act) retained by the Administrative Agent or any
Lender with respect to the transactions contemplated by the Credit Documents
shall have the right to act exclusively in the interest of the applicable
Administrative Agent or such Lender, as the case may be, and shall have no duty
of disclosure, duty of loyalty, duty of care, or other duty or obligation of any
type or nature whatsoever to the Company, to any of its Subsidiaries, or to any
other person, with respect to any matters within the scope of such
representation or related to their activities in connection with such
representation.
13.20 Lenders and Administrative Agent Not Fiduciary to Company, etc.
The relationship among the Company and its Subsidiaries, on the one hand, and
the Administrative Agent, each Letter of Credit Issuer and the Lenders, on the
other hand, is solely that of debtor and creditor, and the Administrative Agent,
each Letter of Credit Issuer and the Lenders have no fiduciary or other special
relationship with the Company and its Subsidiaries, and no term or provision of
any Credit Document, no course of dealing, no written or oral communication, or
other action, shall be construed so as to deem such relationship to be other
than that of debtor and creditor.
13.21 Judgment Currency. (a) The Credit Parties' obligations hereunder
and under the other Credit Documents to make payments in U.S. dollars shall not
be discharged or satisfied by any tender or recovery pursuant to any judgment
expressed in or converted into any currency other than U.S. dollars, except to
the extent that such tender or recovery results in the effective receipt by the
Administrative Agent or the applicable Lender of the full amount of U.S. dollars
expressed to be payable to the Administrative Agent or such Lender under this
Agreement or the other Credit Documents. If, for the purpose of obtaining or
enforcing judgment against any Credit Party in any court or in any jurisdiction,
it becomes necessary to convert into or from any currency other than U.S.
dollars (such other currency being hereinafter referred to as the "Judgment
Currency") an amount due in U.S. dollars, the conversion shall be made at the
equivalent thereof in Dollars determined as of the Business Day immediately
preceding the day on which the judgment is given (such Business Day being
hereinafter referred to as the "Judgment Currency Conversion Date").
(b) If there is a change in the rate of exchange prevailing between the
Judgment Currency Conversion Date and the date of actual payment of the amount
due, each applicable Borrower covenants and agrees to pay, or cause to be paid,
such additional amounts, if any (but in any event not a lesser amount) as may be
necessary to ensure that the amount paid in the Judgment
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Currency, when converted at the rate of exchange prevailing on the date of
payment, will produce the amount of U.S. dollars which could have been purchased
with the amount of Judgment Currency stipulated in the judgment or judicial
award at the rate of exchange prevailing on the Judgment Currency Conversion
Date.
(c) For purposes of determining the equivalent in Dollars for this
section, such amount shall include any premium and costs payable in connection
with the conversion into or from the Judgment Currency.
[The balance of this page is intentionally blank.]
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13.22 Survival of Representations and Warranties. All representations
and warranties herein shall survive the making of Loans and the issuance of
Letters of Credit hereunder, the execution and delivery of this Agreement, the
Notes and the other documents the forms of which are attached as Exhibits
hereto, the issue and delivery of the Notes, any disposition thereof by any
holder thereof, and any investigation made by the Administrative Agent or any
Lender or any other holder of any of the Notes or on its behalf. All statements
contained in any certificate or other document delivered to the Administrative
Agent or any Lender or any holder of any Notes by or on behalf of the Company or
of its Subsidiaries pursuant hereto or otherwise specifically for use in
connection with the transactions contemplated hereby shall constitute
representations and warranties by the Company hereunder, made as of the
respective dates specified therein or, if no date is specified, as of the
respective dates furnished to the Administrative Agent or any Lender.
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Agreement to be duly executed and delivered as of the date first above
written.
SAFETY COMPONENTS INTERNATIONAL, INC.
By:
------------------------------
Executive Vice President
PHOENIX AIRBAG GmbH & CO. K.G.
By:
------------------------------
Executive Vice President
AUTOMOTIVE SAFETY COMPONENTS
INTERNATIONAL LIMITED
By:
------------------------------
Executive Vice President
KEYBANK NATIONAL ASSOCIATION,
individually and as Administrative
Agent
By:
------------------------------
Executive Vice President
99
SUBSIDIARY GUARANTY
SUBSIDIARY GUARANTY, dated as of May 21, 1997 (as amended,
modified or supplemented from time to time, "this Guaranty"), made by each of
the undersigned (each, together with its successors and assigns, a "Guarantor"
and collectively, the "Guarantors"), with KEYBANK NATIONAL ASSOCIATION, a
national banking association, as Administrative Agent (herein, together with its
successors and assigns in such capacity, the "Administrative Agent") for itself
and the other Lenders (defined below), for the benefit of (i) the Administrative
Agent, (ii) the Lenders from time to time party to the Credit Agreement referred
to below, and (iii) the Hedge Creditors referred to below:
PRELIMINARY STATEMENTS:
(1) Except as otherwise defined herein, terms used herein and
defined in the Credit Agreement (as defined below) shall be used herein as
therein defined.
(2) This Guaranty is made pursuant to the Credit Agreement,
dated as of the date hereof (herein, as amended or otherwise modified from time
to time, the "Credit Agreement"), among Safety Components International, Inc., a
Delaware corporation (herein, together with its successors and assigns, the
"Company"), the other Borrowers named therein, the financial institutions named
as lenders therein, and the Administrative Agent, as agent for the Lenders (as
defined in the Credit Agreement), providing, among other things, for loans or
advances or other extensions of credit to or for the benefit of the Borrowers of
up to $27,000,000, with such loans or advances being evidenced by promissory
notes (the "Notes", such term to include all notes and other securities issued
in exchange therefor or in replacement thereof).
(3) The Company or any of its Subsidiaries may from time to
time be party to one or more Designated Hedged Agreements (as defined in the
Credit Agreement). Any institution that participates, and in each case their
subsequent assigns, as a counterparty to any Designated Hedge Agreement
(collectively, the "Hedge Creditors," and the Hedge Creditors together with the
Lenders, collectively the "Creditors"), shall benefit hereunder as herein
provided. This Guaranty is made for the pro rata benefit of the Administrative
Agent and the Creditors to guarantee the payment of the principal of and
interest on the Notes and the payment and performance by the Borrowers of their
obligations under the Credit Agreement, the other Credit Documents to which any
Borrower is a party, and the payment and performance by the Company or any of
its Subsidiaries of its obligations under Designated Hedge Agreements. This
Guaranty is one of the Credit Documents referred to in the Credit Agreement.
(4) Each Guarantor is a direct or indirect Subsidiary of the
Company.
(5) It is a condition to the making of Loans and the issuance
of and participation in, Letters of Credit under the Credit Agreement that each
Guarantor shall have executed and delivered this Guaranty.
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(6) Each Guarantor will obtain benefits from the incurrence of
Loans by, and the issuance of Letters of Credit for the account of, the Company
and the other Borrowers under the Credit Agreement and, accordingly, desires to
execute this Guaranty in order to satisfy the conditions described in the
preceding paragraph and to induce the Lenders to make Loans to, and to issue and
participate in Letters of Credit for the account of, the Borrowers or any of
their Subsidiaries.
NOW, THEREFORE, in consideration of the foregoing and other
benefits accruing to each Guarantor, the receipt and sufficiency of which are
hereby acknowledged, each Guarantor hereby makes the following representations
and warranties to the Administrative Agent and the Creditors and hereby
covenants and agrees with the Administrative Agent and each Creditor as follows:
1. Each Guarantor, jointly and severally, irrevocably and
unconditionally guarantees:
(i) to the Lenders the full and prompt payment when due (whether at the
stated maturity, by acceleration or otherwise) of (x) the principal of and
interest on the Notes issued by, and the Loans made to, the Borrowers under the
Credit Agreement and all reimbursement obligations and Unpaid Drawings with
respect to Letters of Credit issued under the Credit Agreement and (y) all other
obligations (including obligations which, but for any automatic stay under
section 362(a) of the Bankruptcy Code, would become due) and liabilities owing
by the Borrowers to the Lenders under the Credit Agreement (including, without
limitation, indemnities, Fees and interest thereon) now existing or hereafter
incurred under, arising out of or in connection with the Credit Agreement or any
other Credit Document and the due performance and compliance with the terms of
the Credit Documents by the Borrowers (all such principal, interest, liabilities
and obligations being herein collectively called the "Credit Document
Obligations"); and
(ii) to each Hedge Creditor the full and prompt payment when due
(whether at the stated maturity, by acceleration or otherwise) of all
obligations (including obligations which, but for any automatic stay under
section 362(a) of the Bankruptcy Code, would become due) and liabilities owing
by the Company or any of its Subsidiaries under any Designated Hedge Agreement,
whether now in existence or hereafter arising, and the due performance and
compliance by the Company and any such Subsidiary with all terms, conditions and
agreements contained therein (all such obligations and liabilities, the "Hedge
Obligations", and the Hedge Obligations together with the Credit Document
Obligations, collectively the "Guaranteed Obligations").
Each Guarantor understands, agrees and confirms that the Creditors may enforce
this Guaranty up to the full amount of the Guaranteed Obligations against any
Guarantor without proceeding against any other Guarantor, any Borrower or other
person, against any security for the Guaranteed Obligations, or under any other
guaranty covering all or a portion of the Guaranteed Obligations. All payments
by each Guarantor under this Guaranty shall be made on the same basis as
payments by the Borrowers under sections 5.2 and 5.3 of the Credit Agreement.
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2. Additionally, each Guarantor, jointly and severally, unconditionally
and irrevocably, guarantees the payment of any and all Guaranteed Obligations to
the Creditors, whether or not due or payable by the obligor thereon, upon the
occurrence in respect of the Company or any other Borrower of any of the events
specified in section 10.1(g) of the Credit Agreement, and unconditionally and
irrevocably, jointly and severally, promises to pay such Guaranteed Obligations
to the Administrative Agent, for the benefit of the Administrative Agent and the
Creditors, on demand, in lawful money of the United States.
3. The liability of each Guarantor hereunder is exclusive and
independent of any security for or other guaranty of the indebtedness of any
Borrower whether executed by such Guarantor, any other Guarantor, any other
guarantor or by any other person, and the liability of each Guarantor hereunder
shall not be affected or impaired by (i) any direction as to application of
payment by any Borrower or by any other person, (ii) any other continuing or
other guaranty, undertaking or maximum liability of a guarantor or of any other
person as to the indebtedness of any Borrower, (iii) any payment on or in
reduction of any such other guaranty or undertaking, (iv) any dissolution,
termination or increase, decrease or change in personnel by any Borrower or (v)
any payment made to any Creditor on the indebtedness which any Creditor repays
to any Borrower pursuant to court order in any bankruptcy, reorganization,
arrangement, moratorium or other debtor relief proceeding, and each Guarantor
waives any right to the deferral or modification of its obligations hereunder by
reason of any such proceeding.
4. The obligations of each Guarantor hereunder are independent of the
obligations of any other Guarantor, any other guarantor or any Borrower, and a
separate action or actions may be brought and prosecuted against each Guarantor
whether or not action is brought against any other Guarantor, any other
guarantor or any Borrower and whether or not any other Guarantor, any other
guarantor of any Borrower or any Borrower be joined in any such action or
actions.
5. Each Guarantor hereby waives notice of acceptance of this Guaranty
and notice of any liability to which it may apply, and waives promptness,
diligence, presentment, demand of payment, protest, notice of dishonor or
nonpayment of any such liabilities, suit or taking of other action by the
Administrative Agent or any other Creditor against, and any other notice to, any
party liable thereon (including such Guarantor or any other guarantor of any
Borrower).
6. Any Creditor may at any time and from time to time without the
consent of or notice to, any Guarantor, without incurring responsibility to such
Guarantor, without impairing or releasing the obligations of such Guarantor
hereunder upon or without any terms or conditions and in whole or in part ( but,
in each case, in accordance with the Credit Agreement or the Designated Hedge
Agreement, as the case may be):
(i) change the manner, place or terms of payment of, and/or
change or extend the time of payment of, renew or alter, any of the
Guaranteed Obligations, any security therefor, or any liability
incurred directly or indirectly in respect thereof, and the guaranty
herein made shall apply to the Guaranteed Obligations as so changed,
extended, renewed or altered;
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(ii) sell, exchange, release, surrender, realize upon or
otherwise deal with in any manner and in any order any property by
whomsoever at any time pledged or mortgaged to secure, or howsoever
securing, the Guaranteed Obligations or any liabilities (including any
of those hereunder) incurred directly or indirectly in respect thereof
or hereof, and/or any offset thereagainst;
(iii) exercise or refrain from exercising any rights against
any Borrower or others or otherwise act or refrain from acting;
(iv) settle or compromise any of the Guaranteed Obligations,
any security therefor or any liability (including any of those
hereunder) incurred directly or indirectly in respect thereof or
hereof, and may subordinate the payment of all or any part thereof to
the payment of any liability (whether due or not) of any Borrower to
creditors of such Borrower;
(v) apply any sums by whomsoever paid or whomsoever realized
to any liability or liabilities of any Borrower to the Creditors
regardless of what liabilities of such Borrower remain unpaid;
(vi) consent to or waive any breach of, or any act, omission
or default under, any of the Credit Documents or any of the instruments
or agreements referred to therein, or otherwise amend, modify or
supplement any of the Credit Documents or any of such other instruments
or agreements; and/or
(vii) act or fail to act in any manner referred to in this
Guaranty which may deprive such Guarantor of its right to subrogation
against any Borrower to recover full indemnity for any payments made
pursuant to this Guaranty.
7. No invalidity, irregularity or unenforceability of all or any part
of the Guaranteed Obligations or of any security therefor shall affect, impair
or be a defense to this Guaranty, and this Guaranty shall be primary, absolute
and unconditional notwithstanding the occurrence of any event or the existence
of any other circumstances which might constitute a legal or equitable discharge
of a surety or guarantor except payment in full of the Guaranteed Obligations.
8. This Guaranty is a continuing one and all liabilities to which it
applies or may apply under the terms hereof shall be conclusively presumed to
have been created in reliance hereon. No failure or delay on the part of the
Administrative Agent or any Creditor in exercising any right, power or privilege
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein expressly specified are cumulative and not
exclusive of any rights or remedies which any Creditor would otherwise have. No
notice to or demand on any Guarantor in any case shall entitle such Guarantor to
any other further notice or demand in similar or other circumstances or
constitute a waiver of the rights of any Creditor to any other or further action
in any circumstances without notice or demand. It is not necessary for the
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Administrative Agent or any Creditor to inquire into the capacity or powers of
the Company or any of its Subsidiaries or the officers, directors, partners or
agents acting or purporting to act on its behalf, and any indebtedness made or
created in reliance upon the professed exercise of such powers shall be
guaranteed hereunder.
9. Any Indebtedness of any Borrower now or hereafter held by any
Guarantor is hereby subordinated to the Indebtedness of such Borrower to the
Creditors; and such indebtedness of such Borrower to any Guarantor, if the
Administrative Agent, after an Event of Default has occurred so requests, shall
be collected, enforced and received by such Guarantor as trustee for the
Creditors and be paid over to the Administative Agent, for the benefit of the
Creditors, on account of the Indebtedness of such Borrower to the Creditors, but
without affecting or impairing in any manner the liability of such Guarantor
under the other provisions of this Indebtedness of any Borrower to such
Guarantor, such Guarantor shall mark such note or negotiable instrument with a
legend that the same is subject to this subordination.
10. (a) Each Guarantor waives any right (except as shall be required by
applicable statute and cannot be waived) to require the Administrative Agent or
any of the Creditors to:(i) proceed against any Borrower, any other Guarantor,
any other guarantor of any Borrower or any other party; (ii) proceed against or
exhaust any security held from any Borrower, any other Guarantor any other
guarantor of any Borrower or any other party; or (iii) pursue any other remedy
in the Administrative Agent's or the Creditors' power whatsoever. Each Guarantor
waives, to the extent permitted by applicable law, any defense based on or
arising out of any defense of any Borrower, any other Guarantor, any other
guarantor of any Borrower or any other party other than payment in respect of
the Guaranteed Obligations or that the Guaranteed Obligations are not yet due
and payable, including, without limitation, any defense based on or arising out
of the disability of any Borrower, any other Guarantor, any other guarantor of
any Borrower or any other person, or the unenforceability of the Guaranteed
Obligations or any part thereof from any cause, or the cessation from any cause
of the liability of any Borrower other than payment in respect of the Guaranteed
Obligations. The Creditors may, at their election, foreclose on any security
held by the Administrative Agent, the Collateral Agent or the other Creditors by
one or more judicial or nonjudicial sales, whether or not every aspect of any
such sale is commercially reasonable (to the extent such sale is permitted by
applicable law), or exercise any other right or remedy the Administrative Agent
or the Creditors may have against any Borrower or any other party, or any
security, without affecting or impairing in any way the liability of any
Guarantor hereunder except to the extent the Guaranteed Obligations have been
paid.
(b) Each Guarantor waives, to the extent permitted by applicable law,
all presentments, demands for performance, protests and notices, including,
without limitation, notices of nonperformance, notices of protest, notices of
dishonor, notices of acceptance of this Guaranty, and notices of the existence,
creation or incurring of new or additional indebtedness. Each Guarantor assumes
all responsibility for being and keeping itself informed of each Borrower's
financial condition and assets, and of all other circumstances bearing upon the
risk of nonpayment of the Guaranteed Obligations and the nature, scope and
extent of the risks which such Guarantor assumes and incurs
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hereunder, and agrees that the Administrative Agent and the Creditors shall have
no duty to advise any Gurantor of information known to them regarding such
circumstances or risks.
(c) Until such time as the Guaranteed Obligations have been paid in
full in cash or Cash Equivalents, each Guarantor hereby waives all rights of
subrogation which it may at any time otherwise have as a result of this Guaranty
(whether contractual, under section 509 of the Bankruptcy Code, or otherwise) to
the claims of the Creditors against any Borrower, any other Guarantor or any
other guarantor of the Guaranteed Obligations and all contractual, statutory or
common law rights of reimbursement, contribution or indemnity from any Borrower
or any other Guarantor which it may at any time otherwise have as a result of
this Guaranty.
11. If and to the extent that any Guarantor makes any payment to any
Creditor or to any other person pursuant to or in respect of this Guaranty, any
claim which such Guarantor may have against any Borrower by reason thereof shall
be subject and subordinate to the prior payment in full of the Guaranteed
Obligations to each Creditor.
12. Each Guarantor covenants and agrees that on and after the date
hereof and until the termination of the Total Commitment and when no Letter of
Credit or Note remains outstanding and all Guaranteed Obligations have been paid
in full, such Guarantor shall take, or will refrain from taking, as the case may
be, all actions that are necessary to be taken or not taken so that no violation
of any provision, covenant or agreement contained in section 8 or 9 of the
Credit Agreement, and so that no Default or Event of Default, is caused by the
actions of such Guarantor or any of its Subsidiaries.
13. The Guarantors hereby jointly and severally agree to pay, to the
extent not paid pursuant to section 13.1 of the Credit Agreement, all reasonable
out-of-pocket costs and expenses of each Creditor in connection with the
enforcement of this Guaranty and any amendment, waiver or consent relating
hereto (including, without limitation, the reasonable fees and disbursements of
counsel employed by the Administative Agent or any of the Creditors).
14. This Guaranty shall be binding upon each Guarantor and its
successors and assigns, and shall inure to the benefit of the Administrative
Agent and the Creditors and their successors and assigns to the extent permitted
under the Credit Agreement (or any Designated Hedge Agreement, in the case of an
Hedge Creditor).
15. Neither this Guaranty nor any provision hereof may be changed,
waived, discharged or terminated except with the written consent of the Required
Lenders (or to the extent required by section 13.12 of the Credit Agreement,
with the written consent of each Lender) and each Guarantor affected thereby (it
being understood that the addition or release of any Guarantor hereunder shall
not constitute a change, waiver, discharge or termination affecting any
Guarantor other than the Guarantor so added or released).
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16. Each Guarantor acknowledges that an executed (or conformed) copy of
each of the Credit Documents has been made available to its principal executive
officers and such officers are familiar with the contents thereof.
17. In addition to any rights now or hereafter granted under applicable
law and not by way of limitation of any such rights, upon the occurrence and
during the continuance of an Event of Default (such term to mean any "Event of
Default" as defined in the Credit Agreement or any payment default under any
Designated Hedge Agreement after any applicable grace period), each Creditor is
hereby authorized at any time or from time to time, without notice to such
Guarantor or to any other person, any such notice being expressly waived, to set
off and to appropriate and apply any and all deposits (general or special) and
any other indebtedness at any time held or owing by such Creditor to or for the
credit or the account of such Guarantor, against and on account of the
obligations and liabilities of such Guarantor to such Creditor under this
Guaranty, irrespective of whether or not such Creditor shall have made any
demand hereunder and although said obligations, liabilities, deposits or claims,
or any of them, shall be contingent or unmatured. Each Creditor agrees to
promptly notify the relevant Guarantor after any such set off and application,
provided, however that the failure to give such notice shall not affect the
validity of such set off and application.
18. All notices requests, demands or other communications pursuant
hereto shall be made in writing (including telegraphic, telex, facsimile
transmission or cable communication) and mailed, telegraphed, telexed,
transmitted, cabled or delivered, if to any Guarantor, at the address specified
for it in Schedule I hereto; if to the Administrative Agent or any Lender, as
provided in the Credit Agreement; if to any Hedge Creditor, as provided in the
Designated Hedge Agreement to which it is a party; or in any case at such other
address as any of the persons listed above may hereafter notify the others in
writing. All such notices and communication shall be mailed, telegraphed,
telexed, facsimile transmitted, or cabled or sent by overnight courier, and
shall be effective when received.
19. If claim is ever made upon any Creditor for repayment or recovery
of any amount or amounts received in payment or on account of any of the
Guaranteed Obligations and any of the aforesaid payees repays all or part of
said amount by reason of (i) any judgment, decree or order of any court or
administrative body having jurisdiction over such payee or any of its property
or (ii) any settlement or compromise of any such claim effected by such payee
with any such claimant (including any Borrower), then and in such event each
Guarantor agrees that any such judgment, decree, order, settlement or compromise
shall be binding upon such Guarantor, notwithstanding any revocation hereof or
other instrument evidencing any liability of any Borrower, and such Guarantor
shall be and remain liable to the aforesaid payees hereunder for the amount so
repaid or recovered to the same extent as if such amount had never originally
been received by any such payee.
20. (a) THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE CREDITORS
AND OF THE UNDERSIGNED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Any legal action or proceeding
with respect to this Guaranty may be brought in the Courts of the State of New
York, or of the United States of America for the Southern District of New York,
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and, by execution and delivery of this Guaranty, each Guarantor hereby
irrevocably accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Each Guarantor hereby
irrevocably consents to the service of process out of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered mail, return receipt requested, to each Guarantor at its address set
forth opposite its signature below, such service to become effective 30 days
after such mailing, or such earlier time as may be provided by applicable law.
Nothing herein shall affect the right of the Administrative Agent or any of the
Creditors to serve process in any other manner permitted by law or to commence
legal proceedings or otherwise proceed against each Guarantor in any other
jurisdiction.
(b) Each Guarantor hereby irrevocably waives any objection which it may
now or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Guaranty or any other
Credit Document brought in the courts referred to in section 20(a) above and
hereby further irrevocably waives and agrees not to plead or claim in any such
court that such action or proceeding brought in any such court has been brought
in an inconvenient forum.
(c) Each Guarantor, the Administrative Agent and each Creditor hereby
irreovably waives all rights to a trial by jury in any action, proceeding or
counterclaim arising out of or relating to this Guaranty, the other Credit
Documents or the transactions contemplated hereby or thereby.
21. In the event that all of the capital stock of one or more Gurantors
is sold or otherwise disposed of or liquidated in compliance with the
requirements of section 9.2 of the Credit Agreement (or such sale or other
disposition has been approved in writing by the Required Lenders (or all Lenders
if required by section 13.12 of the Credit Agreement)) and the proceeds of such
sale, disposition or liquidation are applied, to the extent applicable, in
accordance with the provisions of the Credit Agreement, such Gurarantor shall be
released from this Guaranty and this Guaranty shall, as to each such Guarantor
or Guarantors, terminate, and have to further force or effect (it being
understood and agreed that the sale of one or more persons that own, directly or
indirectly, all of the capital stock or other equity interests of any Gurantor
shall be deemed to be a sale of such Guarantor for the purposes of this section
21).
22. Each Guarantor, in addition to the subrogation rights it shall have
against any Borrower under applicable law as a result of any payment it makes
hereunder, shall also have a right of contribution against all other Guarantors
in respect of any such payment pro rata among same based on their respective net
fair value as enterprises, provided any such right of contribution shall be
subject and subordinate to the prior payment in full of the Guaranteed
Obligations (and such Guarantor's obligations in respect thereof). It is the
desire and intent of each Guarantor and the Creditors that this Guaranty shall
be enforced to the fullest extent permissible under the laws and public policies
applied in each jurisdiction in which enforcement is sought. If and to the
extent that the obligations of any Guarantor under this Guaranty would, in the
absence of this sentence, be adjudicated to be invalid or unenforceable because
of any applicable state or federal law relating to fraudulent conveyances or
transfers, then the amount of such Guarantor's liability hereunder in respect
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of the Guaranteed Obligations shall be deemed to be reduced ab initio to that
maximum amount which would be permitted without causing such Guarantor's
obligations hereunder to be so invalidated.
23. The Creditors agree that this Guaranty may be enforced only by the
action of the Administrative Agent, acting upon the instructions of the Required
Lenders, and that no Creditor shall have any right individually to seek to
enforce or to enforce this Guaranty or to realize upon the security to be
granted by the Security Documents, it being understood and agreed that such
rights and remedies may be exercised by the Administrative Agent or the
Collateral Agent for the benefit of the Creditors upon the terms of this
Guaranty and the Security Documents. The Creditors further agree that this
Guaranty may not be enforced against any director, officer or employee of any
Guarantor.
24. This Guaranty may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument. A set of counterparts executed by all
the parties hereto shall be lodged with the Company and the Administative Agent.
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IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be
executed and delivered as of the date first above written.
AUTOMOTIVE SAFETY COMPONENTS,
INTERNATIONAL, INC.
By:
------------------------------
Executive Vice President
ASCI HOLDINGS GERMANY (DE), INC.
By:
------------------------------
Executive Vice President
ASCI HOLDINGS CZECH (DE), INC.
By:
------------------------------
Executive Vice President
ASCI HOLDINGS MEXICO (DE), INC.
By:
------------------------------
Executive Vice President
ASCI HOLDINGS U.K. (DE), INC.
By:
------------------------------
Executive Vice President
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ASCI HOLDINGS ASIA (DE), INC.
By:
------------------------------
Executive Vice President
VALENTEC SYSTEMS, INC.
By:
------------------------------
Executive Vice President
GALION, INC.
By:
------------------------------
Executive Vice President
11
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of May 21, 1997 (as amended, modified, or
supplemented from time to time, "this Agreement"), among each of the undersigned
(each, together with its successors and assigns, an "Assignor" and collectively,
the "Assignors"), and KEYBANK NATIONAL ASSOCIATION, a national banking
association, as collateral agent (herein, together with its successors and
assigns in such capacity, the "Collateral Agent"), for the benefit of the
Secured Creditors (as defined below):
PRELIMINARY STATEMENTS:
(1) Except as otherwise defined herein, terms used herein and defined
in the Credit Agreement (as defined below) shall be used herein as therein
defined.
(2) This Agreement is made pursuant to the Credit Agreement, dated as
of the date hereof (herein, as amended or otherwise modified from time to time,
the "Credit Agreement"), among Safety Components International, Inc., a Delaware
corporation (herein, together with its successors and assigns, the "Company"),
the other Borrowers named therein, the financial institutions named as lenders
therein, and KeyBank National Association, as the Administrative Agent for the
Lenders (as defined in the Credit Agreement), providing, among other things, for
loans or advances or other extensions of credit to or for the benefit of the
Borrowers of up to $27,000,000, with such loans or advances being evidenced by
promissory notes (the "Notes", such term to include all notes and other
securities issued in exchange therefor or in replacement thereof).
(3) The Company or any of its Subsidiaries may from time to time be
party to one or more Designated Hedge Agreements (as defined in the Credit
Agreement). Any institution that participates, and in each case their subsequent
assigns, as a counterparty to any Designated Hedge Agreement (collectively, the
"Hedge Creditors," and the Hedge Creditors together with the Lenders,
collectively the "Secured Creditors" ), shall benefit hereunder as herein
provided.
(4) Pursuant to the Subsidiary Guaranty, each Subsidiary Guarantor has
jointly and severally guaranteed to the Secured Creditors the payment when due
of the Guaranteed Obligations (as defined in the Subsidiary Guaranty).
(5) It is a condition precedent to the making of Loans and the issuance
of, and participation in, Letters of Credit under the Credit Agreement that each
Assignor shall have executed and delivered to the Collateral Agent this
Agreement.
(6) Each Assignor desires to execute this Agreement to satisfy the
conditions described in the preceding paragraph.
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NOW, THEREFORE, in consideration of the benefit accruing to each
Assignor, the receipt and sufficiency of which are hereby acknowledged, each
Assignor hereby makes the following representations and warranties and hereby
covenants and agrees as follows:
1. SECURITY INTERESTS.
1.1. Grant of Security Interests. (a) As security for the prompt and
complete payment and performance when due of all of the Obligations, each
Assignor does hereby sell, assign and transfer unto the Collateral Agent, and
does hereby grant to the Collateral Agent, for the benefit of the Secured
Creditors, a continuing security interest of first priority in, all of the
right, title and interest of such Assignor in, to and under all of the
following, whether now existing or hereafter from time to time acquired
(collectively, the "Collateral"):
(i) each and every Receivable,
(ii) all Contracts, together with all Contract Rights arising
thereunder,
(iii) all Inventory,
(iv) all Equipment,
(v) all Marks, together with the registrations and right to
all renewals thereof, and the goodwill of the business of such Assignor
symbolized by the Marks,
(vi) all Patents and Copyrights,
(vii) all computer programs of such Assignor and all
intellectual property rights therein and all other Proprietary Information of
such Assignor, including, but not limited to, Trade Secrets,
(viii) all Permits,
(ix) the Cash Collateral Account and all monies, securities
and instruments deposited or required to be deposited in such Cash Collateral
Account,
(x) all other Goods, General Intangibles, Chattel Paper,
Documents and Instruments (other than the Securities and Equity Interests, as
defined in, and which are pledged, or not required to be pledged, pursuant to
the Pledge Agreement), and
(xi) all Proceeds and products of any and all of the
foregoing.
(b) The security interest of the Collateral Agent under this Agreement
extends to all Collateral of the kind which is the subject of this Agreement
which any Assignor may acquire at any
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time during the continuation of this Agreement, provided that no security
interest is granted under this Agreement with respect to any Equipment subject
on the date hereof to any secured installment purchase agreement that by its
terms prohibits the creation of additional liens on such Equipment unless
consent has been obtained and provided further that the Company shall use its
commercially reasonable efforts to obtain such consent, it being understood that
the Company shall not be required to pay more than the nominal fee for such
consent. Upon the payment of all amounts owing under such installment purchase
agreement or the removal of any prohibition on the creation of a lien on the
Equipment subject thereto, such Equipment shall constitute collateral hereunder.
1.2. Power of Attorney. Each Assignor hereby constitutes and appoints
the Collateral Agent its true and lawful attorney, irrevocably, with full power
after the occurrence of and during the continuance of an Event of Default (in
the name of such Assignor or otherwise) to act, require, demand, receive,
compound and give acquittance for any and all monies and claims for monies due
or to become due to the Assignor under or arising out of the Collateral to
endorse any checks or other instruments or orders in connection therewith and to
file any claims or take any action or institute any proceedings which the
Collateral Agent may deem to be necessary or advisable in the premises, which
appointment as attorney is coupled with an interest.
2. GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS.
Each Assignor represents, warrants and covenants, which
representations, warranties and covenants shall survive execution and delivery
of this Agreement, as follows:
2.1. Necessary Filings. Assuming the filing in the appropriate filing
offices of those UCC-1 financing statements delivered to the Collateral Agent
pursuant to section 6.1(d) of the Credit Agreement and the filings of the
patent, trademark and copyright security agreements with the United States
Patent and Trademark Office and the United States Copyright Office, all filings,
registrations and recordings necessary or appropriate to create, preserve,
protect and perfect the security interest granted by such Assignor to the
Collateral Agent hereby in respect of the Collateral have been accomplished and
the security interest granted to the Collateral Agent pursuant to this Agreement
in and to the Collateral constitutes a perfected security interest therein
superior and prior to the rights of all other persons therein (except that the
Collateral may be subject to the security interests evidenced by the financing
statements disclosed on Annex A hereto (the "Permitted Filings")) and subject to
no other Liens (except Permitted Liens) and is entitled to all the rights,
priorities and benefits afforded by the Uniform Commercial Code or other
relevant law as enacted in any relevant jurisdiction to perfected security
interests, subject to compliance with the Assignment of Claims Act of 1940, as
amended, and subject to the limitations on assignments of payments pursuant to
42 C.F.R. ss. 447.10 (Medicaid), or other applicable legal requirements related
to directed payments to assignees under federal and state payment or
reimbursement programs.
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2.2. No Liens. Each Assignor is, and as to Collateral acquired by it
from time to time after the date hereof such Assignor will be, the owner of all
Collateral free from any Lien, security interest, encumbrance or other right,
title or interest of any person (other than evidenced by the Permitted Filings
and Liens permitted under the Credit Agreement), and such Assignor shall defend
the Collateral against all claims and demands of all persons at any time
claiming the same or any interest therein adverse to the Collateral Agent.
2.3. Other Financing Statements. There is no financing statement (or
similar statement or instrument of registration under the law of any
jurisdiction) covering or purporting to cover any interest of any kind in the
Collateral except as disclosed in Annex A hereto and so long as the Total
Commitment has not been terminated or any Letter of Credit remains outstanding
or any of the Obligations remain unpaid or any Designated Hedge Agreement
remains in effect, no Assignor will execute or authorize to be filed in any
public office any financing statement (or similar statement or instrument of
registration under the law of any jurisdiction) or statements relating to the
Collateral, except financing statements filed or to be filed in respect of and
covering the security interests granted hereby such Assignor or as otherwise
permitted by the Credit Agreement.
2.4. Chief Executive Office, etc; Records. The chief executive office
(and the registered office of each Assignor which is a corporation) of each
Assignor is located at the address indicated on Annex B hereto. No Assignor will
move its chief executive office (or registered office in the case of an Assignor
which is a corporation) except to such new location as such Assignor may
establish in accordance with the last sentence of this section 2.4. The
originals of all documents evidencing all Receivables and Contract Rights of
such Assignor and the only original books of account and records of such
Assignor relating thereto are, and will continue to be, kept at such chief
executive office, or at such new locations as such Assignor may establish in
accordance with the last sentence of this section 2.4. All Receivables and
Contract Rights of such Assignor are, and will continue to be, maintained at,
and controlled and directed (including, without limitation, for general
accounting purposes) from, the office locations described above, or such new
locations as such Assignor may establish in accordance with the last sentence of
this section 2.4. No Assignor shall establish new locations for such offices
until (i) it shall have given to the Collateral Agent not less than 30 days'
prior written notice (or such lesser notice as shall be acceptable to the
Collateral Agent in the case of a new record location to be established in
connection with newly acquired Contracts) of its intention so to do, clearly
describing such new location and providing such other information in connection
therewith as the Collateral Agent may reasonably request, and (ii) with respect
to such new location, it shall have taken all action, satisfactory to the
Collateral Agent, to maintain the security interest of the Collateral Agent in
the Collateral intended to be granted hereby at all times fully perfected and in
full force and effect.
2.5. Location of Inventory and Equipment. All Inventory and Equipment
held on the date hereof by each Assignor is located at one of the locations
shown on Annex C attached hereto. Each Assignor agrees that all Inventory and
Equipment now held or subsequently acquired by it shall be kept at (or shall be
in transport to or from) any one of the locations shown on Annex C hereto, or
such new location as such Assignor may establish in accordance with the last
sentence of this
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section 2.5. An Assignor may establish a new location for Inventory and
Equipment only if (i) it shall have given to the Collateral Agent not less than
30 days' prior written notice of its intention so to do, clearly describing such
new location and providing such other information in connection therewith as the
Collateral Agent may reasonably request, and (ii) with respect to such new
location, it shall have taken all action reasonably satisfactory to the
Collateral Agent to maintain the security interest of the Collateral Agent in
the Collateral intended to be granted hereby at all times in fully perfected and
in full force and effect.
2.6. Trade Names; Change of Name. No Assignor has or operates in any
jurisdiction under, or in the preceding five years has had or has operated in
any jurisdiction under, any trade names, fictitious names or other names
(including, without limitation, any names of divisions or operations) except its
legal name and such other trade, fictitious or other names as are listed on
Annex D hereto. Each Assignor has only operated under each name set forth in
Annex D in the jurisdiction or jurisdictions set forth opposite each such name
on Annex D. No Assignor shall change its legal name or assume or operate in any
jurisdiction under any trade, fictitious or other name except those names listed
on Annex D hereto in the jurisdictions listed with respect to such names and new
names (including, without limitation, any names of divisions or operations)
and/or jurisdictions established in accordance with the last sentence of this
section 2.6. No Assignor shall assume or operate in any jurisdiction under any
new trade, fictitious or other name or operate under any existing name in any
additional jurisdiction until (i) it shall have given to the Collateral Agent
not less than 30 days' prior written notice of its intention so to do, clearly
describing in such new name and/or jurisdiction and, in the case of a new name,
the jurisdictions in which such new name shall be used and providing such other
information in connection therewith as the Collateral Agent may reasonably
request, and (ii) with respect to such new name and/or new jurisdiction, it
shall have taken all action to maintain the security interest of the Collateral
Agent in the Collateral intended to be granted hereby at all times fully
perfected and in full force and effect.
2.7. Recourse. This Agreement is made with full recourse to the
relevant Assignor and pursuant to and upon all the warranties, representations,
covenants, and agreements on the part of such Assignor contained herein, in the
Designated Hedge Agreements and otherwise in writing in connection herewith or
therewith.
3. SPECIAL PROVISIONS CONCERNING RECEIVABLES; CONTRACT
RIGHTS; INSTRUMENTS.
3.1. Additional Representations and Warranties. As of the time when
each of its accounts receivable arises, each Assignor shall be deemed to have
represented and warranted that, except in such respects as do not impair in any
material respect the value or collectibility of its accounts receivable taken as
a whole, and except in such other respects as may from time be disclosed by such
Assignor to the Administrative Agent in writing: such receivable, and all
records, papers and documents relating thereto (if any) are, to the best
knowledge of the Assignor after due inquiry, genuine and in all respects what
they purport to be, and that all papers and documents (if any) relating thereto,
to the best knowledge of the Assignor after due inquiry, (i) will represent the
genuine, legal,
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valid and binding obligation of the account debtor, subject to adjustments
customary in the business of such Assignor, and evidencing indebtedness unpaid
and owed by the respective account debtor arising out of the performance of
labor or services or the sale or lease and delivery of the merchandise listed
therein, or both, (ii) will be the only original writings evidencing and
embodying such obligation of the account debtor named therein (other than copies
created for general accounting purposes), (iii) will evidence true and valid
obligations, enforceable in accordance with their respective terms, subject to
adjustments customary in the business of such Assignor and (iv) will be in
compliance and Will conform with all applicable federal, state and local laws
and applicable laws of any relevant foreign jurisdiction.
3.2. Maintenance of Records. Each Assignor Will keep and maintain at
its own cost and expense satisfactory and complete records of its Receivables
and Contracts, including, but not limited to, the originals of all documentation
(including each Contract) with respect thereto, records of all payments
received, all credits granted thereon, all merchandise returned and all other
dealings therewith, and such Assignor will make the same available to the
Collateral Agent for inspection, at such Assignor's own cost and expense, at any
and all reasonable times upon demand and upon reasonable advance notice. Each
Assignor shall, at its own cost and expense, deliver all tangible evidence of
its Receivables and Contract Rights (including, without limitation, copies of
all documents evidencing the Receivables and all Contracts, such copies, if
requested by the Collateral Agent while an Event of Default is in existence, to
be certified as true and complete by an appropriate officer of such Assignor)
and such books and records to the Collateral Agent or to its representatives
(copies of which evidence and books and records may be retained by such
Assignor) at any time upon its demand. If the Collateral Agent so directs, each
Assignor shall legend, in form and manner reasonably satisfactory to the
Collateral Agent, the Receivables and Contracts, as well as books, records and
documents of such Assignor evidencing or pertaining to the Receivables with an
appropriate reference to the fact that the Receivables and Contracts have been
assigned to the Collateral Agent and that the Collateral Agent has a security
interest therein.
3.3. Modification of Terms; etc. No Assignor shall rescind or cancel
any indebtedness evidenced by any Receivable or under any Contract, or modify
any term thereof or make any adjustment with respect thereto, or extend or renew
the same, or compromise or settle any material dispute, claim, suit or legal
proceeding relating thereto, or sell any Receivable or Contract, or interest
therein, without the prior written consent of the Collateral Agent, except (i)
as permitted by section 3.4 hereof and (ii) so long as no Event of Default is
then in existence in respect of which the Collateral Agent has given notice that
this exception is no longer applicable, the Assignor may rescind, cancel,
modify, make adjustments with respect to, extend or renew any Contracts or
indebtedness evidenced by any Receivable, or compromise or settle any such
dispute, claim, suit, or legal proceeding, or sell any Receivable or Contract or
interest therein, in the ordinary course of business. Each Assignor will duly
fulfill all obligations on its part to be fulfilled under or in connection with
the Receivables and Contracts and will do nothing to materially impair the
rights of the Collateral Agent in the Receivables or Contracts.
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3.4. Collection. Each Assignor shall endeavor to cause to be collected
from the account debtor named in each of its Receivables or obligor under any
Contract, as and when due (including, without limitation, amounts which are
delinquent, such amounts to be collected in accordance with generally accepted
lawful collection procedures) any and all amounts owing under or on account of
such Receivable or Contract, and apply forthwith upon receipt thereof all such
amounts as are so collected to the outstanding balance of such Receivable or
under such Contract, except that, so long as no Event of Default is then in
existence in respect of which the Collateral Agent has given notice that this
exception is no longer applicable, such Assignor may allow in the ordinary
course of business as adjustments to amounts owing under its Receivables and
Contracts (i) an extension or renewal of the time or times of payment, or
settlement for less than the total unpaid balance, which such Assignor finds
appropriate in accordance with sound business judgment and (ii) a refund or
credit due as a result of returned or damaged merchandise or improperly
performed services. The reasonable out-of-pocket costs and expenses (including,
without limitation, attorneys' fees) of collection, whether incurred by such
Assignor or the Collateral Agent, shall be borne by such Assignor.
3.5. Direction to Account Debtors, etc. Upon the occurrence and during
the continuance of an Event of Default, and if the Collateral Agent so directs
the relevant Assignor, to the extent permitted by applicable law, such Assignor
agrees (x) to cause all payments on account of the Receivables to be made
directly to the Cash Collateral Account, (y) that the Collateral Agent may, at
its option, directly notify the obligors with respect to any Receivables to make
payments with respect thereto as provided in preceding clause (x), and (z) that
the Collateral Agent may enforce collection of any such Receivables and may
adjust, settle or compromise the amount of payment thereof. The Collateral Agent
may apply any or all amounts then in, or thereafter deposited in, the Cash
Collateral Account in the manner provided in section 7.4 of this Agreement. The
reasonable out-of-pocket costs and expenses (including attorneys' fees) of
collection, whether incurred by such Assignor or the Collateral Agent, shall be
borne by such Assignor.
3.6. Instruments. If any Assignor owns or acquires any Instrument, such
Assignor will within 10 days notify the Collateral Agent thereof, and upon
request by the Collateral Agent promptly deliver such statement to the
Collateral Agent appropriately endorsed to the order of the Collateral Agent as
further security hereunder.
3.7. Further Actions. Each Assignor will, at its own expense, make,
execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from
time to time such vouchers, invoices, schedules, confirmatory assignments,
conveyances, financing statements, transfer endorsements, powers of attorney,
certificates, reports and other assurances or instruments and take such further
steps relating to its Receivables, Contracts, Instruments and other property or
rights covered by the security interest hereby granted, as the Collateral Agent
may reasonably require to give effect to the purposes of this Agreement.
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4. SPECIAL PROVISIONS CONCERNING TRADEMARKS.
4.1. Additional Representations and Warranties. Each Assignor
represents and warrants that it is the true and lawful owner or licensee of the
Marks listed in Annex E attached hereto and that said listed Marks constitute
all the marks registered in the United States Patent and Trademark Office that
such Assignor now owns or uses in connection with its business. Each Assignor
represents and warrants that it owns or is licensed to use all Marks that it
uses, and that it owns all of the registrations listed on Annex E. Each Assignor
further warrants that it is aware of no third party claim that any aspect of
such Assignor's present or contemplated business operations infringes or will
infringe any trademark or service mark in a manner which could have a material
effect on the financial condition, business or property of such Assignor.
4.2. Licenses and Assignments. Each Assignor hereby agrees not to
divest itself of any right under a Mark other than in the ordinary course of
business absent prior written approval of the Collateral Agent.
4.3. Infringements. Each Assignor agrees, promptly upon learning
thereof, to notify the Collateral Agent in writing of the name and address of,
and to furnish such pertinent information that may be available with respect to,
any party who may be infringing or otherwise violating any of such Assignor's
rights in and to any Mark that has a material effect on the financial condition,
business or property of such Assignor taken as a whole (each such Mark, a
"Significant Mark"), or with respect to any party claiming that such Assignor's
use of any Significant Mark violates any property right of that party, to the
extent that such infringement or violation could have a material effect on the
financial condition, business or property of such Assignor. Each Assignor
further agrees, unless otherwise directed by the Collateral Agent, diligently to
prosecute any person infringing any Significant Mark in a manner consistent with
its past practice and in the ordinary course of business.
4.4. Preservation of Marks. Each Assignor agrees to use or license the
use of its Significant Marks in interstate commerce during the time in which
this Agreement is in effect, sufficiently to preserve such Marks as trademarks
or service marks registered under the laws of the United States.
4.5. Maintenance of Registration. Each Assignor shall, at its own
expense, diligently process all documents required by the Trademark Act of 1946,
15 U.S.C. ss.ss.1051 et seq. to maintain trademark registration which would
reasonably be expected to have a Material Adverse Effect, including but not
limited to affidavits of use and applications for renewals of registration in
the United States Patent and Trademark Office for all of its Marks pursuant to
15 U.S.C. ss.ss.1058(a), 1059 and 1065, and shall pay all fees and disbursements
in connection therewith, and shall not abandon any such filing of affidavit of
use or any such application of renewal prior to the exhaustion of all
administrative and judicial remedies without prior written consent of the
Collateral Agent, which consent shall not be unreasonably withheld.
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4.6. Future Registered Marks. If any mark registration issues hereafter
to an Assignor as a result of any application now or hereafter pending before
the United States Patent and Trademark Office, within 30 days of receipt of such
certificate such Assignor shall deliver a copy of such certificate, and a grant
of security in such mark to the Collateral Agent, confirming the grant thereof
hereunder, the form of such confirmatory grant to be substantially the same as
the form hereof.
4.7. Remedies. If an Event of Default shall occur and be continuing,
the Collateral Agent may, by written notice to the relevant Assignor, take any
or all of the following actions: (i) declare the entire right, title and
interest of such Assignor in and to each of the Marks, together with all
trademark rights and rights of protection to the same, vested, in which event
such rights, title and interest shall immediately vest, in the Collateral Agent
for the benefit of the Secured Creditors, in which case such Assignor agrees to
execute an assignment in form and substance reasonably satisfactory to the
Collateral Agent, of all its rights, title and interest in and to the Marks to
the Collateral Agent for the benefit of the Secured Creditors; (ii) take and use
or sell the Marks and the goodwill of such Assignor's business symbolized by the
Marks and the right to carry on the business and use the assets of the Assignor
in connection with which the Marks have been used; and (iii) direct such
Assignor to refrain, in which event such Assignor shall refrain, from using the
Marks in any manner whatsoever, directly or indirectly, and, if requested by the
Collateral Agent, change such Assignor's corporate name to eliminate therefrom
any use of any Mark and execute such other and further documents that the
Collateral Agent may request to further confirm this and to transfer ownership
of the Marks and registrations and any pending trademark application in the
United States Patent and Trademark Office to the Collateral Agent.
5. SPECIAL PROVISIONS CONCERNING PATENTS AND COPYRIGHTS.
5.1. Additional Representations and Warranties. Each Assignor
represents and warrants that it is the true and lawful owner or licensee of all
rights in the Patents listed in Annex F attached hereto and in the Copyright
registrations listed in Annex G attached hereto, that said Patents constitute
all the United States patents and applications for United States patents that
such Assignor now owns and that said Copyrights constitute all the registered
United States copyrights that such Assignor now owns. Each Assignor represents
and warrants that it owns or is licensed to practice under all Patents and
Copyright registrations that it now owns, uses or practices under. Each Assignor
further warrants that it is aware of no third party claim that any aspect of
such Assignor's present or contemplated business operations infringes or will
infringe any patent or any copyright in a manner which could have a material
effect on the financial condition, business or property of such Assignor.
5.2. Licenses and Assignments. Each Assignor hereby agrees not to
divest itself of any right under a Patent or Copyright other than in the
ordinary course of business absent prior written approval of the Collateral
Agent, which such approval shall not be unreasonably withheld.
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5.3. Infringements. Each Assignor agrees, promptly upon learning
thereof, to furnish the Collateral Agent in writing with all pertinent
information available to such Assignor with respect to any infringement or other
violation of such Assignor's rights in any Patent that has a material effect on
the financial condition, business or property of such Assignor taken as a whole
(each such Patent, a "Significant Patent') or Copyright, or with respect to any
claim that practice of any Significant Patent or Copyright violates any property
right of that party, to the extent that such infringement or violation could
have a material effect on the financial condition, business or property of such
Assignor. Each Assignor further agrees, absent direction of the Collateral Agent
to the contrary, diligently to prosecute any person infringing any Significant
Patent or Copyright about which it has knowledge in a manner consistent with its
past practice and in the ordinary course of business.
5.4. Maintenance of Patents. At its own expense, each Assignor shall
make timely payment of all post issuance fees required pursuant to 35 U.S.C. ss.
41 to maintain in force rights under each Patent.
5.5. Prosecution of Patent Applications. At its own expense, each
Assignor shall diligently prosecute all applications for United States patents
listed on Annex F hereto, and shall not abandon any such application, except in
favor of a continuation application based on such application, prior to
exhaustion of all administrative and judicial remedies, absent written consent
of the Collateral Agent, which such consent shall not be unreasonably withheld.
5.6. Other Patents and Copyrights. Within 30 days of acquisition of a
United States Patent or Copyright, or of filing of an application for a United
States Patent or Copyright, the relevant Assignor shall deliver to the
Collateral Agent a copy of said Patent or Copyright, as the case may be, with a
grant of security as to such Patent or Copyright, as the case may be, confirming
the grant thereof hereunder, the form of such confirmatory grant to be
substantially the same as the form hereof.
5.7. Remedies. If an Event of Default shall occur and be continuing,
the Collateral Agent may by written notice to the relevant Assignor take any or
all of the following actions: (i) declare the entire right, title and interest
of such Assignor in each of the Patents and Copyrights vested, in which event
such right, title and interest shall immediately vest in the Collateral Agent
for the benefit of the Secured Creditors, in which case such Assignor agrees to
execute an assignment in form and substance reasonably satisfactory to the
Collateral Agent of all its right, title, and interest to such Patents and
Copyrights to the Collateral Agent for the benefit of the Secured Creditors;
(ii) take and practice or sell the Patents and Copyrights; (iii) direct such
Assignor to refrain in which event such Assignor shall refrain, from practicing
the Patents and Copyrights directly or indirectly, and such Assignor shall
execute such other and further documents as the Collateral Agent may request
further to confirm this and to transfer ownership of the Patents and Copyrights
to the Collateral Agent for the benefit of the Secured Creditors.
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6. PROVISIONS CONCERNING ALL COLLATERAL.
6.1. Protection of Collateral Agent's Security. Each Assignor will do
nothing to impair the rights of the Collateral Agent in the Collateral. Each
Assignor will at all times keep its Inventory and Equipment insurance in favor
of the Collateral Agent, at its own expense, to the extent required by the
Credit Agreement against fee, theft and all other risks to which such Collateral
may be subject; all policies or certificates with respect to such insurance
shall be endorsed to the Collateral Agent's satisfaction for the benefit of the
Collateral Agent (including, without limitation, by naming the Collateral Agent
as an additional insured and loss payee) and copies thereof shall be delivered
upon request to the Collateral Agent. If an Assignor shall fail to insure such
Inventory and/or Equipment to the extent required by the Credit Agreement, or if
such Assignor shall fail to so endorse all policies or certificates with respect
thereto, the Collateral Agent shall have the right (but shall be under no
obligation) to procure such insurance and such Assignor agrees to reimburse the
Collateral Agent for all costs and expenses of procuring such insurance. The
Collateral Agent may apply any proceeds of such insurance in accordance with
section 7.4, it being understood and agreed that the Assignor shall be permitted
to first use any such proceeds to repair and/or replace the relevant Collateral.
Each Assignor assumes all Ability and responsibility in connection with the
Collateral acquired by it and the liability of such Assignor to pay its
Obligations shall in no way be affected or diminished by reason of the fact that
such Collateral may be lost, destroyed, stolen, damaged or for any reason
whatsoever unavailable to such Assignor.
6.2. Warehouse Receipts Non-negotiable. Each Assignor agrees that if
any warehouse receipt or receipt in the nature of a warehouse receipt is issued
with respect to any of its Inventory, such warehouse receipt or receipt in the
nature thereof shall not be "negotiable" (as such term is used in section 7-104
of the Uniform Commercial Code as in effect in any relevant jurisdiction or
under other relevant law).
6.3. Further Actions. Each Assignor will, at its own expense, make,
execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from
time to time such lists, descriptions and designations of its Collateral,
warehouse receipts, receipts in the nature of warehouse receipts, bills of
lading, documents of title, vouchers, invoices, schedules, confirmatory
assignments, conveyances, financing statements, transfer endorsements, powers of
attorney, certificates, reports and other assurances or instruments and take
such further steps relating to the Collateral and other property or rights
covered by the security interest hereby granted, which tie Collateral Agent
reasonably deems appropriate or advisable to perfect, preserve or protect its
security interest in the Collateral.
6.4. Financing Statements. Each Assignor agrees to sign and deliver to
the Collateral Agent such financing statements, in form acceptable to the
Collateral Agent, as the Collateral Agent may from time to time reasonably
request or as are necessary or desirable in the opinion of the Collateral Agent
to establish and maintain a valid, enforceable, first priority security interest
in the Collateral as provided herein and the other rights ant security
contemplated hereby all in accordance with the Uniform Commercial Code as
enacted in any and all relevant jurisdictions or any other relevant law. Each
Assignor will pay any applicable filing fees and elated expenses. Each Assignor
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authorizes the Collateral Agent to file any such financing statements without he
signature of such Assignor.
7. REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT.
7.1. Remedies; Obtaining the Collateral Upon Default. Each Assignor
agrees that, if any Event of Default shall have occurred and be continuing, then
and in every such case, subject to any mandatory requirements of applicable law
then in effect, the Collateral Agent, in addition to any rights now or hereafter
existing under applicable law, shall have all rights as a secured creditor under
the Uniform Commercial Code in all relevant jurisdictions and may
(i) personally, or by agents or attorneys, immediately retake
possession of the Collateral or any part thereof, from such Assignor or
any other person who then has possession of any part thereof with or
without notice or process of law, and for that purpose may enter upon
such Assignor's premises where any of the Collateral is located and
remove the same and use in connection with such removal any and all
services, supplies, aids and other facilities of such Assignor;
(ii) instruct the obligor or obligors on any agreement,
instrument or other obligation (including, without limitation, the
Receivables) constituting the Collateral to make any payment required
by the terms of such instrument or agreement directly to the Collateral
Agent;
(iii) sell, assign or otherwise liquidate, or direct such
Assignor to sell, assign or otherwise liquidate, any or all of the
Collateral or any part thereof, and take possession of the proceeds of
any such sale or liquidation;
(iv) withdraw any or all monies, securities and/or instruments
in the Cash Collateral Account for application to the Obligations in
accordance with section 7.4 hereof; and
(v) take possession of the Collateral or any part thereof, by
directing such Assignor in writing to deliver the same to the
Collateral Agent at any place or places designated by the Collateral
Agent, in which event such Assignor shall at its own expense;
(A) forthwith cause the same to be moved to the place
or places so designated by the Collateral Agent and there
delivered to the Collateral Agent,
(B) store and keep any Collateral so delivered to the
Collateral Agent at such place or places pending further
action by the Collateral Agent as provided in section 7.2, and
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(C) while the Collateral shall be so stored and kept,
provide such guards and maintenance services as shall be
necessary to protect the same and to preserve and maintain
them in good condition;
it being understood that such Assignor's obligation so to deliver the Collateral
is of the essence of this Agreement and that, accordingly, upon application to a
court of equity having jurisdiction, the Collateral Agent shall be entitled to a
decree requiring specific performance by the Assignor of said obligation.
7.2. Remedies; Disposition of the Collateral. Upon the occurrence and
continuance of an Event of Default, any Collateral repossessed by the Collateral
Agent under or pursuant to section 7.1 and any other Collateral whether or not
so repossessed by the Collateral Agent, may be sold, assigned, leased or
otherwise disposed of under one or more contracts or as an entirety, and without
the necessity of gathering at the place of sale of the property to be sold, and
in general in such manner, at such time or times, at such place or places and on
such terms as the Collateral Agent may, in compliance with any mandatory
requirements of applicable able how, determine to be commercially reasonable.
Any of the Collateral may be sold, leased or otherwise disposed of in condition
in which the same existed when taken by the Collateral Agent or after any
overhaul or repair which the Collateral Agent shall determine to be commercially
reasonable. Any such disposition which shall be a private sale or other private
proceedings permitted by such requirements shall be made upon not less than 10
days' written notice to such Assignor specifying the time at which such
disposition is to be made and the intended sale price or other consideration
therefor, and shall be subject, for the 10 days after the giving of such notice,
to the right of the relevant Assignor or any nominee of the relevant Assignor to
acquire the Collateral involved at a price or for such other consideration at
least equal to the intended sale price or other consideration so specified. Any
such disposition which shall be a public sale permitted by such requirements
shall be made upon not less than 10 days' written notice to the relevant
Assignor specifying the time and place of such sale and, in the absence of
applicable requirements of law, shall be by public auction (which may, at the
Collateral Agent's option, be subject to reserve), after publication of notice
of such auction not less than 10 days prior thereto in two newspapers in general
circulation in the city where such Collateral is located. To the extent
permitted by any such requirement of law, the Collateral Agent on behalf of the
Secured Creditors (or certain of them) may bid for and become the purchaser (by
bidding in Obligations or otherwise) of the Collateral or any item thereof,
offered for sale in accordance with this section without accountability to the
relevant Assignor (except to the extent of surplus money received as provided in
section 7.4). If, under mandatory requirements of applicable law, the Collateral
Agent shall be required to make disposition of the Collateral within a period of
time which does not permit the giving of notice to the Assignor as hereinabove
specified, the Collateral Agent need give the relevant Assignor only such notice
of disposition as shall be reasonably practicable in view of such mandatory
requirements of applicable law.
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7.3. Waiver, or Claims. Except as otherwise provided in this Agreement,
EACH ASSIGNOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE
AND JUDICIAL HEARING IN CONNECTION WITH THE COLLATERAL AGENT'S TAKING POSSESSION
OR THE COLLATERAL AGENT'S DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING,
WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT
REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH THE ASSIGNOR WOULD OTHERWISE HAVE
UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE, and
each Assignor hereby further waives, to the extent permitted by law:
(i) all damages occasioned by such taking of possession except
any damages which are the direct result of the Collateral Agent's gross
negligence or wilful misconduct;
(ii) all other requirements as to the time, place and terms of
sale or other requirements with respect to the enforcement of the
Collateral Agent's rights here-under; and
(iii) all rights of redemption, appraisement, valuation, stay,
extension or moratorium now or hereafter in force under any applicable
law in order to prevent or delay the enforcement of this Agreement or
the absolute sale of the Collateral or any portion thereof, and each
Assignor, for itself and all who may claim under it, insofar as it or
they now or hereafter lawfully may, hereby waives the benefit of all
such laws.
Any sale of, or the grant of options to purchase, or any other realization upon,
any Collateral shall operate to divest all right, title, interest, claim and
demand, either at law or in equity, of the relevant Assignor therein and
thereto, and shall be a perpetual bar both at law and in equity against the
relevant Assignor and against any and all persons claiming or attempting to
claim the Collateral so sold, optioned or realized upon, or any part thereof,
from through and under the relevant Assignor.
7.4. Application or Proceeds. (a) The proceeds of any Collateral
obtained pursuant to section 7.1 or disposed of pursuant to section 7.2 shall be
applied as follows:
(i) first, to the payment of all Obligations to the Collateral
Agent of the type described in clauses (iii) and (iv) of the definition
of "Obligations" contained in section 9 hereof
(ii) second, to the extent proceeds remain after the
application pursuant to preceding clause (i), an amount equal to the
outstanding Obligations to the Secured Creditors shall be paid to the
Secured Creditors as provided in section 7.4(c) with each Secured
Creditor receiving an amount equal to its outstanding Obligations or,
if the proceeds are insufficient to pay in full all such Obligations,
its Pro Rata Share of the amount remaining to be distributed; and
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(iii) third, to the extent remaining after the application
pursuant to the preceding clauses (i) and (ii) or following the
termination of this Agreement pursuant to section 10.9 hereof, to the
relevant Assignor or to whomever may be lawfully entitled to receive
such payment.
(b) For purposes of this Agreement, "Pro Rata Share" shall mean, when
calculating a Secured Creditor's portion of any distribution or amount, the
amount (expressed as a percentage) equal to a fraction the numerator of which is
the then outstanding amount of the relevant Obligations owed such Secured
Creditor and the denominator of which is the then outstanding amount of all
Obligations.
(c) All payments required to be made to the (i) Lenders hereunder shall
be made to the Administrative Agent for the account of the respective Lenders
and (ii) Hedge Creditors hereunder shall be made to the paying agent under the
applicable Designated Hedge Agreement or, in the case of Designated Hedge
Agreements without a paying agent, directly to the applicable Hedge Creditor.
(d) For purposes of applying payments received in accordance with this
section 7.4, the Collateral Agent shall be entitled to rely upon (i) the
Administrative Agent for a determination (which the Administrative Agent agrees
to provide upon request to the Collateral Agent) of the outstanding Credit
Document Obligations and (ii) upon any Hedge Creditor for determination (which
each Hedge) Creditor agrees to provide upon request to the Collateral Agent) of
the outstanding Hedge Obligations owed to such Hedge Creditor. Unless it has
actual knowledge (including by way of written notice from a Secured Creditor) to
the contrary, the Administrative Agent under the Credit Agreement, in furnishing
information pursuant to the preceding sentence, and the Collateral Agent, in
acting hereunder, shall be entitled to assume that (x) no Credit Document
Obligations other than principal, interest and regularly accruing fees are owing
to any Lender and (y) no Designated Hedge Agreements or any Hedge Obligations
with respect thereto are in existence.
(e) It is understood that the Assignors shall remain jointly and
severally liable to the extent of any deficiency between (x) the amount of the
proceeds of the Collateral and the amount of the sum referred to in clause
(a)(i) and (ii) of this section 7.4 and (y) the aggregate outstanding amount of
the Obligations.
7.5. Remedies Cumulative. Each and every right, power and remedy hereby
specifically given to the Collateral Agent shall be in addition to every other
right, power and remedy specifically given under this Agreement, any Designated
Hedge Agreement or the other Credit Documents or now or thereafter existing at
law or in equity, or by statute and each and every right, power and remedy
whether specifically herein given or otherwise existing may be exercised from
time to time or simultaneously and as often and in such order as may be deemed
expedient by the Collateral Agent. All such rights, powers and remedies shall be
cumulative and the exercise or the beginning of exercise of one shall not be
deemed a waiver of the right to exercise of any other or others. No delay or
omission of the Collateral Agent in the exercise of any such right, power or
remedy and no renewal or extension of any of the Obligations shall impair any
such right, power or remedy or shall be
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construed to be a waiver of any Default or Event of Default or an acquiescence
therein. In the event that the Collateral Agent shall bring any suit to enforce
any of its rights hereunder and shall be entitled to judgment, then in such suit
the Collateral Agent may recover reasonable expenses, including attorneys' fees,
and the amounts thereof shall be included in such judgment.
7.6. Discontinuance of Proceedings. In case the Collateral Agent shall
have instituted any proceeding to enforce any right, power or remedy under this
Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall
have been discontinued or abandoned for any reason or shall have been determined
adversely to the Collateral Agent, then and in every such case the relevant
Assignor, the Collateral Agent and each holder of any of the Obligations shall
be restored to their former positions and rights hereunder with respect to the
Collateral subject to the security interest created under this Agreement, and
all rights, remedies and powers of the Collateral Agent shall continue as if no
such proceeding had been instituted.
7.7. Collateral Agent to Act on Behalf of Secured Creditors. The
Secured Creditors agree by their acceptance of the benefits hereof that this
Agreement may be enforced on their behalf only by the action of the Collateral
Agent, acting upon the instructions of the Required Lenders (or, after all
Credit Document Obligations have been paid in full, instructions of the holders
of at least the majority of the outstanding Hedge Obligations) and that no other
Secured Creditor shall have any right individually to seek to enforce or to
enforce this Agreement or to realize upon the security to be granted hereby, it
being understood and agreed that such rights and remedies may be exercised by
the Collateral Agent, for the benefit of the Secured Creditors, upon the terms
of this Agreement.
8. INDEMNITY.
8.1. Indemnity. (a) The Assignors jointly and severally agree to
indemnify, reimburse and hold the Collateral Agent, each Secured Creditor and
its respective successors, assigns, employees, agents and servants (hereinafter
in this section 8.1 referred to individually as "Indemnitee," and collectively
as "Indemnitees" harmless from any and all liabilities, obligations, losses,
damages, penalties, claims, demands, actions, suits, judgments and any and all
reasonable out-of-pocket costs and expenses (including reasonable attorneys'
fees and expenses) (for the purposes of this section 8. 1 the foregoing are
collectively called "expenses") of whatsoever kind and nature imposed on,
asserted against or incurred by any of the Indemnities in any way relating to or
arising out of this Agreement, any Designated Hedge Agreement, any other Credit
Document or the documents executed in connection herewith and therewith or in
any other way connected with the enforcement of any of the terms of, or the
preservation of any rights under any thereof, or in any way relating to or
arising out of the manufacture, ownership, ordering, purchase, delivery,
control, acceptance, lease, financing, possession, operation, condition, sale,
return or other disposition, or use of the Collateral (including, without
limitation, latent or other defects, whether or not discoverable), the violation
of the laws of any country, state or other governmental body or unit, any tort
(including, without limitation, claims arising or imposed under the doctrine of
strict liability, or for or on account of injury to or the death of any person
(including any Indemnitee), or property damage), or contract claim; provided
that no Indemnitee shall be indemnified pursuant to this section 8.1(a) for
losses,
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damages or liabilities to the extent caused by the gross negligence or wilful
misconduct of such person to be indemnified or of any other Indemnitee who is
such person or an affiliate of such person. If any claim is asserted against any
Indemnitee, such Indemnitee shall promptly notify the Assignor and each
Indemnitee may, and if requested by the Assignor shall, in good faith, contest
the validity, applicability and amount of such claim with counsel selected by
such Indemnitee, and shall permit the Assignor to participate in such contest.
In addition, in connection with any claim covered by this section 8.1 against
more than one Indemnitee, all such Indemnitees shall be represented by the same
legal counsel selected by such Indemnitees; provided, however, that if such
legal counsel determines in good faith that representing all such Indemnitees
would or could result in a conflict of interest ,under the laws or ethical
principles applicable to such legal counsel or that a defense or counterclaim is
available to an Indemnitee that is not available to all such Indemnitees, then
to the extent reasonably necessary to avoid such a conflict of interest or to
permit unqualified assertion of such defense or counterclaim, each Indemnitee
shall be entitled to separate representation by a legal counsel selected by that
Indemnitee. Each Assignor agrees that upon written notice by any Indemnitee of
the assertion of such a liability, obligation, loss, damage, penalty, claim,
demand, action, judgment or suit, such Assignor shall assume full responsibility
for the defense thereof. Each Indemnitee agrees to use its best efforts to
promptly notify the relevant Assignor of any such assertion of which such
Indemnitee has knowledge.
(b) Without limiting the application of section 8.1(a), the Assignors
jointly and severally agree to pay, or reimburse the Collateral Agent for (if
the Collateral Agent shall have incurred fees, costs or expenses because an
Assignor shall have failed to comply with its obligations under this Agreement
or any Credit Document), any and all out-of-pocket fees, costs and expenses of
whatever kind or nature incurred in connection with the creation, preservation
or protection of the Collateral Agent's Liens on, and security interest in, the
Collateral, including, without limitation, all fees and taxes in connection with
the recording or filing of instruments and documents in public offices, payment
or discharge of any taxes or Liens upon or in respect of the Collateral,
premiums for insurance with respect to the Collateral and all other fees, costs
and expenses in connection with protecting, maintaining or preserving the
Collateral and the Collateral Agent's interest therein, whether through judicial
proceedings or otherwise, or in defending or prosecuting any actions, suits or
proceedings arising out of or relating to the Collateral.
(c) Without limiting the application of section 8.1(a) or (b), the
Assignors jointly and severally agree to pay, indemnify and hold each Indemnitee
harmless from and against any loss, costs, damages and expenses which such
Indemnitee may suffer, expend or incur in consequence of or growing out of any
material misrepresentation by an Assignor in this Agreement, or in any statement
or writing contemplated by or made or delivered pursuant to or in connection
with this Agreement.
(d) If and to the extent that the obligations of any Assignor under
this section 8.1 are unenforceable for any reason, each Assignor hereby agrees
to make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable law.
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8.2. Indemnity Obligations Secured by Collateral; Survival. Any amounts
paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute Obligations secured by the Collateral. The
indemnity obligations of the Assignors contained in this section 8 shall
continue in full force and effect notwithstanding the full payment of all the
Notes issued under the Credit Agreement and all of the other Obligations and
notwithstanding the discharge thereof.
9. DEFINITIONS.
The following terms shall have the meanings herein specified unless the
context otherwise requires. Such definitions shall be equally applicable to the
singular and plural forms of the terms defined.
"Agreement" shall mean this Security Agreement as the same may be
modified, supplemented or amended from time to time in accordance with its
terms.
"Assignor" shall have the meaning specified in the first paragraph of
this Agreement.
"Business Day" means any day excluding Saturday, Sunday and any day
which shall be in New York, New York a legal holiday or a day on which banking
institutions are authorized by law to close.
"Cash Collateral Account" shall mean a cash collateral account
maintained with, and in the sole dominion and control of, the Collateral Agent
for the benefit of the Secured Creditors (such cash collateral account shall be
interest bearing if it is the general policy of the Collateral Agent in
syndicated credit agreements in which it acts as collateral agent to establish
such cash collateral accounts as interest bearing accounts; otherwise such cash
collateral account shall be non-interest bearing).
"Chattel Paper" shall have the meaning assigned that term under the
Uniform Commercial Code as in effect on the date hereof in the State of New
York.
"Collateral" shall have the meaning provided in section 1.1(a).
"Collateral Agent" shall have the meaning specified in the first
paragraph of this Agreement.
"Contract Rights" shall mean all rights of an Assignor (including,
without limitation, all rights to payment) under each Contract.
"Contracts" shall mean all contracts between an Assignor and one or
more additional parties (but shall include Cash Equivalents).
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"Copyrights" shall mean any U.S. copyright to which an Assignor now or
hereafter has title, as well as any application for a U.S. copyright hereafter
made by such Assignor.
"Credit Agreement" shall have the meaning provided in the Preliminary
Statements of this Agreement.
"Documents" shall have the meaning assigned that term under the Uniform
Commercial Code as in effect on the date hereof in the State of New York.
"Equipment" shall mean any "equipment," as such term is defined in the
Uniform Commercial Code as in effect on the date hereof in the State of New
York, now or hereafter owned by an Assignor and, in any event, shall include,
but shall not be limited to, all machinery, equipment, furnishings, fixtures and
vehicles now or hereafter owned by an Assignor and any and all additions,
substitutions and replacements of any of the foregoing, wherever located,
together with all attachments, components, parts, equipment and accessories
installed thereon or affixed thereto.
"Event of Default" shall mean any Event of Default under, and as
defined in, the Credit Agreement, or any payment default, after any applicable
grace period, under any Designated Hedge Agreement.
"General Intangibles" shall have the meaning assigned that term under
the Uniform Commercial Code as in effect on the date hereof in the State of New
York.
"Goods" shall have the meaning assigned that term under the Uniform
Commercial Code as in effect on the date hereof in the State of New York.
"Hedge Creditors" shall have the meaning provided in the Preliminary
Statements of this Agreement.
"Indemnitee" shall have the meaning provided in section 8.1.
"Instrument" shall have the meaning assigned that term under the
Uniform Commercial Code as in effect on the date hereof in the State of New York
(but shall not include Cash Equivalents).
"Inventory" shall mean merchandise, inventory and goods, and all
additions, substitutions and , replacements thereof, wherever located, together
with all goods, supplies, incidentals, packaging materials, labels, materials
and any other items used or usable in manufacturing, processing, packaging or
shipping same; in all stages of production -- from raw materials through
work-in-process to finished goods -- and all products and proceeds of whatever
sort and wherever located and
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any portion thereof which may be returned, rejected, reclaimed or repossessed by
the Collateral Agent from an Assignor's customers, and shall specifically
include all "inventory" as such term is defined in the Uniform Commercial Code
as in effect on the date hereof in the State of New York, now or hereafter owned
by the Assignor.
"Lender" shall have the meaning provided in the Preliminary Statements
of this Agreement.
"Marks" shall mean any trademarks and service marks now held or
hereafter acquired by an Assignor, which are registered in the United States
Patent and Trademark Office, as well as any unregistered marks used by an
Assignor in the United States and trade dress including logos and/or designs in
connection with which any of these registered or unregistered marks are used.
"Obligations" shall mean (i) the full and prompt payment when due
(whether at the stated maturity, by acceleration or otherwise) of all
obligations (including obligations which, but for the automatic stay under
section 362(a) of the Bankruptcy Code, would become due) of each Assignor to the
Lenders, whether now existing or hereafter incurred under, arising out of or in
connection with the Credit Agreement and the other Credit Documents to which
such Assignor is a party (including without limitation (x) in the case of any
Borrower, all such obligations and indebtedness of such Borrower under the
Credit Agreement and (y) in the case of each other Assignor, all such
obligations and indebtedness under the Subsidiary Guaranty to which such
Assignor is a party which relate to any of the foregoing), and the due
performance and compliance by each Assignor with all of the terms, conditions
and agreements contained in the Credit Agreement and such other Credit Documents
(all such obligations and liabilities under this clause (i), being herein
collectively called the "Credit Document Obligations"); (ii) the full and prompt
payment when due (whether at the stated maturity, by acceleration or otherwise)
of all obligations (including obligations which, but for the automatic stay
under section 362(a) of the Bankruptcy Code, would become due) and liabilities
of each Assignor or any other Subsidiary of the Company now existing or
hereafter incurred under, arising out of or in connection with any Designated
Hedge Agreement with any of the Secured Creditors including, in the case of
Assignors other than the Company, all obligations of such Assignor under the
Subsidiary Guaranty in respect of any Designated Hedge Agreement, and the due
performance and compliance by such Assignor with all of the terms, conditions
and agreements contained therein (all such obligations and liabilities under
this clause ((ii) being herein collectively called the "Hedge Obligations");
(iii) any and all sums advanced by the Collateral Agent in order to preserve the
Collateral or preserve its security interest in the Collateral; and (iv) in the
event of any proceeding for the collection or enforcement of any indebtedness,
obligations, or liabilities of any Assignor referred to in clauses (i) and (ii)
above, after an Event of Default shall have occurred and be continuing, the
reasonable expenses of re-taking, holding, preparing for sale or lease, selling
or otherwise disposing of or realizing on the Collateral, or of any exercise by
the Collateral Agent of its rights hereunder, together with reasonable
attorneys' fees and court costs.
"Patents" shall mean any U.S. patent to which an Assignor now or
hereafter has title, as well as any application for a U.S. patent now or
hereafter made by an Assignor.
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"Permits" shall mean, to the extent permitted to be assigned by the
terms thereof of by applicable law, all licenses, permits, rights, orders,
variances, franchises or authorizations of or from any governmental authority or
agency.
"Proceeds" shall have the meaning assigned that term under the Uniform
Commercial Code as in effect the State of New York on the date hereof or under
other relevant law and, in any event, shall include, but not be limited to, (i)
any and all proceeds of any insurance, indemnity, warranty or guaranty payable
to the Collateral Agent or an Assignor from time to time with respect to any of
the Collateral, (ii) any and all payments (in any form whatsoever) made or due
and payable to an Assignor 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) and (iii) any and all other amounts from time to time
paid or payable under or in connection with any of the Collateral.
"Proprietary Information" means all information and know-how worldwide,
including, without limitation, technical data; manufacturing data; research and
development data; data relating to compositions, processes and formulations
manufacturing and production know-how and experience; management know-how;
training programs; manufacturing, engineering and other drawings;
specifications; performance criteria; operating instructions; maintenance
manuals; technology; technical information; software; engineering and computer
data and databases; design and engineering specifications; catalogs; promotional
literature; financial, business and marketing plans; inventions and invention
disclosures.
"Receivables" shall mean any "account" as such term is defined in the
Uniform Commercial Code as in effect on the date hereof in the State of New
York, now or hereafter owned by an Assignor and, in any event, shall include,
but shall not be limited to, all of an Assignor's rights to payment for goods
sold or leased or services performed by an Assignor, whether now in existence or
arising from time to time hereafter, including, without limitation rights
evidenced by an account, note, contract, security agreement, chattel paper, or
other evidence of indebtedness or security, together with (a) all security
pledged, assigned, hypothecated or granted or held by an Assignor to secure the
foregoing, (b) all of an Assignor's right, title and interest in and to any
goods the sale of which gave rise thereto, (c) all guarantees, endorsements and
indemnifications on, or of, any of the foregoing, (d) all powers of attorney for
the execution of any evidence of indebtedness or security or other writing in
connection therewith, (e) all books, records, ledger cards, and invoices
relating thereto, (f) all evidences of the filing of financing statements and
other statements and the registration of other instruments in connection
therewith and amendments thereto, notices to other creditors or secured parties,
and certificates from filing or other registration officers, (g) all credit
information, reports and memoranda relating thereto, and (h) all other writings
related in any way to the foregoing.
"Secured Creditors" shall have the meaning provided in the Preliminary
Statements of this Agreement.
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"Significant Mark" shall have the meaning provided in section 4.3 of
this Agreement.
Significant Patent" shall have the meaning provided in section 5.3 of
this Agreement.
"Trade Secrets" means any secretly held existing engineering and other
data, information, production procedures and other know-how relating to the
design, manufacture, assembly, installation, use, operation, marketing, sale and
servicing of any products or business of an Assignor worldwide whether written
or not written.
10. MISCELLANEOUS.
10.1. Notices. All notices and other communications hereunder shall be
in writing and shall be delivered or mailed by first class mail, postage
prepaid, addressed:
(i) if to any Assignor, at its address contained in the Credit
Agreement or the Subsidiary Guaranty, as the case may be;
(ii) if to the Collateral Agent, at:
KeyBank of New York,
as Collateral Agent
2 Gannett Drive
White Plains, New York 10604
Attn.: Brendan Sachjten
Senior Market Manager
Tel. No.: (914) 696-2161
Fax No.: (914) 694-8463;
with copies to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attn.: John W. Sager, Esq.
Te1. No.: (216) 586-7228
Fax No.: (216) 579-0212
(iii) if to any Lender (other than the Collateral Agent), at
such address as such Lender shall have specified in the Credit
Agreement;
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(iv) if to any Hedge Creditor, at such address as such Hedge
Creditor shall have specified in writing to each Assignor and the
Collateral Agent;
or at such other address as shall have been furnished in writing by any person
described above to the party required to give notice hereunder.
10.2. Waiver; Amendment. (a) None of the terms and conditions of this
Agreement may be changed, waived, modified or varied in any manner whatsoever
unless in writing duly signed by each Assignor and the Collateral Agent (with
the consent of the Required Lenders or, to the extent required by section 13.12
of the Credit Agreement, all of the Lenders), provided, however, that no such
change, waiver, modification or variance shall be made to section 7.4 hereof or
this section 10.2 without the consent of each Secured Creditor adversely
affected thereby, provided further that any change, waiver, modification or
variance affecting the rights and benefits of a single Class of Secured
Creditors (and not all Secured Creditors in a like or similar manner) shall
require the written consent of the Requisite Creditors of such Class of Secured
Creditors. For the purpose of this Agreement, the term "Class" mean each class
of Secured Creditors, i.e whether (x) the Lenders as holders of the Credit
Document Obligations or (y) the Hedge Creditors as holders of the Hedge
Obligations. For the purpose of this Agreement, the term "Requisite Creditors"
of any Class shall mean each of (x) with respect to the Credit Document
Obligations, the Required Lenders and (y) with respect to the Hedge Obligations,
the holders of 51% of all obligations outstanding from time to time under the
Designated Hedge Agreements.
(b) No delay on the part of the Collateral Agent in exercising any of
its rights, remedies, powers and privileges hereunder or partial or single
exercise thereof, shall constitute a waiver thereof. No notice to or demand on
any Assignor in any case shall entitle it to any other or further notice or
demand in similar or other circumstances or constitute a waiver of any of the
rights of the Collateral Agent to any other or further action in any
circumstances without notice or demand.
10.3. Obligations Absolute. The obligations of each Assignor under this
Agreement shall be absolute and unconditional and shall remain in full force and
effect without regard to, and shall not be released, suspended, discharged,
terminated or otherwise affected by, any circumstance or occurrence whatsoever,
including, without limitation:
(i) any renewal, extension, amendment or modification of, or
addition or supplement to or deletion from other Credit Documents or
any Designated Hedge Agreement, or any other instrument or agreement
referred to therein, or any assignment or transfer of any thereof;
(ii) any waiver, consent, extension, indulgence or other
action or inaction under or in respect of any such agreement or
instrument or this Agreement except as expressly provided in such
renewal, extension, amendment, modification, addition, supplement,
assignment or transfer;
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(iii) any furnishing of any additional security to the
Collateral Agent or its assignee or any acceptance thereof or any
release of any security by the Collateral Agent or its assignee;
(iv) any limitation on any person's liability or obligations
under any such instrument or agreement or any invalidity or
unenforceability, in whole or in part, of any such instrument or
agreement or any term thereof; or
(v) any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like proceeding relating
to an Assignor or any Subsidiary of an Assignor, or any action take
with respect to this Agreement by any trustee or receiver, or by any
court, in any such proceeding, whether or not an Assignor shall have
notice or knowledge of any of the foregoing.
10.4. Successors and Assigns. This Agreement shall be binding upon each
Assignor and its successors and assigns and shall inure to the benefit of the
Collateral Agent and its successors and assigns, provided that no Assignor may
transfer or assign any or all of its rights or obligations hereunder without the
written consent of the Collateral Agent. All agreements, statements,
representations and warranties made by each Assignor herein or in any
certificate or other instrument delivered by such Assignor or on its behalf
under this Agreement shall be considered to have been relied upon by the Secured
Creditors and shall survive the execution and delivery of this Agreement and the
other Credit Documents regardless of any investigation made by the Secured
Creditors on their behalf.
10.5. Headings Descriptive. The headings of the several sections of
this Agreement are inserted for convenience only and shall not in any way affect
the meaning or construction of any provision of this Agreement.
10.6. Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.7. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW
YORK.
10.8. Assignors' Duties. It is expressly agreed, anything herein
contained to the contrary notwithstanding, that each Assignor shall remain
liable to perform all of the obligations, if any, assumed by it with respect to
the Collateral and the Collateral Agent shall not have any obligations or
liabilities with respect to any Collateral by reason of or arising out of this
Agreement, nor shall the
24
<PAGE>
Collateral Agent be required or obligated in any manner to perform or fulfill
any of the obligations of an Assignor under or with respect to any Collateral.
10.9. Termination: Release. (a) After the termination of the Total
Commitment and all Designated Hedge Agreements, when no Note nor Letter of
Credit is outstanding and when all Loans and other Obligations have been paid in
full, this Agreement shall terminate, and the Collateral Agent, at the request
and expense of the Assignors, will execute and deliver to the relevant Assignor
a proper instrument or instruments (including Uniform Commercial Code
termination statements on form UCC-3) acknowledging the satisfaction and
termination of this Agreement, and will duly assign, transfer and deliver to the
relevant Assignor (without recourse and without any representation or warranty)
such of the Collateral as may be in the possession of the Collateral Agent and
as has not theretofore been sold or otherwise applied or released pursuant to
this Agreement.
(b) So long as no payment default on any of the Obligations is in
existence or would exist after the application of proceeds as provided below,
the Collateral Agent shall, at the request of the relevant Assignor, release any
or all of the Collateral, provided that (x) such release is permitted by the
terms of the Credit Agreement (it being agreed for such purposes that a release
will be deemed "permitted by the terms of the Credit Agreement" if the proposed
transaction constitutes an exception contained in section 9.2 of the Credit
Agreement) or otherwise has been approved in writing by the Required Lenders and
(y) the proceeds of such Collateral are to be applied as required pursuant to
the Credit Agreement or any consent or waiver entered into with respect thereto.
(c) At any time that an Assignor desires that the Collateral Agent take
any action to give effect to any release of Collateral pursuant to the foregoing
section 10.9(a) or (b), it shall deliver to the Collateral Agent a certificate
signed by a principal executive officer stating that the release of the
respective Collateral is permitted pursuant to section 10.9(a) or (b). In the
event that any part of the Collateral is released as provided in section
10.9(b), the Collateral Agent, at the request and expense of an Assignor, will
duly release such Collateral and assign, transfer and deliver to such Assignor
(without recourse and without any representation or warranty) such the of the
Collateral as is then being (or has been) so sold and as may be in the
possession of the Collateral Agent and has not theretofore been released
pursuant to this Agreement. The Collateral Agent shall have no liability
whatsoever to any Secured Creditor as the result of any release of Collateral by
it as permitted by this section 10.9. Upon any release of Collateral pursuant to
section 10.9(a) or (b), none of the Secured Creditors shall have any continuing
right or interest in such Collateral, or the proceeds thereof.
10.10. Collateral Agent. By accepting the benefits of this Agreement,
each Secured Creditor acknowledges and agrees that the rights and obligations of
the Collateral Agent shall be as set forth in section of the Credit Agreement.
Notwithstanding anything to the contrary contained in section 10.2 of this
Agreement or section 13.12 of the Credit Agreement, this section 10.10, and the
duties and obligations of the Collateral Agent set forth in this section 10.10,
may not be amended or modified without the consent of the Collateral Agent.
25
<PAGE>
11. WAIVER OF JURY TRIAL.
Each Assignor and the Collateral Agent each hereby irrevocably waives
all right to a trial by jury in any section, proceeding or counterclaim arising
out of or relating to this Agreement or the transactions contemplated hereby.
26
May 22, 1997
To the Board of Directors of
Safety Components International, Inc.
Dear Directors:
We have audited the Company's consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year ended March
31, 1997 and issued our report thereon dated May 22, 1997, except for Notes 1, 6
and 13, as to which the date is June 30, 1997. Note 2 to the consolidated
financial statements describes a change in the Company's method of accounting
for product launch costs from deferral to expense as incurred. It should be
understood that the preferability of one acceptable method of product launch
cost accounting over another has not been addressed in any authoritative
accounting literature and in arriving at our opinion expressed below, we have
relied on management's business planning and judgment. Based on our discussions
with management and the stated reasons for the change, we believe that such
change represents, in your circumstances, the adoption of a preferable
alternative accounting principle for product launch costs in conformity with
Accounting Principles Board Opinion No. 20.
Yours very truly,
/S/ PRICE WATERHOUSE, LLP
Price Waterhouse, LLP
<TABLE>
<CAPTION>
Jurisdiction Names under which
Name of Where subsidiary does
Subsidiary Organized Business
- - ---------------------------------------------------------- ---------------- ------------------------
<S> <C> <C>
Galion, Inc. Delaware Valentec Galion
Valentec Galion, Inc.
Galion, a Division of
Valentec International
Corporation
Valentec Systems, Inc. Delaware
ASCI Holdings Germany (DE), Inc. Delaware
ASCI Holdings Mexico (DE), Inc. Delaware
ASCI Holdings UK (DE), Inc. Delaware
ASCI Holdings Czech (DE), Inc. Delaware
ASCI Holdings Asia (DE), Inc. Delaware
Phoenix Airbag Verwaltungs GmbH Germany
Phoenix Airbag GmbH & Co. KG Germany
Automotive Safety Components International S.A. de C.V. Mexico
Automotive Safety Components International Limited United Kingdom
Automotive Safety Components Asia - Pacific Ltd.
Automotive Safety Components International, s.r.o. Czech Republic
Automotive Safety Components International, Inc. Delaware Valentec Automotive
Valentec Wells
Valentec International Corporation* Delaware Valentec Wells, Inc.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS
PART OF THE ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 8,320
<SECURITIES> 0
<RECEIVABLES> 11,751
<ALLOWANCES> 0
<INVENTORY> 6,378
<CURRENT-ASSETS> 27,319
<PP&E> 32,099
<DEPRECIATION> 3,804
<TOTAL-ASSETS> 73,407
<CURRENT-LIABILITIES> 15,564
<BONDS> 0
0
0
<COMMON> 51
<OTHER-SE> 35,223
<TOTAL-LIABILITY-AND-EQUITY> 73,407
<SALES> 86,958
<TOTAL-REVENUES> 86,958
<CGS> 67,934
<TOTAL-COSTS> 67,934
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,555
<INCOME-PRETAX> 6,841
<INCOME-TAX> 2,995
<INCOME-CONTINUING> 3,846
<DISCONTINUED> 0
<EXTRAORDINARY> 383
<CHANGES> 1,259
<NET-INCOME> 2,204
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
