<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 1, 1996
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CONTROL DEVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
INDIANA 3625 01-0490335
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
228 NORTHEAST ROAD STANDISH, MAINE 04084 (207) 642-4535
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
BRUCE D. ATKINSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CONTROL DEVICES, INC.
228 NORTHEAST ROAD
STANDISH, MAINE 04084
(207) 642-4535
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
JAMES A. STRAIN, ESQ. F. GEORGE DAVITT, ESQ.
SOMMER & BARNARD, PC TESTA, HURWITZ & THIBEAULT, LLP
4000 BANK ONE TOWER HIGH STREET TOWER
INDIANAPOLIS, INDIANA 46204 125 HIGH STREET
(317) 630-4000 BOSTON, MA 02110
(617) 248-7000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
----------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier registration
statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE REGISTRATION FEE
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<S> <C> <C>
Common Shares................... $27,600,000(1) $9,518.00
</TABLE>
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(1) Estimated maximum offering price of the securities registered hereby
calculated pursuant to Rule 457(o).
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A) MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
Dated August 1, 1996 [LOGO]
2,000,000
CONTROL DEVICES, INC.
COMMON SHARES
-----------
The Common Shares offered hereby are being offered by Control Devices, Inc.
(the "Company").
-----------
Prior to the Offering, there has been no public market for the Common Shares of
the Company. The initial public offering price will be determined by agreement
between the Company and the Underwriters. It is currently estimated that the
initial public offering price will be between $ and $ . See "Underwriting."
Application has been made to include the Common Shares for quotation on the
Nasdaq National Market under the symbol "SNSR".
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
PER SHARE $ $ $
TOTAL(3) $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933. See "Underwriting."
(2) Before deduction of expenses payable by the Company estimated at $750,000.
(3) The Company has granted the several Underwriters a 30-day option to
purchase up to an additional 300,000 Common Shares to cover over-
allotments, if any. If all such shares are purchased, total price to
public, underwriting discounts and commissions and proceeds to Company will
be $ , $ and $ , respectively. See "Underwriting."
-----------
The Common Shares are being offered by the Underwriters named herein when and
if received and accepted by them subject to their right to reject orders in
whole or in part and subject to certain other conditions. It is expected that
the delivery of the shares will be made in New York, New York on or about ,
1996.
-----------
DEAN WITTER REYNOLDS INC. CLEARY GULL REILAND & MCDEVITT INC.
, 1996
<PAGE>
INSIDE FRONT COVER PAGE
Under the heading "Automotive Markets--Control Devices provides a wide range
of circuit breakers and electronic sensors to the Automotive Market," there is
a photograph of a number of the Company's metal based circuit breakers and a
labeled schematic of a generic automobile with the caption "Control Devices
sells circuit breakers and electronic sensors to major automobile OEMs in
North America and Europe. Circuit breakers protect small electric motors from
current and heat overload. Electronic sensors control certain comfort and
safety features such as climate control and headlamp intensity."
Below these are photographs of selected sensors with the caption "Control
Devices' sensors generate electronic signals for climate control systems,
power steering systems and daytime running lamps" and a photograph of chip-on-
board technology with the caption "Control Devices has developed a lower cost
`next generation' sensor utilizing chip-on-board technology."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON SHARES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
----------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR SINCE THE DATES AS OF WHICH INFORMATION IS SET FORTH
HEREIN. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................................................... 4
Risk Factors............................................................ 8
Company History......................................................... 13
Use of Proceeds......................................................... 14
Dividend Policy......................................................... 14
Dilution................................................................ 15
Capitalization.......................................................... 16
Unaudited Pro Forma Financial Data...................................... 17
Selected Financial Information.......................................... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.......................................................... 21
Business................................................................ 27
Management.............................................................. 39
Certain Transactions.................................................... 44
Principal Shareholders.................................................. 45
Description of Capital Shares........................................... 46
Shares Eligible for Future Sale......................................... 48
Underwriting............................................................ 49
Legal Matters........................................................... 50
Experts................................................................. 50
Additional Information.................................................. 50
Index to Financial Statements........................................... F-1
</TABLE>
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UNTIL , 1996, (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN COMMON SHARES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
----------------
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by its independent public accountants
and quarterly reports containing unaudited financial information for the first
three quarters of each fiscal year.
The Control Devices logo is a registered trademark of the Company and Maxi
Breaker is a trademark of the Company. This Prospectus also includes
trademarks and tradenames of companies other than the Company. All other
company or product names are trademarks or registered trademarks of their
respective owners.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, all information in this Prospectus assumes that the
Underwriters' over-allotment option to purchase up to 300,000 additional Common
Shares is not exercised and is adjusted to give effect to (i) the exercise of
outstanding warrants to purchase 564,100 Class B Series 1 Common Shares at
$0.01 per share, (ii) the conversion of all 999,996 Class B Series 1 Common
Shares outstanding after such exercise into a like number of Class A Common
Shares, (iii) the reclassification of Class A Common Shares into Common Shares
and the elimination of the designations of Class A Common Shares and Class B
Common Shares and (iv) the conversion of the RDI Convertible Notes (as defined
below) into Common Shares (assuming an initial public offering price of
$ per share). The adjustments discussed above will occur immediately prior
to the closing of this Offering. See "Company History," and "Description of
Capital Shares." Reference herein to the "Company" includes predecessors of the
Company and the Company's consolidated subsidiaries, unless the context
otherwise requires. Prospective investors should carefully consider the
information set forth under the heading "Risk Factors."
THE COMPANY
Control Devices, Inc. ("CDI" or the "Company") designs, manufactures and
markets circuit breakers, electronic sensors and electronic ceramic component
parts used by original equipment manufacturers ("OEMs") in the automotive,
appliance and telecommunications markets. The Company is a leading supplier of
automatically resetting circuit breakers and solar sensors for the automotive
market and of glass enclosed circuit breakers for the appliance market. The
Company has supplied circuit breakers to automotive OEMs for more than 30
years, and in 1991 expanded its offerings to the automotive market by
introducing its initial sensor product, a solar sensor used to automatically
signal adjustments in climate control systems in luxury cars. The Company's
products are sold to the three major North American automotive OEMs, General
Motors Corporation ("GM"), Ford Motor Company ("Ford") and Chrysler Corp.
("Chrysler"), as well as to foreign OEMs such as Mercedes, Peugeot, Volkswagen
and Valeo. Sales to GM, Ford and Chrysler, and their suppliers, in North
America accounted for approximately 45% of net sales in 1995. Other principal
customers include Danfoss, Celwave and Siecor.
In April 1996, the Company acquired all of the outstanding capital stock of
Realisations et Diffusion pour l'Industrie ("RDI"), which is headquartered near
Paris, France. RDI markets, distributes, assembles and packages a full line of
circuit protection devices, including various fuses and circuit breaker
components and assemblies manufactured by other companies. The Company
purchased RDI primarily to enhance its market penetration of the automotive OEM
market in Europe, in part by locating itself closer to European customers.
Management believes that the resulting expansion of its European presence and
improvement of its European distribution network will enhance the Company's
ability to distribute in Europe existing, internally developed and newly
acquired products.
Since 1991, CDI has shipped approximately 4.2 million solar sensor units. To
complement its solar sensor product lines, in July 1995, the Company commenced
shipments of its steering wheel sensor to Ford, and in June 1996 commenced
shipments of its twilight sensor to GM to be used in GM's recently announced
Daytime Running Lamp ("DRL") program. The Company is also in various stages of
development of its rain, window fog and other solar (climate control)/twilight
(headlamp control) sensors for a number of domestic and foreign automotive
OEMs. In late 1995, in an effort to encourage automotive OEMs' use of sensors
in a greater range of vehicle models, the Company sought to lower the cost of
its sensors by incorporating chip-on-board manufacturing technology. With chip-
on-board technology, the Company bonds custom silicon wafers directly onto an
integrated circuit board, to incorporate both the function of numerous discrete
electronic
4
<PAGE>
components and a photodiode. This technology significantly reduces the number
of components in the Company's sensor products, thereby lowering the cost of
the sensor as well as providing greater design flexibility through reduced
board size requirements. The Company's chip-on-board technology is currently
employed on the twilight sensor being delivered to GM, and the Company is
redesigning all of its sensor products to incorporate this technology.
On July 29, 1994, the Company acquired substantially all of the assets and
certain liabilities (the "Business") of GTE Control Devices Incorporated and
Dominican Overseas Trading Company, two subsidiaries of GTE Corporation
(collectively referred to herein as "GTE"). For periods prior to July 29, 1994,
the Business is sometimes referred to herein as the "Predecessor Company." The
Company is an Indiana corporation incorporated in June 1994 to purchase the
Business. See "Company History."
The principal executive offices of the Company are located at 228 Northeast
Road, Standish, Maine 04084, and its telephone number is (207) 642-4535.
THE OFFERING
Common Shares being Offered by the
Company............................ 2,000,000 shares
Common Shares to be outstanding
after the Offering................. (1)
Use of Proceeds..................... Repayment of long-term indebtedness
(including accrued interest), redemption
of outstanding preferred shares
(including payment of accrued dividends)
and the balance, if any, for working
capital. See "Use of Proceeds."
Proposed Nasdaq National Market
Symbol............................. SNSR
- --------
(1) Assumes no exercise of an outstanding option to purchase 200,000 Common
Shares. See "Description of Capital Shares."
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------
(1) On July 29, 1994, the Company purchased the Business. See "Company
History." The data prior to July 29, 1994 represent the financial
information of the Predecessor Company, and has been prepared by the
Company. See Note 1 to the Company's Financial Statements.
(2) Combined year ended December 31, 1994 represents the summation of the
statements of income for the seven months ended July 29, 1994 of the
Predecessor Company and the five months ended December 31, 1994 of the
Company. The combined results are presented for comparative purposes only
and do not include adjustments for depreciation and amortization of assets
acquired based on their estimated fair market values at the acquisition
date, interest on acquisition debt and related income tax effect for the
Predecessor Company portion of results of operations.
(3) The Summary Financial Information for the six months ended June 30, 1996
includes RDI's results of operations from April 1, 1996, the date of the
acquisition.
(4) The Predecessor Company incurred an operating loss in the year ended
December 31, 1991, due in part to the GTE corporate allocation charge of
approximately $2,000,000 and higher cost of sales associated with
manufacturing facilities closed in 1991.
(5) For purposes of computing the income tax provision (benefit), an effective
tax rate of 40% was used for the Predecessor Company results of operations
because no income taxes were allocated to the Predecessor Company.
(6) See Note 2 to the Company's Financial Statements. Net income, net income
applicable to common shareholders, and weighted average number of common
shares and equivalents outstanding are not presented for periods prior to
and including July 29, 1994 as the Business did not operate as an
independent entity during such periods.
(7) The pro forma net income per share would have been $ and $ for the
year ended December 31, 1995, and the six month period ended June 30,
1996, respectively, assuming the conversion of the RDI Convertible Notes,
and Common Shares, respectively, had been issued, at a public
offering price of per share, and the proceeds were received and used
to retire the Company's 10% Senior Secured Fixed Rate Notes, plus accrued
interest, the 11% Senior Subordinated Notes, plus accrued interest and
Redeemable Preferred Shares plus accrued dividends.
(8) EBITDA represents operating income (loss) plus depreciation and
amortization.
(9) Research and development as a percentage of net sales for the six months
ended June 30, 1996 includes the financial data for RDI. The percentage
for the six months ended June 30, 1996 without RDI was 8.5%.
(10) After giving effect to (i) the adjustments described above in this
Prospectus Summary and (ii) the sale by the Company of the Common Shares
offered hereby and application of the net proceeds therefrom. See "Use of
Proceeds".
6
<PAGE>
SUMMARY PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL DATA(1)(2)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------------- ----------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Net sales.............. $ 65,621 $ 34,803
Gross profit........... 22,211 12,958
Operating income....... 8,342 4,675
Net income............. 3,460 2,198
Net income applicable
to common
shareholders.......... 3,196 2,066
Net income per
share(3).............. $ 1.25 $ 0.81
Weighted average number
of common shares and
equivalents
outstanding........... 2,564 2,564
</TABLE>
--------
(1) The summary pro forma unaudited consolidated financial data of the
Company for the year ended December 31, 1995 and for the six months
ended June 30, 1996 were prepared as if the acquisition of RDI had
occurred on January 1 of the respective period. The unaudited pro
forma consolidated financial data do not purport to represent what
the results of operations of the Company would actually have been
if the events described in the pro forma unaudited consolidated
statements of income included elsewhere in this Prospectus had in
fact occurred at the beginning of such period, or to project the
results of operations of the Company for any future date or period.
(2) No pro forma consolidated balance sheet as of June 30, 1996 is
presented as the actual financial data for RDI is included in the
actual consolidated balance sheet of the Company as of June 30,
1996.
(3) The pro forma net income per share would have been $ and $ for
the year ended December 31, 1995, and the six month period ended
June 30, 1996, respectively, assuming the conversion of the RDI
Convertible Notes, and Common Shares, respectively, had
been issued, at a public offering price of $ per share, and the
proceeds were received and used to retire the Company's 10% Senior
Secured Fixed Rate Notes plus accrued interest, the 11% Senior
Subordinated Notes plus accrued interest and shares of the
Redeemable Preferred Shares plus accrued dividends.
7
<PAGE>
RISK FACTORS
Prospective purchasers should carefully consider the following factors, as
well as the other information contained in this Prospectus, in evaluating an
investment in the Common Shares offered by this Prospectus. This Prospectus
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed
in the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in the following factors.
DEPENDENCE ON AUTOMOTIVE AND APPLIANCE INDUSTRIES
The major markets for the Company's circuit breakers and sensors are the
automotive and, to a lesser extent, appliance industries, which are cyclical
and have historically experienced periodic downturns. The cyclical nature of
these industries is due to general economic conditions beyond the control of
the Company. For example, the level of interest rates, consumer confidence,
patterns of consumer spending and the automobile and appliance replacement
cycles affect the level of automobile and appliance purchases. The Company's
operating results may be adversely affected by future downturns in these
industries. See "Business--Products and Markets."
There is continuing pressure from the major automotive and appliance OEMs to
reduce costs, including costs associated with outside suppliers such as the
Company. In addition, for quality control and pricing reasons, OEMs prefer to
deal with a limited number of preferred suppliers and favor suppliers that can
provide the OEM with a number of different products in sufficient quantities
to meet all of the OEM's needs. The Company believes that its ability to
develop new proprietary products to meet specific customer needs, to control
its own costs and to deliver its products in quantities sufficient to meet the
requirements of OEMs will allow the Company to remain competitive. However,
there can be no assurance that the Company will remain a preferred OEM
supplier or that the Company will be able to improve or maintain its gross
margins on product sales to OEMs. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation."
In the automotive industry, new car model development generally begins three
to five years prior to the marketing of such models to the public.
Consequently, a substantial portion of the Company's sales for the short term
depend on sales of the automobile models in which the Company's products are
currently used. In the long term, a substantial portion of the Company's sales
will also depend on the Company's ability to continue as a supplier of parts
for new automobile models. The inability of the Company to develop new
products to replace products whose life cycles have come to an end could have
a material adverse effect on the Company.
Substantially all of the hourly employees of North American automotive OEMs
are represented by the United Automobile, Aerospace and Agricultural Implement
Workers of America ("UAW") under similar collective bargaining agreements. The
collective bargaining agreements applicable to GM, Ford and Chrysler are
scheduled to expire in September 1996. The failure of GM, Ford or Chrysler to
reach agreement with the UAW relating to the terms of a new collective
bargaining agreement resulting in either a work stoppage or strike at any of
their respective production facilities could have a material adverse effect on
the Company. A 17-day March 1996 work stoppage in two Dayton, Ohio, GM plants
resulted in a loss of revenue because of the lack of demand for products for
GM vehicles. Although the Company took steps to minimize the consequences of
the work stoppage, the Company lost approximately $450,000 in revenue as a
result of the 17-day strike.
The Company's circuit breakers are sold to GM, Ford and Chrysler in North
America. Commencing in 1995, Ford began a program, which continues in 1996, to
replace various circuit breakers in certain of its North American vehicle
models with fuses, which can be used as an alternative to circuit breakers
when an automatically resetting product is determined not to be required. The
Company's net sales in 1995 declined $5.0 million, or 11.3%, as compared to
combined 1994, in part as a result of Ford's decision. Although the
8
<PAGE>
Company believes Ford will not expand its program to other applications or
other vehicle models, and believes that neither GM nor Chrysler is considering
a similar decision, the decision by any of the Company's significant
customers, including GM or Ford, to replace circuit breakers with fuses could
have a material adverse effect on the Company's results of operations and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
SHIFT IN BUSINESS FOCUS FROM CIRCUIT BREAKERS TO SENSORS
Historically, the Company has derived over 80% of its total revenue from
sales of its circuit breakers. Because this market is relatively mature and
intensely price competitive, the Company has begun to shift its focus for
growth to its sensor products. In the future, the Company expects to derive an
increasing portion of its total revenue and net income from sales of its
sensor products. Continued growth of the Company's sensor business will depend
upon several factors, including continued demand for these sensors, the
Company's ability to develop new products to meet the changing requirements of
the OEMs, technological changes and competitive pressures. There can be no
assurance that the Company's sensor business will continue to grow. See
"Business--Products and Markets" and "--Business Strategies."
CUSTOMER CONCENTRATION
In 1995, the Company sold approximately 72% of its products to 15 customers.
One of the Company's customers, GM, accounted for approximately 17%, 20% and
12% of net sales in 1994, 1995 and the first six months of 1996, respectively.
These sales were primarily to two divisions of GM, Packard Electric and Delco
Electronics, both of which manufacture electrical systems for automotive
companies, including GM. In addition, in 1995 sales to Danfoss accounted for
approximately 14% of the Company's net sales. Loss of, or the failure to
replace, any significant portion of sales to any significant customer could
have a material adverse effect on the Company. See "Business--Marketing and
Customers."
FLUCTUATION IN QUARTERLY RESULTS
The Company's quarterly results may fluctuate as a result of a variety of
factors, including the timing of orders, declines in net sales caused by
seasonal retooling and shut-downs of OEMs, delays of shipments to customers,
new product introductions by the Company or its competitors, levels of market
acceptance for new products or the hiring of additional staff. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality."
INDEMNIFICATION PROTECTION
On July 29, 1994, the Company purchased the Business from GTE. In connection
with the acquisition, GTE agreed to retain certain liabilities and indemnify
the Company for damages that may be incurred by the Company as a result of
such retained liabilities, including liabilities relating to certain
environmental matters. GTE retained liability for claims relating to soil and
groundwater contamination from the surface impoundment and the out-of-service
leachfield at the Company's Standish, Maine facility known to exist prior to
the acquisition. Such contamination is currently being remediated at GTE's
expense. Although the Company believes GTE's indemnity is enforceable, if the
Company were unable to enforce such indemnification obligations against GTE,
the Company could become liable for any such retained liability. The inability
to proceed against GTE could have a material adverse effect on the Company.
See "Business--Environmental Matters."
RISKS ASSOCIATED WITH INTERNATIONAL MANUFACTURING
The Company has a manufacturing plant in San Cristobal, Dominican Republic
at which it manufactures a substantial portion of its circuit breakers and
certain of its sensors. In 1995, such products represented, in the aggregate,
approximately 40% of the Company's net sales. The Company's operations in the
Dominican Republic are subject to risks associated with manufacturing products
internationally, including: political and
9
<PAGE>
economic uncertainties; tariff regulations or trade restrictions; currency
controls; unexpected or sudden increases in wage rates or other manufacturing
costs; and exchange rate fluctuations. Any such risk could have a material
adverse effect on the Company's business, operating results and financial
condition. The Company expects to continue to manufacture a substantial
portion of its products in the Dominican Republic. See "Business--
Manufacturing and Supply."
RISKS ASSOCIATED WITH INTERNATIONAL DISTRIBUTION
With the acquisition of RDI, the Company has strengthened its distribution
capability to automotive and appliance OEMs in Europe. As a result of the
acquisition, however, the Company has increased exposure to general economic
conditions in Europe and the cyclical nature of the automotive industry in
Europe. Factors which can affect automobile purchases in Europe, and which
contribute to the industry's cyclicality, include the level of interest rates,
consumer confidence, patterns of consumer spending and the automobile
replacement cycle, all of which are beyond the control of the Company and
which could have a material adverse effect on the Company's financial
condition and results of operations. In addition, RDI generates revenues and
incurs expenses primarily in currencies other than the U.S. dollar. The
Company does not engage in currency hedging transactions. As a result, the
Company has increased financial risk based on fluctuations in currency
exchange rates, which could have a material adverse effect on the Company's
financial condition and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operation" and "Business."
TECHNOLOGICAL CHANGE AND INTELLECTUAL PROPERTY
The market for the Company's sensor products is subject to rapid
technological change, new product introductions and enhancements and evolving
industry standards. The Company's ability to remain competitive in this and
other markets will depend in part upon its ability to respond to technological
changes by developing and introducing new systems, and enhancing its present
products, to satisfy customer needs. The Company's success in doing so depends
upon efficient completion of product design and manufacturing, product
performance and effective sales and marketing. Because new product commitments
must be made well in advance of sales, such decisions must anticipate both
future demand and the future technology. There can be no assurance that the
Company will be successful in selecting, developing, manufacturing and
marketing new products or enhancing its existing products. In addition, new
technology or new product introductions by competitors could cause a decline
in sales or market acceptance of the Company's existing products. There can be
no assurance that products or technologies developed by others, or existing
technologies which become commercially viable, will not render the Company's
products non-competitive or obsolete.
While there have been no material challenges to date and the Company
believes that its technology is adequately protected, there can be no
assurance that any of the Company's present or future patents will afford
protection against competitors or survive a validity challenge. Although the
Company believes that its technology and products do not infringe upon the
proprietary rights of others, there can be no assurance that third parties
will not assert infringement claims against the Company or that the Company
will be successful in defending its patent position if challenged.
Additionally, the Company licenses certain patents from third parties under
long-term agreements. If one or more of these patent licenses are
discontinued, there can be no assurance that the Company will be able to
develop future products or obtain alternative sources or, if able, that such
efforts would not result in delays or cost increases that could have a
material adverse effect on the Company's business. See "Management--Key
Consultant."
SOLE OR LIMITED SOURCES OF SUPPLY
Due to its high quality standards, the Company relies on a sole supplier or
a limited group of suppliers for certain key components of its products. The
Company does not have a long-term supply agreement with any of these
suppliers, and operates under purchase orders. The Company's reliance on sole
or a limited group of suppliers involves several risks, including a potential
inability to obtain an adequate supply of required
10
<PAGE>
components and reduced control over pricing and timely delivery of components.
Although the timeliness, yield and quality of deliveries to date from the
Company's suppliers have been acceptable, any prolonged inability to obtain
adequate deliveries or any other circumstance that would require the Company
to seek alternative sources of supply could delay the Company's ability to
ship its products, which could damage relationships with current and
prospective customers and could therefore have a material adverse effect on
the Company. See "Business--Manufacturing and Supply."
COMPETITION
The Company has many competitors with respect to its products, and the
automotive parts supply industry in particular is highly competitive. Many of
its competitors in the automotive industry are companies which are larger,
more diversified and have greater financial resources than the Company. In
general, competition in the circuit breaker market is based on price, although
the Company also seeks to compete based on product performance. The automotive
market for circuit breakers is a relatively mature, small market, and the
Company competes principally with Texas Instruments and Otter Controls, Inc.
In the appliance market for circuit breakers, the Company competes principally
with Texas Instruments. The Company also competes in the circuit breaker
market with suppliers of alternative technologies, such as fuses which can be
used as an alternative to circuit breakers. Competition in the sensor market
is primarily based on technology, quality, delivery, reliability, price,
functionality and engineering support. The Company's principal competitors in
this market are Texas Instruments, Eaton, Motorola, Panasonic, Philips and
Nippondenso. In the ceramics market, the Company competes on the basis of
supplying niche products and on service, delivery and product technology. Its
principal competitors in this market are NTK, TDK, Alpha Industries, Murata
and Siemens. While the Company believes that its responsiveness and technology
are competitive advantages across all of its product lines, there can be no
assurance that the Company's products will be able to compete successfully
with the products of its competitors. Increased competition generally, and the
introduction or promotion of competing products specifically, could adversely
affect the Company's revenues and profitability by exerting pricing pressure,
reducing market share and margins and creating other obstacles. In the
European distribution market, the Company competes with similar electronic
component distributors. While the Company believes that its customer service
and distribution capabilities are a competitive advantage in the European
distribution market, there can be no assurance that the Company will be able
to compete successfully with the distribution capabilities of its competitors.
See "Business--Products and Markets" and "--Competition."
DEPENDENCE ON KEY PERSONNEL AND KEY CONSULTANT
The success of the Company's business depends upon the services of its
executive officers and certain other key managers and employees including
Bruce D. Atkinson, the Company's Chief Executive Officer, Jeffrey G. Wood, the
Company's Chief Financial Officer, and Michel Hauser-Kauffmann, General
Manager of RDI. Except for Mr. Hauser-Kauffmann, none of such persons has an
employment agreement with the Company. While the Company is not presently
aware of any intention by any of its key employees to leave the Company, the
failure to retain such persons could materially adversely affect the Company's
business, financial condition and results of operations. See "Management."
The Company also has a six year consulting agreement expiring in April 2001
with Dr. Dennis J. Hegyi, a Professor of Physics at the University of
Michigan. The Company is the exclusive licensee of certain patents and know-
how used in its solar, twilight, rain, window fog and solar position sensors
from Dr. Hegyi. The loss of Dr. Hegyi's services or one or more of the
licenses could have a material adverse effect on the Company. See
"Management--Key Consultant."
CONCENTRATION OF SHARE OWNERSHIP
Upon completion of this Offering, the Company's officers and directors (who
include certain affiliates of Hammond, Kennedy, Whitney & Company, Inc.) will
beneficially own approximately 22% of the outstanding Common Shares. In
addition, institutional investors affiliated with Massachusetts Mutual Life
Insurance
11
<PAGE>
Company will own in the aggregate approximately 22% of the outstanding Common
Shares. As a result, these shareholders will continue to be in a position to
significantly affect the outcome of all actions requiring shareholder
approval, including the election of the Board of Directors, thereby affecting
the future direction and management of the Company. See "Principal
Shareholders."
ANTI-TAKEOVER PROVISIONS; EFFECT OF PREFERRED SHARES
The Indiana Business Corporation Law (the "IBCL") contains provisions that
could restrict the acquisition of or a change in control of the Company. The
IBCL limits certain business combinations between the Company and an
"interested" shareholder. These restrictions may discourage a person from
making a tender offer for, or otherwise acquiring outstanding voting
securities of, the Company. See "Description of Capital Shares--Effects of
Indiana Law."
The Board of Directors of the Company is authorized to issue, from time to
time, without any further action on the part of the Company's shareholders, up
to 3,000,000 preferred shares in one or more series, with such relative
rights, powers, preferences, limitations and restrictions as are determined by
the Board of Directors at the time of issuance. The issuance of preferred
shares could be used in certain circumstances to render more difficult or
discourage a merger, tender offer or proxy contest or a removal of incumbent
management. Preferred shares may be issued with voting and conversion rights
that could adversely affect the voting power and other rights of the holders
of Common Shares. See "Description of Capital Shares."
SHARES ELIGIBLE FOR FUTURE SALE
A substantial number of outstanding Common Shares and 200,000 Common Shares
issuable upon the exercise of an outstanding option will become eligible for
future sale in the public market at prescribed times pursuant to Rule 144 and
Regulation S under the Securities Act of 1933, as amended (the "Securities
Act") or pursuant to registration rights. Sales of such Common Shares in the
public market could adversely affect the market price of the Common Shares.
See "Shares Eligible for Future Sale."
DILUTION
The price per share for this Offering is expected to be substantially higher
than the book value per Common Share of the Company. Purchasers in this
Offering will incur immediate and substantial dilution in the net tangible
book value of their Common Shares. See "Dilution."
NO PRIOR PUBLIC MARKET FOR COMMON SHARES; DETERMINATION OF OFFERING PRICE
Prior to this Offering, there has been no public market for the Common
Shares. The initial public offering price will be determined by negotiations
between the Company and the Underwriters. See "Underwriting" for a discussion
of the factors considered in determining the initial public offering price.
There can be no assurance that an active trading market will develop after
this Offering or, if developed, that such a market will be sustained. The
market price for Common Shares may be significantly affected by such factors
as news announcements or changes in general economic, industry or market
conditions.
12
<PAGE>
COMPANY HISTORY
The Company is an Indiana corporation organized by Hammond, Kennedy, Whitney
& Company, Inc. ("HKW"), a New York private capital firm, to purchase the
circuit breaker, electronic sensor and electronic ceramic component parts
business (the "Business") of GTE. The Company purchased the Business on July
29, 1994.
The circuit breaker business acquired by the Company was started by Sylvania
Electrical Products ("Sylvania") in 1956 when Sylvania obtained a patent to
produce an automatically resetting circuit breaker. Sylvania developed and
operated the business until 1959, when GTE acquired all of Sylvania's assets
and business. GTE expanded the circuit breaker business and added the
electronic sensor and electronic ceramic component parts product lines. GTE
also used the resources of the Business to establish a start-up
telecommunications division in 1983, to develop and market protection and
interface devices for use in the wired telecommunications industry (the
"Telecommunications Division").
In 1991, GTE announced its decision to divest all of its non-core
businesses, which included all of the businesses acquired from Sylvania. Bruce
D. Atkinson, President and Chief Executive Officer of the Company, served as
the General Manager of the Business and the Telecommunications Division which
had combined annual revenues in excess of $80,000,000 in 1992. In September
1993, Siecor Corporation purchased the assets and business of the
Telecommunications Division. In July 1994, the Company purchased the Business
for a total purchase price of $17,900,000 plus the assumption of certain
liabilities. The Company paid $16,400,000 in cash and delivered its Junior
Subordinated Promissory Note in the principal amount of $1,500,000 (the
"Seller Note"), which was repaid in full in March 1996. See "Certain
Transactions".
In April 1996, the Company acquired all of the issued and outstanding
capital stock of RDI for a total purchase price of $8,964,000. The Company
paid $6,964,000 in cash, delivered $1,108,000 aggregate principal amount of
its 8.0% Subordinated Promissory Notes (the "RDI Notes"), and delivered
$892,000 aggregate principal amount of its 6.5% Automatically Converting
Subordinated Promissory Notes (the "RDI Convertible Notes"). See "Certain
Transactions."
13
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of Common Shares offered hereby at an assumed
public offering price of $ per share are estimated to be $ ($ if the
Underwriters' over-allotment option is exercised in full), after deducting the
underwriting discounts and commissions and the estimated offering expenses
payable by the Company.
The Company intends to use a portion of the net proceeds from this Offering
to (i) repay outstanding long-term indebtedness consisting of $10.0 million of
10% Senior Secured Fixed Rate Notes due July 31, 2004 (the "Senior Notes")
plus accrued interest thereon and $4.5 million of 11% Senior Subordinated
Notes due July 31, 2004 (the "Subordinated Notes") plus accrued interest
thereon; and (ii) redeem 580 of the outstanding 11% Cumulative Preferred
Shares (the "Redeemable Preferred Shares") at $1,000 stated value per share
plus accrued dividends. The proceeds of the Senior Notes, the Subordinated
Notes and the Redeemable Preferred Shares were used to purchase the Business.
See "Company History," "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The Senior Notes,
Subordinated Notes and 580 Redeemable Preferred Shares are held by
Massachusetts Mutual Life Insurance Company and certain of its affiliates
("MassMutual"). See "Principal Shareholders." The Company is required to
redeem the Redeemable Preferred Shares held by MassMutual upon repayment of
the Senior Notes and Subordinated Notes.
The total amount necessary to repay the Senior Notes and Subordinated Notes
(plus accrued interest) and to redeem 580 Redeemable Preferred Shares (plus
accrued dividends) is approximately $15.5 million as of September 30, 1996
(the "MassMutual Amount"). To the extent net proceeds from this Offering
exceed the MassMutual Amount, the Company intends to use such proceeds to
redeem all remaining 1,820 Redeemable Preferred Shares plus accrued dividends
for a total of approximately $2.3 million. If the net proceeds are not
sufficient to redeem all of the Redeemable Preferred Shares, the Company
intends to use a portion of its cash on hand or borrowings under its line of
credit for such purpose. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Excess proceeds from this Offering, if any, will be used for general
corporate purposes, including working capital, funding internal growth and
possible future acquisitions. The Company currently has no specific agreements
or understanding with respect to any acquisitions.
Pending such uses, the net proceeds of this Offering will be invested in
short-term, investment grade, interest-bearing securities.
DIVIDEND POLICY
The Company has never declared or paid dividends on the Common Shares. The
Company currently anticipates that all future earnings will be retained by the
Company to support its growth strategy and does not anticipate paying any cash
dividends on the Common Shares in the foreseeable future. The payment of any
future dividends will be at the discretion of the Company's Board of Directors
and will depend upon, among other things, future earnings, operations, capital
requirements, the general financial condition of the Company and general
business conditions.
14
<PAGE>
DILUTION
The net tangible book value of the Company's Common Shares at June 30, 1996,
was approximately $0.49 per share after giving effect to the adjustments
described in the Prospectus Summary. "Net tangible book value" per share
represents total tangible assets reduced by the amount of total liabilities
and Redeemable Preferred Shares, divided by the number of Common Shares
outstanding. Without taking into account any other changes in the net tangible
book value after June 30, 1996 other than to give effect to the adjustments
described in the Prospectus Summary and the sale by the Company of Common
Shares in this Offering at an assumed initial offering price of $ per share
(the midpoint of the estimated range of the initial public offering price) for
assumed net proceeds to the Company of $ and the application of the net
proceeds therefrom, the pro forma net tangible book value of the Company's
Common Shares on June 30, 1996 would have been $ or $ per share. This
represents an increase in net tangible book value of $ per share to existing
common shareholders and an immediate dilution in net tangible book value of
$ per share to new investors purchasing Common Shares in this Offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share (1).............. $
Net tangible book value per share before offering.............. $0.49
Increase in net tangible book value per share attributable to
new investors.................................................
-----
Pro forma net tangible book value per share after offering.......
---
Dilution per share to new investors.............................. $
===
</TABLE>
- --------
(1) Before deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company.
The following table summarizes, as of June 30, 1996, the differences in
total consideration paid and the average price per share paid between the
existing common shareholders and the new investors with respect to the number
of Common Shares purchased from the Company (based upon an assumed initial
offering price of $ per share):
<TABLE>
<CAPTION>
SHARES ISSUED TOTAL CONSIDERATION AVERAGE
----------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders.... 2,564,094 % $ 606,000 % $0.24
Holders of RDI
Convertible Notes....... 892,000
New investors (1)........ 2,000,000
--------- ----- ----------- -------- -----
Total................ 100.0% $ 100.0% $
========= ===== =========== ======== =====
</TABLE>
- --------
(1) If the Underwriters' over-allotment option is exercised in full, the
shares purchased by the new investors would increase to or % of the
outstanding Common Shares.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996, (i) on an actual basis; (ii) on a pro forma basis to give effect to
the adjustments described in the Prospectus Summary and (iii) as adjusted to
reflect the sale of the Common Shares offered by the Company hereby (at an
assumed initial public offering price of $ per share and after deducting the
estimated offering expenses and underwriting discount) and the application of
the net proceeds therefrom. See "Use of Proceeds." This table should be read
in conjunction with the Financial Statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" appearing elsewhere herein.
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------------- -------------- ----------------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Debt:
CDI--10% Senior Secured
Fixed Rate Notes......... $10,500 $10,500 $ --
CDI--11% Senior
Subordinated Notes (face
value $4,500)............ 4,364 4,364 --
RDI Convertible Notes..... 892 -- --
RDI Notes................. 1,108 1,108 1,108
RDI--other debt........... 1,812 1,812 1,812
-------------- -------------- -------------
Total debt.............. 18,676 17,784 2,920
-------------- -------------- -------------
Redeemable Preferred Shares,
stated value $1,000 per
share; 2,400 shares issued
and outstanding actual and
pro forma, none issued and
outstanding pro forma as
adjusted................... 2,400 2,400 --
-------------- -------------- -------------
Shareholders' equity:
Common Shares, no par
value; 16,000,000 shares
authorized; none issued
and outstanding actual;
shares issued and
outstanding pro forma;
shares issued and
outstanding pro forma as
adjusted................. -- 1,743
Class A Common Shares, no
par value; 10,000,000
shares authorized;
1,564,098 shares issued
and outstanding actual;
none issued and
outstanding pro forma and
pro forma as adjusted.... 520 -- --
Class B Series 1 Common
Shares, no par value;
4,000,000 shares
authorized; 435,896
shares issued and
outstanding actual; none
issued and outstanding
pro forma and pro forma
as adjusted.............. 145 -- --
Warrants to purchase
564,100 shares of Class B
Series 1 Common Shares at
$0.01 per share actual;
none outstanding pro
forma and pro forma as
adjusted................. 180 -- --
Retained earnings......... 6,651 6,651
Foreign currency
translation adjustment... (222) (222) (222)
-------------- -------------- -------------
Total shareholders'
equity................. 7,274 8,172
-------------- -------------- -------------
Total capitalization.... $28,350 $28,356 $
============== ============== =============
</TABLE>
16
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The unaudited pro forma consolidated statements of income for the year ended
December 31, 1995, and the six months ended June 30, 1996 are based upon the
historical consolidated financial statements of CDI and RDI. The unaudited pro
forma consolidated statements of income have been prepared after giving effect
to pro forma adjustments described in the notes thereto as if the acquisition
of RDI occurred on January 1 of the respective period.
The unaudited pro forma consolidated statements of income do not purport to
represent what the results of operations of the Company would actually have
been if the events described in the notes thereto had in fact occurred at the
beginning of such period, or to project the results of operations of the
Company for any future date or period.
The unaudited pro forma consolidated statements of income should be read in
conjunction with CDI's and RDI's financial statements including the notes
thereto and other financial information included elsewhere in this Prospectus.
No pro forma consolidated balance sheet as of June 30, 1996 is presented as
the actual financial data for RDI is included in the actual consolidated
balance sheet of the Company as of June 30, 1996. See "Index to Financial
Statements".
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CDI RDI PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales.................. $ 38,881 $30,009 $(3,269) (1) $ 65,621
Cost of sales.............. 25,721 20,909 (3,220) (1)(2) 43,410
--------- ------- ------- ---------
Gross profit............. 13,160 9,100 (49) 22,211
--------- ------- ------- ---------
Selling, general and
administrative expenses... 3,504 7,323 55 (2)(3) 10,882
Research and development... 2,740 247 -- 2,987
--------- ------- ------- ---------
6,244 7,570 55 13,869
--------- ------- ------- ---------
Operating income......... 6,916 1,530 (104) 8,342
Interest expense........... 1,380 579 615 (4) 2,574
--------- ------- ------- ---------
Income before income
taxes................... 5,536 951 (719) 5,768
Income tax
provision(benefit)........ 2,078 438 (208) (5) 2,308
--------- ------- ------- ---------
Net income............... 3,458 513 (511) 3,460
Preferred share dividends.. (264) -- -- (264)
--------- ------- ------- ---------
Net income applicable to
common shareholders..... $ 3,194 $ 513 $ (511) $ 3,196
========= ======= ======= =========
Earnings per share......... $ 1.25 $ 1.25
========= =========
Weighted average number of
common shares and
equivalents outstanding... 2,564,094 2,564,094
========= =========
</TABLE>
17
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
RDI
THREE MONTHS
ENDED
MARCH 31, PRO FORMA
ACTUAL (A) 1996(B) ADJUSTMENTS PRO FORMA
---------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............... $ 28,180 $8,013 $(1,390) (1) $34,803
Cost of sales........... 17,870 5,419 (1,444) (1)(2) 21,845
--------- ------ ------- ---------
Gross profit.......... 10,310 2,594 54 12,958
--------- ------ ------- ---------
Selling, general and
administrative
expenses............... 4,157 2,149 44 (2)(3) 6,350
Research and
development............ 1,880 53 -- 1,933
--------- ------ ------- ---------
6,037 2,202 44 8,283
--------- ------ ------- ---------
Operating income...... 4,273 392 10 4,675
Interest expense........ 828 134 113 (4) 1,075
--------- ------ ------- ---------
Income before income
taxes................ 3,445 258 (103) 3,600
Income tax provision.... 1,322 58 22 (5) 1,402
--------- ------ ------- ---------
Net income............ 2,123 200 (125) 2,198
--------- ------ ------- ---------
Preferred share
dividends.............. (132) -- -- (132)
--------- ------ ------- ---------
Net income applicable
to common
shareholders......... $ 1,991 $ 200 $ (125) $ 2,066
========= ====== ======= =========
Earnings per share...... $ 0.78 $ 0.81
========= =========
Weighted average number
of common shares and
equivalents
outstanding............ 2,564,094 2,564,094
========= =========
</TABLE>
(a) Represents the consolidated results for CDI for the six months ended June
30, 1996, including RDI for the period from April 1, 1996 (date of RDI
acquisition) to June 30, 1996.
(b) Represents the results of RDI for the period January 1, 1996 to March 31,
1996 (prior to the acquisition).
- --------
(1) Elimination of intercompany sales and profit of products held in RDI
inventory.
(2) Adjustment for amortization of goodwill related to the acquisition of RDI,
and adjustment for depreciation of property, plant and equipment acquired
based on their estimated fair values.
(3) Adjustment to pension expense under United States generally accepted
accounting principles for RDI.
(4) Adjustments to interest expense:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ --------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Interest on short term debt........................... $ 264 $ --
Interest on RDI Notes and RDI Convertible Notes....... 147 37
Elimination of interest expense on Seller Note (repaid
in connection with the acquisition) ................. (150) (38)
Elimination of interest on excess cash balances....... 354 114
----- ----
$ 615 $113
===== ====
</TABLE>
(5) Income tax effect of the pro forma adjustments at assumed rate of 40%,
except for the adjustment to goodwill amortization which was not tax
effected.
18
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected data for the year ended December 31, 1993, for the seven months
ended July 29, 1994, as of and for the five months ended December 31, 1994,
and as of and for the year ended December 31, 1995, have been derived from the
Company's Financial Statements audited by Arthur Andersen LLP, the Company's
independent public accountants. Their report on the financial statements is
included elsewhere in this Prospectus. The statement of income data for the
years ended December 31, 1991 and 1992, and the balance sheet data as of
December 31, 1991, 1992 and 1993 have been derived from audited financial
statements of the Company not included in this Prospectus. The selected
statement of income data for the six months ended June 30, 1995 and 1996, and
the selected balance sheet data as of June 30, 1996, have been derived from
unaudited interim financial statements of the Company, and reflect, in
management's opinion, all adjustments necessary for a fair presentation of the
financial position and results of operations for these periods. Results of
operations for interim periods are not necessarily indicative of results to be
expected for the full year. This data should be read in conjunction with the
Company's Financial Statements and Related Notes, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and other financial
information included herein.
<TABLE>
<CAPTION>
CONTROL
PREDECESSOR COMPANY(1) DEVICES, INC. COMBINED(2) CONTROL DEVICES, INC.
----------------------------------- ------------- ------------ -----------------------------
SEVEN
MONTHS FIVE MONTHS SIX MONTHS
YEARS ENDED ENDED ENDED YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, JULY 29, DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
------------------------- -------- ------------- ------------ ------------ ----------------
1991 1992 1993 1994 1994 1994 1995 1995 1996(3)
------- ------- ------- -------- ------------- ------------ ------------ ------- -------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales............... $38,088 $39,747 $39,807 $24,995 $18,847 $43,842 $38,881 $20,713 $28,180
Cost of sales........... 35,694 34,419 30,046 17,676 12,159 29,835 25,721 13,333 17,870
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit........... 2,394 5,328 9,761 7,319 6,688 14,007 13,160 7,380 10,310
Operating expenses:
Selling, general and
administrative......... 5,043 3,593 3,237 1,896 2,413 4,309 3,504 1,972 4,157
Research and
development............ 863 651 2,144 1,598 1,052 2,650 2,740 1,402 1,880
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income
(loss)(4)............. (3,512) 1,084 4,380 3,825 3,223 7,048 6,916 4,006 4,273
Interest expense........ -- -- -- -- 657 657 1,380 732 828
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes.......... (3,512) 1,084 4,380 3,825 2,566 6,391 5,536 3,274 3,445
Income tax provision
(benefit)(5)........... (1,405) 434 1,752 1,530 990 2,520 2,078 1,310 1,322
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)...... $(2,107) $ 650 $ 2,628 $ 2,295 $ 1,576 $ 3,871 $ 3,458 $ 1,964 $ 2,123
======= ======= ======= ======= ======= ======= ======= ======= =======
Net income applicable
to common sharehold-
ers(6)................ $ 1,466 $ 3,761 $ 3,194 $ 1,832 $ 1,991
Net income per
share(6)(7)........... $ 0.57 $ 1.47 $ 1.25 $ 0.71 $ 0.78
Weighted average number
of common shares and
equivalents outstand-
ing(6)................. 2,564 2,564 2,564 2,564 2,564
OTHER DATA:
EBITDA(8).............. $(1,391) $ 2,882 $ 6,114 $ 4,774 $ 3,896 $ 8,670 $ 8,690 $ 4,878 $ 5,260
Research and
development as a
percentage of net
sales(9).............. 2.3% 1.6% 5.4% 6.4% 5.6% 6.0% 7.0% 6.8% 6.7%
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY CONTROL DEVICES, INC.
----------------------- ------------------------
DECEMBER 31, DECEMBER 31, JUNE 30,
----------------------- --------------- --------
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............... $ 4,623 $ 2,665 $ 4,891 $ 9,255 $13,662 $ 8,515
Total assets.................. 23,700 21,226 22,385 26,051 30,141 42,986
Long-term debt, net of current
maturities................... -- -- -- 16,320 15,853 16,743
Redeemable preferred shares... -- -- -- 2,400 2,400 2,400
Shareholders' equity.......... -- -- -- 2,311 5,505 7,274
</TABLE>
- --------
(1) On July 29, 1994, the Company purchased the Business. See "Company
History." The data prior to July 29, 1994 represents the financial
information of the Predecessor Company, and has been prepared by the
Company. See Note 1 to the Company's Financial Statements.
(2) Combined year ended December 31, 1994 represents the summation of the
statements of income for the seven months ended July 29, 1994 of the
Predecessor Company and the five months ended December 31, 1994 of the
Company. The combined results are presented for comparative purposes only
and do not include adjustments for depreciation and amortization of assets
acquired based on their estimated fair market values at the acquisition
date, interest on acquisition debt and related income tax effect for the
Predecessor Company portion of results of operations.
(3) The Selected Financial Data presented for the six months ended June 30,
1996 includes RDI's results of operations from April 1, 1996, the date of
the acquisition.
(4) The Predecessor Company incurred operating losses in the year ended
December 31, 1991, due in part to GTE corporate allocation charges of
approximately $2,000,000 and higher cost of sales associated with
manufacturing facilities closed in 1991.
(5) For purposes of computing income tax provision (benefit), an effective tax
rate of 40% was used for the Predecessor Company results of operations
because no income taxes were allocated to the Predecessor Company.
(6) See Note 2 to the Company's Financial Statements. Net income per share,
net income applicable to common shareholders and weighted average number
of Common Shares and equivalents outstanding are not presented for periods
prior to and including July 29, 1994 as the Business was not operated as
an independent entity during such periods.
(7) The pro forma net income per share would have been $ and $ for the
year ended December 31, 1995, and the six month period ended June 30,
1996, respectively, assuming the conversion of the RDI Convertible Notes,
and Common Shares, respectively, had been issued, at a public
offering price of $ per share, and the proceeds were received and used
to retire the Company's Senior Notes plus accrued interest, the
Subordinated Notes plus accrued interest and the Redeemable Preferred
Shares plus accrued dividends.
(8) EBITDA represents operating income (loss) plus depreciation and
amortization.
(9) Research and development as a percentage of net sales for the six months
ended June 30, 1996 includes the financial data for RDI. The percentage
for the six months ended June 30, 1996 without RDI was 8.5%.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INTRODUCTION
The Company purchased the Business from GTE on July 29, 1994 for a total
purchase price of $17,900,000 plus the assumption of certain liabilities. The
Company had no operations prior to that date. The Company paid $16,400,000 in
cash and delivered the Seller Note. In March 1996, the Company repaid the
Seller Note and in April 1996, acquired all of the issued and outstanding
capital stock of RDI for a total purchase price of $8,964,000. The Company
paid $6,964,000 in cash, delivered RDI Notes totaling $1,108,000 and delivered
the RDI Convertible Notes totaling $892,000. See "Certain Transactions."
The financial information for the periods prior to July 29, 1994 does not
reflect the impact of the acquisition of the Business or the related financing
and purchase accounting adjustments on the financial position and results of
operations of the Company. The financial statements prior to July 29, 1994,
have been prepared solely by the Company as if the Business was operated as a
separate entity for the periods presented. The Predecessor Company financial
statements do not include an allocation of GTE's assets and liabilities not
specifically identifiable to the Business, including cash and intercompany
debt. Prior to September 28, 1993, the Telecommunications Division shared
certain facilities and functions with the Business. Certain costs and
expenses, including manufacturing overhead and selling, general and
administrative expenses, were prorated by the Company between the Business and
the Telecommunications Division in preparing the Predecessor Company financial
statements. Expenses were allocated by the Company based on actual usage or
other allocation methods which approximate actual usage. Management of the
Company believes that the allocation methods are reasonable. The purchase
method of accounting was used to record assets acquired by the Company. Such
accounting generally results in increased amortization and depreciation
reported in future periods. Accordingly, the financial statements of the
Predecessor Company and the Company are not comparable in all material
respects since the financial statements report on two separate entities.
Since the acquisition of the Business in July 1994, the Company's financial
strategy has been to improve gross profits in its circuit breaker business,
maintain stable selling, general and administrative expenses and expand its
sensor business. The Company's improved gross profits in its circuit breaker
business and stable selling, general and administrative expenses have resulted
in an improved EBITDA from $2.9 million in 1992 to $8.7 million in 1995. This
improvement has enabled the Company to increase its research and development
expenditures, primarily devoted to its sensor products, from $651,000 in 1992
to $2.7 million in 1995. During the same period, the Company's sales of
sensors have grown from $ 3.2 million in 1992 to $5.3 million in 1995 and $4.0
million for the first six months of 1996.
In addition, the Company's financial strategy contemplates making
acquisitions which complement the Company's existing businesses. See
"Business--Business Strategies." The Company's acquisition of RDI in April
1996, which was funded in part with $7.4 million in cash generated from
operations, is intended to enhance the Company's market penetration of the
automotive OEM market in Europe. RDI, which is a European-based distributor of
products of the Company and other manufacturers, historically, due to the
nature of the distribution business, has had lower gross margins and higher
selling, general and administrative expenses (measured as a percentage of net
sales) than the Company. Although the Company's gross profit and operating
income have increased as a result of the RDI acquisition, when expressed as a
percentage of sales, the Company's gross profit and operating income have
decreased due to the lower margins associated with distribution businesses
generally.
RDI generates revenues and incurs expenses primarily in currencies other
than the U.S. dollar. The Company does not engage in currency hedging
transactions. RDI's currency of account is the French franc. RDI's assets and
liabilities are translated into U.S. dollars using the exchange rate in effect
at the balance sheet date. RDI's results of operations are translated into
U.S. dollars using the average exchange rate prevailing throughout the
applicable period. See Note 2 to Financial Statements.
21
<PAGE>
RESULTS OF OPERATIONS
Summary Data
Management's discussion and analysis of the operating results of the Company
are based on amounts in the table set below which were derived from the
Financial Statements appearing elsewhere herein.
The 1994 combined financial information was based on the summation of the
financial information for the seven months ended July 29, 1994 of the
Predecessor Company and the five months ended December 31, 1994 of the
Company. The combined financial information is presented for comparison
purposes only and does not purport to reflect the results of the Company had
they been under common control.
The following table presents selected financial information derived from the
Company's statements of income, expressed as a percentage net sales for the
periods indicated:
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY COMBINED CONTROL DEVICES, INC.
------------ ------------ -------------------------
SIX MONTHS
ENDED
JUNE 30,
------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995 1995 1996
------------ ------------ ------------ ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............ 24.5 31.9 33.8 35.6 36.6
Selling, general and ad-
ministrative expenses.. 8.1 9.8 9.0 9.5 14.8
Research and develop-
ment................... 5.4 6.0 7.0 6.8 6.7
Operating income........ 11.0 16.1 17.8 19.3 15.2
Net income.............. 6.6 8.8 8.9 9.5 7.5
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Net sales were $28.2 million in the first six months of 1996, an increase of
$7.5 million, or 36.0%, as compared to the first six months of 1995. Net sales
increased primarily as a result of the acquisition of RDI which contributed
$6.6 million to net sales in the first six months of 1996.
Sales of circuit breaker products declined 9.5% to $15.7 million in the
first six months of 1996 from $17.3 million in first six months of 1995,
primarily due to lower European shipments and the switch in 1995 from the use
of circuit breakers to fuses on certain models of Ford vehicles. This decrease
was partially offset by a 72.9% increase in sales of sensor products to $4.0
million in the first six months of 1996 from $2.3 million in the first six
months of 1995, primarily as a result of the Company's shipment of its new
steering sensor. The decrease was also partially offset by an increase of
74.8% in sales of ceramics products to $1.9 million in the first six months of
1996 from $1.1 million in the first six months of 1995, primarily due to
shipments of ceramics to the PCS and cellular equipment manufacturers.
Gross profit in the first six months of 1996 was $10.3 million, an increase
of $2.9 million, or 39.7%, as compared to the same period in 1995. As a
percentage of net sales, gross profit in the first six months of 1996 was
36.6% as compared to 35.6% in the first six months of 1995. The increase in
gross profit, as a percentage of net sales, resulted from improved
productivity due in part to the continuing success of an employee gain sharing
program as well as from improved plant utilization and efficiencies.
Selling, general and administrative expenses in the first six months of 1996
were $4.2 million, an increase of $2.2 million, or 110.8%, as compared to the
first six months of 1995. The increase consisted primarily of RDI expenses
which were $2.0 million. As a percentage of net sales, selling, general and
administrative expenses were 14.8% in the first six months of 1996 as compared
to 9.5% in the first six months of 1995.
22
<PAGE>
Excluding RDI, selling, general and administrative expenses as a percentage of
net sales increased to 10.1% in the first six months of 1996 from 9.5% in the
first six months of 1995, primarily as a result of increased expenses for
bonus plans.
Research and development expenses in the first six months of 1996 were $1.9
million, an increase of $0.5 million, or 34.1%, as compared to the first six
months of 1995. The increased research and development expense was primarily a
result of increased staffing and expenses required to develop products for
introduction in the 1997-1999 period. In addition, resources have been added
to develop a chip-on-board manufacturing line to reduce the cost and enhance
market penetration of the Company's sensor products. As a percentage of net
sales, research and development expense was 6.7% in the first six months of
1996, as compared to 6.8% in the first six months of 1995. Due to the
distribution nature of RDI's business, research and development is a minimal
expense for RDI. Excluding RDI, research and development spending increased to
8.5% in the first six months of 1996 from 6.8% in the first six months of
1995.
Operating income in the first six months of 1996 was $4.3 million, an
increase of $0.3 million, or 6.7%, as compared to the first six months of
1995. As a percentage of net sales, operating income was 15.2% in the first
six months of 1996 as compared to 19.3% in the first six months of 1995. The
decrease in operating income as a percentage of net sales resulted primarily
from the acquisition of RDI. RDI is primarily a distributor and, on a
historical basis, has incurred selling, general and administrative expenses
higher, as a percentage of net sales, than the Company. Similarly, as a
distributor, RDI's operating income as a percentage of net sales is typically
lower than that of the Company.
Interest expense was $0.8 million in the first six months of 1996, an
increase of $0.1 million, or 13.1%, as compared to the first six months of
1995. The increased interest expense was primarily the result of lower
interest income due to the use of cash for the acquisition of RDI.
The provision for income tax was $1.3 million in the first six months of
1996 and the first six months of 1995. The effective tax rate was 38.4% in the
first six months of 1996 compared to 40.0% in the first six months of 1995.
Net income was $2.1 million in the first six months of 1996, an increase of
$0.2 million, or 8.1%, as compared to the first six months of 1995. The
increase in net income was a result of the acquisition and the improvement in
operating income partially offset by increased research and development and
interest expense. As a percentage of net sales, net income was 7.5% in the
first six months of 1996 as compared to 9.5% in the first six months of 1995.
1995 COMPARED TO COMBINED 1994
Net sales were $38.9 million in 1995, a decrease of $5.0 million, or 11.3%,
as compared to combined 1994. Net sales decreased primarily as a result of the
weakened economic conditions in North America and Europe, particularly related
to automotive sales. Sales of circuit breaker products decreased 13.6% to
$30.9 million in 1995 from $35.8 million in 1994. The demand for the Company's
automotive circuit breaker products declined as certain models of vehicles
made a model year switch from circuit breakers to fuses. Sales of sensor
products increased 25.5% to $5.3 million in 1995 from $4.2 million in combined
1994 as the Company began shipping sensors to European automakers. Ceramic
sales declined 31.2% to $2.6 million in 1995 from $3.8 million in 1994
primarily due to a decrease in air heater sales.
Gross profit in 1995 was $13.2 million, a decrease of $0.8 million, or 6.0%,
as compared to combined 1994. As a percentage of net sales, gross profit in
1995 was 33.8% as compared to 31.9% in combined 1994. The increase in gross
profit, as a percent of net sales, resulted from increased productivity due in
part to the success of an employee gain sharing program instituted in 1994 as
well as from improved plant utilization.
Selling, general and administrative expenses in 1995 were $3.5 million, a
decrease of $0.8 million, or 18.7%, as compared to combined 1994. The decrease
in administrative expenses was a result of management
23
<PAGE>
initiative to contain expenses as a result of the decreased sales volume. As a
percentage of net sales, selling, general and administrative expenses were
9.0% in 1995 as compared to 9.8% in combined 1994.
Research and development expenses in 1995 were $2.7 million, an increase of
$0.1 million, or 3.4%, as compared to combined 1994. The increased research
and development expenses were a result of the Company's continued focus on new
product development in the sensor product line. As a percentage of net sales,
research and development expenses were 7.0% in 1995 as compared to 6.0% in
combined 1994. In 1995, approximately 75% of the research and development
expenses were related to sensor development projects, primarily in the rain
and solar/twilight areas. See "Business--Research and Development."
Operating income in 1995 was $6.9 million, a decrease of $0.1 million, or
1.9%, as compared to combined 1994. The decreased operating income was a
result of the lower sales volume substantially offset by higher gross margins
and reduced selling, general and administrative expenses. As a percentage of
net sales, operating income was 17.8% in 1995 as compared to 16.1% in combined
1994.
Interest expense was $1.4 million in 1995, an increase of $0.7 million from
combined 1994. The Predecessor Company did not receive an allocation of
interest expense from GTE in 1994.
Provision for income tax was $2.1 million in 1995, as compared to $2.5
million in combined 1994. The effective tax rate was 37.5% in 1995 as compared
to a rate of 39.4% in combined 1994.
Net income was $3.5 million in 1995, a decrease of 10.7%, as compared to
$3.9 million in combined 1994. The decrease in net income was primarily
attributable to the additional interest expense in 1995. As a percentage of
net sales, net income was 8.9% in 1995 as compared to 8.8% in combined 1994.
COMBINED 1994 COMPARED TO 1993
Net sales were $43.8 million in combined 1994, an increase of $4.0 million,
or 10.1%, as compared to 1993. Net sales increased primarily as a result of
improved economic conditions in North America and Europe, particularly related
to automotive sales. Sales of circuit breaker products increased 4.6% to $35.8
million in 1994 from $34.2 million in 1993. This increase was primarily due to
the strength of the worldwide automotive market. Sensor sales also increased
26.2% to $4.2 million in 1994 from $3.4 million in 1993 as solar sensors
benefited from improving market conditions and increased market acceptance.
Ceramic sales increased 71.0% to $3.8 million in 1994 from $2.2 million in
1993 in part due to increased sales of air heaters.
Gross profit in combined 1994 was $14.0 million, an increase of $4.2
million, or 43.5%, as compared to 1993. As a percentage of net sales, gross
profit in combined 1994 was 31.9% as compared to 24.5% in 1993. The increase
in gross profit, as a percent of net sales, resulted from improved
productivity due in part to the success of an employee gain sharing program
instituted in 1994 as well as from improved plant utilization and efficiency.
Selling, general and administrative expenses in combined 1994 were $4.3
million, an increase of $1.1 million, or 33.1%, as compared to 1993. The
increase in administrative expenses consisted primarily of corporate expenses
associated with being an independent company in 1994. As a percentage of net
sales, selling, general and administrative expenses were 9.8% in combined 1994
as compared to 8.1% in 1993.
Research and development expenses in combined 1994 were $2.7 million, an
increase of $0.5 million, or 23.6%, as compared to 1993. The increased
research and development expenses were a result of the Company's increased
focus on new product development in the sensor product line. As a percentage
of net sales, research and development expenses were 6.0% in combined 1994 as
compared to 5.4% in 1993.
Operating income in combined 1994 was $7.0 million, an increase of $2.7
million, or 60.9%, as compared to 1993. The increased operating income was a
result of the improvement in gross profit partially offset by higher selling,
general and administrative and research and development expenses. As a
percentage of net sales, operating income was 16.1% in combined 1994 as
compared to 11.0% in 1993.
24
<PAGE>
Interest expense was $0.7 million in 1994. The Predecessor Company did not
receive an allocation of interest expense from GTE in 1993.
Provision for income tax was $2.5 million in combined 1994, as compared to
$1.8 million in 1993. The effective tax rate was 39.4% in combined 1994 as
compared to 40.0% in 1993.
Net income was $3.9 million in combined 1994, as compared to $2.6 million in
1993. The increase in net income was a result of the improvement in operating
income partially offset by interest expense and income taxes. As a percentage
of net sales, net income was 8.8% in combined 1994 as compared to 6.6% in
1993.
QUARTERLY RESULTS
The following tables present the Company's operating results for each of the
six quarters for the period ended June 30, 1996, including such amounts
expressed as a percentage of net sales. The information for each of these
quarters is unaudited, but has been prepared on the same basis as the audited
consolidated financial statements and, in the opinion of the Company's
management, reflects all adjustments (consisting of normal, recurring
adjustments) necessary for a fair presentation of such information when read
in conjunction with the Company's consolidated financial statements and notes
thereto appearing elsewhere in this Prospectus. Operating results for any
quarter are not necessarily indicative of results for any future periods.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
----------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1995 1995 1996 1996
--------- -------- ------------- ------------ --------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $10,916 $9,798 $9,063 $9,104 $10,772 $17,408
Cost of sales........... 6,919 6,414 6,132 6,256 6,919 10,951
------- ------ ------ ------ ------- -------
Gross profit........... 3,997 3,384 2,931 2,848 3,853 6,457
Operating expenses:
Selling, general and
administrative
expenses............... 943 1,027 816 718 1,075 3,082
Research and develop-
ment................... 771 632 641 696 959 921
------- ------ ------ ------ ------- -------
Operating income....... 2,283 1,725 1,474 1,434 1,819 2,454
Interest expense........ 368 364 336 312 312 516
------- ------ ------ ------ ------- -------
Income before income
taxes................. 1,915 1,361 1,138 1,122 1,507 1,938
Income tax provision.... 766 544 433 335 580 742
------- ------ ------ ------ ------- -------
Net income............. 1,149 817 705 787 927 1,196
Preferred share divi-
dends.................. 66 66 66 66 66 66
------- ------ ------ ------ ------- -------
Net income applicable
to common
shareholders.......... $ 1,083 $ 751 $ 639 $ 721 $ 861 $ 1,130
======= ====== ====== ====== ======= =======
Earnings per share...... $ 0.42 $ 0.29 $ 0.25 $ 0.28 $ 0.34 $ 0.44
======= ====== ====== ====== ======= =======
Weighted average number
of common shares and
equivalents outstand-
ing.................... 2,564 2,564 2,564 2,564 2,564 2,564
<CAPTION>
AS A PERCENTAGE OF NET SALES
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........... 63.4 65.5 67.7 68.7 64.2 62.9
------- ------ ------ ------ ------- -------
Gross profit........... 36.6 34.5 32.3 31.3 35.8 37.1
Operating expenses:
Selling, general and
administrative
expenses............... 8.6 10.4 8.9 7.9 10.0 17.7
Research and develop-
ment................... 7.1 6.5 7.1 7.6 8.9 5.3
------- ------ ------ ------ ------- -------
Operating income....... 20.9 17.6 16.3 15.8 16.9 14.1
Interest expense........ 3.4 3.7 3.7 3.4 2.9 3.0
------- ------ ------ ------ ------- -------
Income before income
taxes................. 17.5 13.9 12.6 12.4 14.0 11.1
Income tax provision.... 7.0 5.6 4.8 3.7 5.4 4.2
------- ------ ------ ------ ------- -------
Net income............. 10.5% 8.3% 7.8% 8.7% 8.6% 6.9%
======= ====== ====== ====== ======= =======
</TABLE>
25
<PAGE>
SEASONALITY
The Company's performance is dependent primarily on automotive vehicle
production which is seasonal in nature. The Company's revenues tend to be
somewhat lower in the third and fourth quarters as automotive OEMs schedule
plant tooling changeovers, vacations and holiday shutdowns.
LIQUIDITY AND CAPITAL RESOURCES
Since its formation and initial capitalization, the Company has financed its
operations and investments in property, equipment and the RDI acquisition
primarily through cash generated from operations, the issuance of the RDI
Notes and the RDI Convertible Notes and bank borrowings. At June 30, 1996, the
Company had capital expenditure commitments of approximately $1.5 million. The
commitments relate primarily to capital expenditures associated with the
Company's design, development, manufacturing and marketing of sensors.
The Company has an existing $3.0 million line of credit with MassMutual (the
"Existing Line of Credit") under which no amounts are outstanding as of the
date hereof. The Existing Line of Credit is expected to be terminated in
connection with the closing of this Offering.
Cash and cash equivalents totaled $3.7 million at June 30, 1996 compared to
$10.5 million at December 31, 1995. The $6.7 million decrease in cash and cash
equivalents during this period resulted primarily from the Company's payment
of $7.4 million in connection with the RDI acquisition and the repayment of
the $1.5 million Seller Note, offset by $2.2 million generated by the Company.
The Company's cash and cash equivalents increased $5.2 million in 1995 and
$4.4 million in the five month period ending December 31, 1994 as a result of
cash generated from operations.
RDI has various credit facilities available to it totaling $4.5 million with
rates ranging from 0.5% to 1.0% over the Paris Inter-Bank Offered Rate. At
June 30, 1996, RDI had borrowings aggregating $3.8 million under these
facilities.
The Company believes its current cash and cash equivalents, together with
its credit facilities and cash flows from operations, will be sufficient to
meet the Company's cash requirements, including capital expenditures, for at
least the next twelve months.
Following the consummation of the Offering contemplated hereby, the Company
expects to enter into a new line of credit facility to fund strategic
acquisitions and, if needed, for working capital. Based upon discussions with
the anticipated lender, the Company expects that the new facility will provide
for borrowings of up to $15.0 million and have a scheduled maturity on
September 30, 1998. The line of credit is expected to be unsecured and contain
less restrictive covenants and pricing terms more favorable to the Company
than the Existing Line of Credit. To date, no definitive credit agreement has
been executed and no assurance can be given that the new line of credit will
be executed on such terms.
26
<PAGE>
BUSINESS
GENERAL OVERVIEW
The Company designs, manufactures and markets circuit breakers, electronic
sensors and electronic ceramic component parts used by OEMs in the automotive,
appliance and telecommunications markets. The Company has supplied circuit
breakers to automotive OEMs for more than 30 years, and in 1991 the Company
expanded its offerings to the automotive market by introducing its initial
sensor product, a solar sensor used for climate control in luxury cars. The
Company believes it is a leading supplier of automatically resetting circuit
breakers and solar sensors for the automotive market and of glass enclosed
circuit breakers for the appliance market. In addition to continued shipments
of its solar sensor, in July 1995, the Company commenced shipping its steering
wheel sensor to Ford, and, in June 1996, commenced shipping its twilight
sensor to GM. The Company is in various stages of development of its rain,
window fog and other solar (climate control)/twilight (headlamp control)
sensors for a number of automotive OEMs. Frost & Sullivan's Sensor Market
Sourcebook, 1995 Edition (the "F&S Sourcebook") estimates that the size of the
North American automotive sensor market will increase from $1.4 billion in
1992 to $2.6 billion in 1998 based in part on increased consumer demand for
safety, performance, convenience and comfort.
In April 1996, the Company acquired RDI primarily to enhance its market
penetration of the automotive OEM market in Europe, in part by locating itself
closer to European customers. The Company's customers include GM, Ford and
Chrysler in North American and Mercedes, Peugeot, Rockwell, Valeo, Opel and
Danfoss in Europe. Sales to GM, Ford and Chrysler and their suppliers in North
America were approximately $17.6 million, or 45.4% of the Company's net sales,
in 1995 and approximately $10.0 million, or 46.2% of net sales excluding RDI,
in the first six months of 1996.
PRODUCTS AND MARKETS
Circuit Protection. The Company manufactures and markets for the automotive
and appliance industries, circuit breakers which protect transformers, battery
chargers, compressors and small motors from heat and current overloads. The
technology utilized in such devices traces back to automatically resetting
circuit breakers developed as an alternative to fuses by Sylvania in 1956. Due
to the resetting feature, Sylvania's circuit breakers provided the same
protection from current overloads as fuses without the need for replacement.
The Company manufactures over 250 types of circuit breakers, including over
150 types of glass enclosed circuit breakers. Through RDI, the Company markets
and distributes in Europe a full line of circuit protection devices, including
various fuses and circuit breaker components and assemblies manufactured by
other companies. The Company's sales of circuit breakers were $30.9 million,
or 79.6% of net sales, in 1995, and $15.7 million, or 72.7% of net sales
excluding RDI, in the first six months of 1996.
Electronic Sensors. The Company's automotive sensors use optical sensing
technologies to recognize external conditions and send an electronic signal to
a central processor which automatically triggers a control response, that in
many cases, had required manual operation. The functions automatically
controlled by the Company's sensors include climate control and headlight
intensity in response to sunlight, power steering assist in response to
driving conditions, wiper control in response to precipitation and defrost
operation in response to window fog. In addition to continued sales of its
existing solar sensors, in July 1995, the Company began shipping its steering
wheel sensor to Ford. The Company's steering wheel sensor replaced a
competitor's product and is currently used in a number of Ford models. In June
1996, the Company commenced shipping its twilight sensor to GM. The Company's
twilight sensor signals the vehicle's headlight system to switch from low
intensity to full intensity in twilight conditions and was developed for use
in GM's DRL program. The Company's sales of sensors were $5.3 million, or
13.7% of net sales in 1995, and $4.0 million, or 18.4% of net sales excluding
RDI, in the first six months of 1996.
In late 1995, in an effort to encourage automotive OEMs to use sensors in a
greater range of vehicle models, the Company sought to lower the cost of its
sensors by incorporating chip-on-board manufacturing
27
<PAGE>
technology. The Company's original sensor technology uses discrete electronic
components together with prepackaged photodiodes. With chip-on-board
technology, the Company has designed silicon wafers which incorporate both the
function of the discrete electronic components and the photodiode and also
reduce board size requirements and assembly costs. The Company packages the
wafer directly on a circuit board resulting in savings which will permit the
Company to introduce a new line of lower cost sensors. Currently, the
Company's twilight sensor product, which possesses chip-on-board technology,
is being shipped to GM, and the Company is redesigning the remainder of its
sensor products to incorporate chip-on-board technology.
The Company's rain, window fog, and "next generation" solar (climate
control)/twilight (headlamp control) sensors are in various stages of
development. See "--Research and Development." The Company is continually
working with customers to provide new sensor products which will provide
increased comfort and safety in vehicles. In response to customer requests for
"next generation" functionality, prototypes of these advanced sensor products
have been shipped to GM, Ford, Mercedes, Volvo, Fiat, BMW and VW, as well as
to major tier one suppliers such as Valeo.
Electronic Ceramics. The Company's ceramic products include PTC (Positive
Temperature Coefficient) thermistors and dielectric resonators. PTC
thermistors, which convert electrical current into heat, are used as component
parts in room air heaters and protection devices for switching equipment
critical to the operation of telephone companies' central offices (facilities
that provide the local switching and distribution functions for telephone
companies). Dielectric resonators are used to filter frequencies in wireless
communications equipment. In addition to sales to wireless communications
equipment manufacturers, in the fourth quarter of 1995 the Company began
shipping custom designed dielectric resonators to Personal Communication
Systems ("PCS") equipment manufacturers. The Company's sales of ceramics were
$2.6 million, or 6.7% of net sales, in 1995, and $1.9 million, or 8.9% of net
sales excluding RDI, in the first six months of 1996.
Acquisition of RDI. In April 1996, the Company acquired RDI primarily to
enhance the Company's market penetration of the automotive OEM market in
Europe. In addition, through RDI, the Company distributes a number of
electronic components in Europe such as capacitors, connectors and various
electronic fuses and aftermarket products. These components are supplied to
the automotive, appliance, and telecommunication OEM markets and are sourced
and stocked by RDI. RDI's sales (excluding an amount equal to the Company's
sales to RDI) were $6.6 million for the three months ended June 30, 1996.
28
<PAGE>
The Company sells its products primarily to three markets: automotive,
appliance and telecommunications. In 1995, the Company's sales to these markets
were $22.3 million, $14.4 million and $2.2 million, respectively. The following
table generally describes the products currently being sold or being developed
for each of the markets addressed by the Company:
<TABLE>
<CAPTION>
PRODUCT LINES AUTOMOTIVE APPLIANCE TELECOMMUNICATIONS
- ------------------ ----------------------- ----------------------- -------------------
<S> <C> <C> <C>
Circuit Breakers Mini Remote Reset Glass Enclosed Circuit --
Mini Positive Make-and- Breakers
Break Metal Control Devices
Maxi Breakers Recessed Lighting
Vehicle Protectors Protection
Thermal Relays
Micro Positive Make-
and- Break
Electronic Sensors Solar Sensor (climate -- --
control)
Steering Wheel Sensor
Twilight Sensor
(headlamp control)
Rain Sensor
Window Fog Sensor
Electronic Ceramic PTC Thermistors for use PTC Thermistors for use Current Limiters
Devices in auxiliary heaters in portable air Dielectric
heaters Resonators
</TABLE>
<TABLE>
<C> <S>
Products Distributed Circuit Protection Devices (including Fuses, Circuit
by RDI Breakers, Components and
Assemblies) and Electronic Components
</TABLE>
Automotive Market
The Company believes it is a leading supplier of automatically resetting
circuit breakers and solar sensors to the automotive market and has a growing
presence in the expanding automotive sensor market.
Circuit Protection. The Company produces over 100 types of metal-based
(covered or uncovered) automatically resetting circuit breakers. These products
utilize a bimetal technology which essentially protects electrical circuits and
motors from heat and current overloads. The Company offers a broad line of
automotive circuit breakers which operate in a wide range of ambient
temperatures, thereby enabling customers to choose the protection most
appropriate for the particular application. The Company believes that it is a
leading supplier of circuit breakers to North American automotive OEMs. Typical
applications include protection for wiring harnesses, headlamps and small
motors. An automobile's electric wiring system (harness) delivers electricity
to door locks, cigarette lighters, window lift motors, windshield wiper motors
and power antennae motors. Typically, there is a circuit breaker or fuse for
each of these applications to protect against electrical current overload.
The Company's circuit breakers include automatically resetting circuit
breakers used as protectors for 12-volt DC motors. These products are cycling,
or self-resetting, circuit breakers created for mounting in the motor and are
used to protect motors with currents ranging from 20 amps (such as windshield
wiper motors) to 40 amps (such as power seat motors). Another line of the
Company's automatically resetting circuit breakers are installed in automotive
fuse blocks or wiring harnesses and are used to protect circuits which
occasionally experience momentary overloads (e.g., headlamps, for which fuses
can present a safety hazard) and to minimize the inconvenience of fuse
replacement (e.g., cigarette lighters, which can overload if used for other
applications). The Company's other electromechanical automotive products
include thermal relays, which provide a time delay for automotive courtesy
lights and seat belt warning lights.
29
<PAGE>
In Europe, the Company distributes a full line of circuit protection
products through RDI. These products include those manufactured by the Company
and complementary products distributed for other manufacturers.
Electronic Sensors. The Company's sensors use proprietary optical sensing
technologies to recognize external conditions and send an electronic signal to
a central processor which automatically triggers a control response that, in
many cases, had required manual operation. These operations include climate
control and headlight intensity in response to sunlight, power steering assist
in response to driving conditions, wiper control in response to precipitation
and defrost operation in response to window fog. In addition to continued
sales of its existing solar and steering wheel sensors, in June 1996, the
Company commenced shipping its twilight sensor to GM. The Company's twilight
sensor signals the vehicle's headlight system to switch from low intensity to
full intensity in twilight conditions and was developed for use in GM's DRL
program. The F&S Sourcebook estimates that the size of the North American
automotive sensor market will increase from $1.4 billion in 1992 to $2.6
billion in 1998. In 1994 and 1995, the Company devoted approximately 75% of
its research and development expenditures to electronic sensors. See
"Business--Research and Development."
The Company's solar sensor, used for automatic climate control in several
current GM, Mercedes and Peugeot luxury cars, measures the direct solar
heating felt by the automobile's occupants. The Company's solar sensor is
customized for each car model by taking into account the roof line and
placement of windows. The Company believes that its patented lensing
technology enables its solar sensors to measure direct solar heating more
accurately than competitors' products. This technological advantage leads the
Company to believe that its solar sensors have gained wide industry acceptance
as the standard in automatic climate control systems. The Company's solar
sensors can be found on vehicles such as Cadillac, Buick, Oldsmobile, Jeep,
Mercedes, Opel and Peugeot.
In July 1995, the Company began shipments of steering wheel sensors to Ford
for vehicles sold in North America. These sensors optically measure the speed
and direction of the steering column rotation, and send electric signals to
the car's central processor to make adjustments in the stiffness of the power
steering system of the car. The technology used in its steering wheel sensor
has other automotive applications which the Company is pursuing.
Building on a design effort commenced in late 1995, the Company shipped its
first sensor incorporating chip-on-board technology in June 1996. This
technology results in savings which will permit the Company to introduce a new
line of lower cost sensors.
The Company's rain, window fog and "next generation" solar (climate
control)/twilight (headlamp control) sensors are in various stages of
development and will incorporate the Company's chip-on-board manufacturing
technology. The Company's rain sensor measures precipitation on the windshield
and sends a signal to adjust the windshield wiper speed. The window fog sensor
optically detects condensation or frost on front and/or rear windows and sends
a signal to adjust the defroster before such condensation or frost is
detectable by the human eye. By eliminating frost and condensation before it
has a chance to accumulate, the driver's visibility remains unimpaired.
Appliance Market.
The Company believes it is a leading supplier of glass enclosed circuit
breakers for the small motor appliance market. The Company also supplies
ceramic PTC thermistor based heaters to the appliance market and, through RDI,
distributes component parts manufactured by others. The products distributed
by RDI include capacitors, filters and condensers.
Circuit Protection. The Company manufactures a number of different types of
circuit breakers for the appliance market and believes it is one of only two
companies in the world producing glass enclosed circuit breakers. Most of its
revenues in the appliance market are derived from the sale of the Company's
150 types
30
<PAGE>
of glass enclosed circuit breakers. The Company's glass enclosed circuit
breakers are generally sold for applications in which quality, cycle life and
dependability are the critical factors. These products prolong motor life by
shutting off motors in the presence of excess ambient heat or current. A key
feature of the glass circuit breakers is the hermetic seal created by the
glass enclosure. This hermetic seal makes it the lowest cost type of circuit
breaker which can be totally immersed in a liquid or gas environment and still
maintain consistent operation. Typical uses include protection of compressor
motors and other small motors where the breaker is required to be mounted
directly inside the motor, such as refrigerator compressor motors, dishwasher
motors and garage door opener motors. Internal mounting in motors places the
circuit breaker in close proximity to the source of heat, allowing for faster
response times under fault conditions than can be delivered by externally
mounted breakers. Internal mounting also eliminates the need for an external
mounting location and associated wiring connectors, and facilitates greater
efficiency in compressor motor design.
The Company also supplies circuit breakers to recessed lighting
manufacturers. These breakers protect the fixture from heat overloads and
cause the light to blink in a fault condition.
Electronic Components. The Company supplies ceramic PTC thermistors for use
in small electric air heaters. The PTC ceramic is designed to maintain a
constant temperature, making them safer than certain other electric air
heating technologies. In addition, RDI distributes electronic components to
the European appliance industry.
Telecommunications Market
The Company manufactures and markets PTC current limiters and dielectric
resonators for applications in the telecommunications market.
PTC Current Limiters. The Company supplies PTC current limiters for use in
modules which prevent current surges from damaging line cards (circuit boards)
in telephone companies' central office switching systems. The Company's
products are sold as a component part in Siecor's central office module
(protection device). The PTC current limiters are being supplied to Siecor
under a five-year exclusive requirements contract entered into in September
1993 for use by GTE on its installed base of 23 million telephone lines.
Dielectric Resonators. The Company supplies a line of dielectric resonators
to OEMs of wireless telecommunications equipment. Dielectric resonators are an
integral part of wireless communication filters, which capture the desired
frequencies and keep the desired frequencies from interfering with others.
These filters are typically placed at transmission sites, where space is at a
premium, and the Company therefore believes that the size of dielectric
resonator based filters, which are smaller than air cavity based filters,
offer a competitive advantage. The markets for theses products include
cellular and PCS wireless applications.
PCS is the term used to describe the wireless telecommunications services
that will be offered by those companies that acquired or will acquire licenses
for a radio spectrum (frequency range 1850-1990 MHz) in the FCC auctions and
are the newest entrants in the wireless telecommunications market. PCS will
initially compete directly with existing cellular telephone, paging and mobile
radio services. PCS will also include features which are not generally offered
by cellular providers, such as: (i) the provision of all services to one
untethered, mobile number; (ii) lower-priced service options; and (iii) in the
near future, medium-speed data transmissions to and from portable computers,
advanced paging services and facsimile services. PCS providers may be the
first to be able to offer mass market wireless local loop applications, in
competition with switched and direct access local telecommunications services.
BUSINESS STRATEGIES
Pursue Selected Growth Opportunities Utilizing Technology. The Company
intends to pursue opportunities to apply new and existing technologies to
develop additional products to fulfill anticipated
31
<PAGE>
customer needs. The Company's current emphasis is on electronic optical
sensors for the automotive market. The F&S Sourcebook projects growth in the
electronic sensor market as auto consumers demand improved safety, performance
and comfort. The Company also believes that its proprietary optical sensor
technology gives the Company's sensors an advantage in quality and accuracy of
function over competitors' sensors.
Building on a design effort commenced in late 1995, the Company shipped its
first sensor incorporating chip-on-board technology in June 1996. This
technology results in savings which will permit the Company to introduce a new
line of lower cost sensors. The chip-on-board technology also provides greater
design latitude by miniaturizing the process.
The Company expects to continue to expand its research and development
efforts in electronic sensor technology. In 1994 and 1995, approximately 75%
of the Company's total expenditures for research and development were for its
electronic sensor products. The Company's research and development staff has
grown from approximately 20 employees in July 1994 to approximately 33
employees in June 1996.
Maintain Market Leadership in Automotive Circuit Breakers and Glass Enclosed
Circuit Breakers. The Company is a leading supplier of circuit breakers for
the automotive market and glass enclosed circuit breakers for the small motor
appliance market. The Company believes that its experience and expertise in
these markets, developed over more than thirty years, its strong customer
relationships, and its strategy of continuous improvement in productivity and
cost management, will enable it to maintain its leadership position. In turn,
the Company believes that its leadership position provides a stable base from
which to pursue growth opportunities for its other existing and new products,
especially electronic sensors.
Strategic Acquisitions. The Company is pursuing an acquisition strategy
designed to complement the Company's existing businesses, including
acquisitions of complementary products, expanding its line of electronic
sensors and expanding its distribution base. In April 1996, the Company
acquired RDI primarily to enhance the Company's market penetration of the
automotive OEM market in Europe. RDI expands the Company's presence in Europe
and strengthens its ability to market its electronic sensor and other
products. Management believes that a European based distribution network will
enhance the Company's ability to distribute existing, internally developed and
newly acquired products. The Company currently has no specific agreements or
understandings with respect to any acquisitions.
Operating Efficiency and Cost Management. The Company is dedicated to
continuous improvement of its operations, including cost management. These
improvements have led to an increase in operating profit margins from 2.7% in
1992 to 17.8% in 1995. The Company's current strategy is to develop and
initially manufacture products at its facilities in Maine and, as they mature,
move production offshore to the Company's lower cost facility in the Dominican
Republic. Other cost reduction strategies being pursued by the Company include
efforts to improve manufacturing yields, eliminate non-value added labor and
reduce manufacturing cycle time. The Company has achieved significant success
in pursuing such efforts, in part due to a gain sharing program implemented in
1994. Virtually all Company employees receive incentive compensation based on
operating results or cost improvements.
Focus on Customer Relationships and the Manufacture of Quality Products. The
Company builds on its longstanding customer relationships in the development
of new products and new applications for existing products. These products and
applications are designed either to fulfill an existing customer need or to
meet an expected future market requirement. By working closely with customers
on the initial design and specification of products, management believes the
Company has a competitive advantage. The Company has implemented comprehensive
systems and statistical tools in conjunction with its customers to assure the
production of quality products. The Company's commitment to quality has
resulted in the Company's having received, in addition to other awards, ISO
(International Standards Organization) 9001-1994 registration (the highest
attainable) in June 1995, GM's Mark of Excellence Award (the highest
attainable) and Ford's Q1 quality rating.
32
<PAGE>
MARKETING AND CUSTOMERS
The Company markets its products through a direct sales and service force
located in the Company's Dearborn, Michigan sales office, at the Company's
corporate headquarters in Standish, Maine and at RDI's headquarters near
Paris, France. The Company also sells and distributes its products through a
number of independent agents and distributors in Europe and Asia. In Europe,
RDI acts as a technical and value added resource to its customers.
In the automotive market, the Company sells its products primarily to parts
suppliers, including subsidiaries of automotive manufacturers, rather than
directly to the automobile manufacturer. The Company must generally market its
products both to the manufacturer (to insure the design of the automobile
incorporates the Company's product) and to the supplier of the particular
parts in which the Company's products will be incorporated. As is typical in
the automotive and appliance industries, the Company's customers buy products
through the use of purchase orders rather than long-term contracts.
For export sales, see Note 15 of Notes to Financial Statements.
One of the Company's customers, GM, accounted for approximately 17%, 20% and
12% of net sales in 1994, 1995 and the six months ended June 30, 1996,
respectively. These sales were primarily to two divisions of GM, Packard
Electric and Delco Electronics, both of which manufacture electrical systems
for automotive companies, including GM. Net sales to Danfoss were 13.6% in
1995. No other customer accounted for more than 10% of sales in 1994, 1995 and
the six months ended June 30, 1996. See "Risk Factors."
The following table shows the Company's key customers for each of its
product lines:
<TABLE>
<CAPTION>
PRODUCT LINE KEY CUSTOMERS
------------ ---------------------------------------------------------
AUTOMOTIVE APPLIANCE TELECOMMUNICATION
-------------------- ----------------- -----------------
<S> <C> <C> <C>
Circuit Protection... GM, Ford, Chrysler, Danfoss --
Rockwell, Valeo
Electronic Sensors... GM, Ford, Mercedes -- --
Electronic Ceramic
Devices............. -- -- Celwave, Siecor
Products Distributed
by RDI.............. Rockwell, Mercedes, -- --
Volkswagen
</TABLE>
Danfoss is a manufacturer of compressors for refrigeration and other uses;
Celwave is a manufacturer of microwave communications components; and Siecor
manufactures telecommunications products.
The following table shows the car and truck models, as of June 30, 1996,
which incorporate circuit breakers and sensors manufactured by the Company:
<TABLE>
<CAPTION>
CUSTOMER CIRCUIT BREAKERS SENSORS
- -------- ---------------------------------- ------------------------
<S> <C> <C>
GM
Buick........... Century, LeSabre, Park Avenue, LeSabre, Park Avenue,
Regal, Riviera, Roadmaster, Riviera, Roadmaster
Skylark
Cadillac........ DeVille, Eldorado, Fleetwood DeVille, Eldorado,
Brougham, Seville Fleetwood Brougham,
Seville
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
CUSTOMER CIRCUIT BREAKERS SENSORS
- -------- ---------------------------------- ------------------------
<S> <C> <C>
Chevrolet....... Astro, Beretta, Blazer, Camaro, Corvette
Caprice, Cargo Van, Cavalier, C/K
Pick-up, Corsica, Corvette,
Lumina, Lumina Van, Monte Carlo,
S-10, Sport Van, Suburban, Tahoe
GMC............. Jimmy, P Model Truck, Safari, --
Sonoma, Suburban, Yukon
Oldsmobile...... Achieva, Aurora, Bravada, Ciera, Aurora, Cutlass, 88, 98,
Cutlass Supreme, 88, 98, Supreme
Silhouette
Pontiac......... Bonneville, Firebird, Grand Am, Bonneville
Grand Prix, Sunfire, Trans Sport
Ford
Ford............ Crown Victoria, Aerostar, Thunderbird, Explorer,
F-Series Truck, Taurus Crown Victoria
Lincoln......... Town Car, Mark VIII, Continental Town Car, Mark VIII
Mercury......... Grand Marquis, Cougar, Villager, Cougar, Grand Marquis
Sable
Chrysler
Chrysler........ Concorde, Cirrus, New Yorker, --
Sebring, Town & Country
Dodge........... Intrepid, Neon, Stratus, Ram Van, --
Dakota, Ram Wagon, Caravan, T-300,
Viper
Eagle........... Vision --
Plymouth........ Breeze, Neon, Voyager --
Jeep............ Cherokee, Grand Cherokee Grand Cherokee
Mercedes.......... -- E-Class, S-Class
Renault........... Laguna, Clio, 19 --
Peugeot........... 306, 106, 405 806, 506
Volkswagen/Audi... Golf, Passat, A6, A8 --
Citroen........... ZX, Xantia, XM Evasion
Opel.............. 2900 Vectra --
Seat.............. Ibiza --
Nissan............ Quest --
Honda............. Odyssey --
</TABLE>
RESEARCH AND DEVELOPMENT
The Company incurred research and development expenses of $2.1 million, $2.7
million, and $2.7 million in 1993, 1994 and 1995, respectively, and $1.9
million for the six months ended June 30, 1996. The increase from 1993 to 1995
was a result of the Company's focus on new product development in the
electronic sensor
34
<PAGE>
product line based on the Company's existing optical sensing technologies. In
1995 and the first six months of 1996, the Company devoted over 7.0% and 8.5%,
respectively, of net sales excluding RDI to research and development. In 1994
and 1995, the Company devoted approximately 75% of its research and
development expenditures to electronic sensors. The Company maintains a
research and development staff at its Standish, Maine facility of 33 employees
as of June 30, 1996, 28 of whom, including 22 engineering professionals, were
devoted to new sensor product development.
In addition to the recently introduced twilight sensor, the Company also has
under development rain and window fog sensors which will control intermittent
windshield wiper and/or defroster functions, and a solar position sensor for
multi-zone automatic climate control. The Company has a six year consulting
agreement expiring in April 2001 with Dr. Dennis J. Hegyi, a Physics Professor
at the University of Michigan, relating to its sensor products. The Company
currently licenses five of Dr. Hegyi's patents for its sensor products. See
"Products and Markets" and "Management--Key Consultant."
The following tables summarize the results of the Company's historical
research and development activities and the focus of its current research and
development activities.
<TABLE>
<CAPTION>
YEAR OF INTRODUCTION PRODUCT APPLICATION CUSTOMERS
- -------------------- --------------------- ------------------------- -------------
<S> <C> <C> <C>
1991 Solar Sensor Automatic Climate Control Numerous OEMs
1993 Dielectric Resonator Wireless Telecom-Cellular Celwave
1995 Steering Wheel Sensor Power Steering Assist Ford
1995 Dielectric Resonator Wireless Telecom-PCS Numerous OEMs
1996 Twilight Sensor Daytime Running Lamps GM
</TABLE>
<TABLE>
<CAPTION>
DEVELOPMENT STAGE PRODUCTS APPLICATION STATUS
- -------------------------- ---------------------------- -------------------------------------------
<S> <C> <C>
Solar Twilight Sensor Combined Climate and OEMs have tested and requested quotes.
Headlamp Control
Rain Sensor Wiper Function and Testing with a North American OEM.
Speed Control
Window Fog Sensor Defrost Control Prototypes provided to European OEMs.
Solar Quadrant Sensor Multi-zone Automatic Climate Prototypes provided to a European OEM.
and Headlamp Control
Electric Vehicle Heaters Automobile Heaters Development funding has been received from
Ford and Chrysler. The Company has started
production tooling for Ford.
</TABLE>
PATENTS, LICENSES AND TRADEMARKS
The Company owns 11 patents and has two patents pending. The Company does
not consider any single patent to be material to its business. The Company
typically requires its employees to execute appropriate non-competition and
patent rights agreements.
The Company is licensed to use technology in patents and know-how owned by
Dr. Hegyi, a consultant to the Company. See "Management--Key Consultant."
35
<PAGE>
MANUFACTURING AND SUPPLY
The Company manufactures and assembles its products at its plants in
Standish and Caribou, Maine, and San Cristobal, Dominican Republic and has
certain value added operations at its distribution facility in France. The
Company's facility in the Dominican Republic, where the Company has an average
total burdened labor cost of $4.00 per hour, has been audited by
representatives of Chrysler, Valeo and Packard Electric and has been certified
as an approved supplier by all three. The Company manufactures its products
using components purchased from third parties and from parts manufactured by
the Company with various raw materials.
During and after the manufacturing process, products undergo extensive
inspection and testing to insure quality control. The Company's commitment to
quality has resulted in the Company having received, in addition to other
awards, ISO (International Standards Organization) 9001-1994 registration (the
highest attainable) in June 1995, GM's Mark of Excellence Award (the highest
attainable) and Ford's Q1 quality rating. The Company is currently in the
process of qualifying for the QS-9000 certification which it expects to
complete in 1996.
Certain of the Company's components are standard items and are available
from multiple sources. The Company also sources components produced from
custom tools or molds. These custom parts may be single sourced in some
circumstances in order to take advantage of price and quality considerations.
The Company has never had any significant supply interruptions in these
components and it believes it could develop alternative sources of supply if
supply interruptions were to occur.
Backlog consists of firm orders received from customers and distributors
with delivery dates requested by customers at some future date. At June 30,
1996, backlog was approximately $8.3 million versus approximately $4.5 million
at June 30, 1995. This backlog increase is primarily due to the acquisition of
RDI. All of the Company's current backlog is expected to be shipped by year
end.
COMPETITION
The Company has many competitors with respect to all of its products, and
the automotive parts supply industry, in particular, is highly competitive.
Many of its competitors in the automotive industry are companies which are
larger, more diversified and have greater financial resources than the
Company. In general, competition in the circuit breaker market is based on
price, although the Company also seeks to compete based on product
performance. The automotive market for circuit breakers is a relatively
mature, small market and the Company competes principally with Texas
Instruments and Otter Controls Inc. In the appliance market for circuit
breakers, the Company competes principally with Texas Instruments. The Company
also competes in the circuit breaker market with suppliers of alternative
technologies, such as fuses which can be used as an alternative to circuit
breakers. Competition in the sensor market is primarily based on technology,
quality, delivery, reliability, price, functionality and engineering support.
The Company's principal competitors in this market are Texas Instruments,
Eaton, Motorola, Panasonic, Philips and Nippondenso. In the ceramics market,
the Company competes on the basis of supplying niche products and on service,
delivery and product technology. Its principal competitors in this market are
NTK, TDK, Alpha Industries, Murata and Siemens. In the European distribution
market, the Company competes with similar electronic distributors.
PROPERTIES
The Company's facilities are kept in good condition and the capacity of such
facilities is adequate for the Company's needs. The Company expects to renew
leases expiring in December 1996 but believes that, if such leases are not
renewed, alternative space would be available on comparable terms. The
following table sets forth certain information, as of June 30, 1996, relating
to the Company's facilities:
36
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE OWNED/
LOCATION PRINCIPAL ACTIVITIES SQUARE FEET LEASED
- -------- --------------------------------- ----------- --------
<S> <C> <C> <C>
Standish, Maine......... Corporate Headquarters; Research 120,000 Owned
and Development; Manufacture of
Electronic Sensors, Glass
Enclosed Circuit Breakers and
Electronic Ceramic Devices
Caribou, Maine.......... Manufacture of Circuit Breakers 33,000 Leased
(Yearly
Renewal)
San Cristobal, Manufacture of Circuit Breakers, 26,000 Leased
Dominican Republic..... Electronic Sensors (Expires
December
1996)
Dearborn, Michigan...... Sales Office 1,320 Leased
(Expires
December
1996)
Villepinte, France...... RDI Headquarters, European 27,500 Owned
Warehouse, Manufacturing and
Distribution.
</TABLE>
EMPLOYEES
As of June 30, 1996, the Company had 808 employees, consisting of 207
employees based in Standish, 92 employees based in Caribou, three employees
based in Dearborn, 396 employees based in the Dominican Republic and 110
employees in France. None of the Company's employees are currently represented
by a labor union; RDI's employees enjoy the benefits of a state-mandated
collective bargaining agreement (Convention Collective de la Metallurgie)
which applies to numerous French companies whose business relates to metal
products, including RDI. The Company believes its relations with employees are
good.
ENVIRONMENTAL MATTERS
The Company's owned and leased facilities are subject to numerous
environmental laws and regulations concerning, among other things, emissions
to the air, discharges to surface and ground water, and the generation,
handling, storage, transportation, treatment and disposal of toxic and
hazardous substances. Under various Federal, state and local environmental
laws, ordinances and regulations, a current or previous owner or operator of
real property may become liable for the costs of removal or remediation of
hazardous or toxic substances on, under or in such property, typically without
regard to fault.
Pursuant to the terms of an Environmental Agreement dated July 6, 1994, GTE
has retained liability and agreed to indemnify the Company for any and all
liabilities arising under CERCLA and other environmental requirements related
to contamination and cleanup of the Standish facility, treatment, storage and
disposal of hazardous materials transported offsite and remediation required
by the State of Maine Department of Environmental Protection ("MEDEP") or U.S.
Environmental Protection Agency ("EPA") not known to exist or occur prior to
July 29, 1994. GTE's indemnification for these various unknown liabilities
expires on July 29, 1997 and July 29, 1999. GTE has also retained complete
liability for claims relating to soil and groundwater contamination from the
surface impoundment and the out-of-service leachfield at the Company's
Standish, Maine facility known to exist prior to the acquisition. Such
contamination is currently being remediated at GTE's sole expense. GTE's
obligation to remediate such contamination and its indemnification for any
claims relating thereto expire several years after the MEDEP and EPA conclude
remediation has been completed.
37
<PAGE>
Except as set forth above, the Company believes that its facilities are in
compliance in all material respects with all applicable United States federal,
state and local environmental laws, ordinances and regulations, as well as
comparable laws and regulations outside the United States. No assurances can
be given, however, that the current environmental condition of the Company's
owned and leased facilities are not other than as currently understood by the
Company, or will not be adversely affected by the condition of properties in
the vicinity of the Company's owned and leased properties, or by the
activities of third parties unrelated to the Company or by former owners or
operators of the Company's owned or leased facilities, or that future laws,
ordinances or regulations will not impose any material environmental liability
on the Company.
LEGAL PROCEEDINGS
The Company is not engaged in any legal proceedings other than ordinary
routine litigation incidental to its business. The Company is not involved in
any pending or threatened legal proceedings which the Company believes could
reasonably be expected to have a material effect on the Company's financial
condition, liquidity or results of operations.
38
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors, executive officers and certain key employees of the Company
and their ages as of the date of this Prospectus are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Ralph R. Whitney, Jr.(1)(2). 61 Chairman of the Board
Bruce D. Atkinson........... 55 Chief Executive Officer, President and
Director
Jeffrey G. Wood............. 40 Vice President, Chief Financial Officer,
Secretary and Treasurer
Michel Hauser-Kauffmann..... 53 General Manager, RDI
Keith J. Coulling........... 38 Engineering Manager--Research and
Development
Richard E. Griffin.......... 53 Plant Manager, Caribou, Maine
Frederick B. Howard, Jr. ... 33 Materials/Marketing Manager
Paul M. Manganelli.......... 51 Quality Assurance/Engineering Manager
Meo J. Poliquin............. 44 Plant Manager, Standish, Maine
Lee A. Prager............... 45 Sales Manager
Jose M. Ricardo............. 32 Plant Manager, Dominican Republic
Charles M. Brennan, III(1).. 54 Director
John D. Cooke(1)(2)......... 55 Director
James O. Futterknecht, Jr. . 49 Director
Alan I. Mossberg(2)......... 64 Director
John M. Ramey............... 43 Director
Glenn Scolnik............... 45 Director
</TABLE>
- --------
(1)Member of Audit Committee
(2)Member of the Compensation Committee
Mr. Whitney has been Chairman of the Board of the Company since July 1994,
and was Chief Executive Officer from July 29, 1994 until June 22, 1995. Mr.
Whitney has been a principal of HKW, a New York private capital firm, since
1971. Mr. Whitney is also a director of Excel Industries, Inc. ("Excel"),
Baldwin Technology Company, Inc., Adage, Inc., IFR Systems, Inc., and Selas
Corp. of America.
Mr. Atkinson has been President and a Director of the Company since July
1994, and has been Chief Executive Officer since June 22, 1995. Mr. Atkinson
was General Manager of the Business and the Telecommunications Division from
1978 until September 1993, and was General Manager of the Business from
September 1993 until July 1994.
Mr. Wood has been Vice President, Chief Financial Officer, Secretary and
Treasurer of the Company since July 1994. Mr. Wood was Controller of the
Business and the Telecommunications Division from 1990 to September 1993 and
was Controller of the Business from September 1993 until July 1994. From 1987
to 1990 Mr. Wood was Controller of the Caribbean operations of the special
products division of GTE.
Mr. Coulling has been the Company's New Product Manager since 1994. Mr.
Coulling was an Engineering Supervisor for the Company from 1993 to 1994 and a
Special Project Engineer from 1989 to 1993. He has been with the Company in
various capacities for a total of 14 years.
Mr. Griffin has been Plant Manager at the Caribou manufacturing facility
since 1982. Mr. Griffin was a Manufacturing Supervisor at Standish from 1966
to 1982. Mr. Griffin has been with the Company in various capacities for 33
years.
Mr. Howard has been Materials/Marketing Manager since June 1996. Mr. Howard
was Marketing Manager from 1992 to 1996 and was Marketing Manager
Telecommunications Division from 1991 to 1992. He has been with the Company in
various capacities for seven years.
39
<PAGE>
Mr. Manganelli has been the Company's Quality Assurance/Engineering Manager
since February 1994. Mr. Manganelli was an Engineering Supervisor for the
Company from 1985 to 1994 and held various other engineering positions with
the Company from 1975 to 1985.
Mr. Poliquin has been Plant Manager of the Company's Standish, Maine, plant
since 1993. Mr. Poliquin was Operations Manager--Caribbean Operations for the
Company from 1991 to 1993 and was Plant Manager of the Company's Oxford, Maine
feeder plant from 1977 to 1981.
Mr. Prager has been the Company's Sales Manager since October 1993. Mr.
Prager was Manager of Electronic Ceramics from March to October 1993, PTC
Product Manager from 1986 to 1993, Manager of Research and Development from
1983 to 1986 and held engineering positions with the Company from 1980 to
1983.
Mr. Ricardo has been Plant Manager at the Dominican Republic Manufacturing
facility since 1993. Mr. Ricardo was Manufacturing Supervisor from 1988 to
1993. He has been with the Company in various capacities for eight years.
Mr. Brennan has been a Director of the Company since July 1994. Mr. Brennan
has been Chairman of the Board and Chief Executive Officer of MYR Group Inc, a
specialty electrical and telecommunications contractor, since 1989. Mr.
Brennan is also a director of UNR Industries, Inc.
Mr. Cooke has been a Director of the Company since July 1994. Mr. Cooke has
been Senior Vice President-Investments of Prudential Securities, Inc. since
1991. For more than five years prior thereto he was Senior Vice President-
Investments of Thompson McKinnon Securities.
Mr. Futterknecht has been a Director of the Company since October 1995. Mr.
Futterknecht has been Chairman of the Board, President and Chief Executive
Officer of Excel, an Elkhart, Indiana automotive parts supplier, since
September 1995. Mr. Futterknecht was President and Chief Operating Officer of
Excel from 1992 to September 1995, and Executive Vice President of Excel from
1990 to 1992.
Mr. Mossberg has been a Director of the Company since July 1994. Mr.
Mossberg has been Chief Executive Officer and President of O. F. Mossberg &
Sons, Inc. ("O. F. Mossberg"), a North Haven, Connecticut manufacturer of
shotguns, for more than five years.
Mr. Ramey has been a Director of the Company since June 1994. Mr. Ramey has
been a principal of HKW since 1986 and sits on the boards of several private
companies.
Mr. Scolnik has been a Director of the Company since June 1994. Mr. Scolnik
has been a principal of HKW since April 1993. Mr. Scolnik was a member of the
law firm of Sommer & Barnard, PC, Indianapolis, Indiana, for more than five
years prior to April 1993, and was of counsel to such firm from April 1993 to
January 1995. Mr. Scolnik is a director of WavePhore, Inc., a data
broadcasting company, and sits on the boards of several private companies.
All directors hold office until the next annual meeting of shareholders or
until their successors are elected and qualified. Executive officers serve at
the discretion of the Board of Directors. Directors who are not officers are
paid $14,200 per year payable quarterly plus $200 per board meeting attended
and $200 per committee meeting if not held on the date of a board meeting.
Non-employee directors will also be granted options to purchase 1,000 Common
Shares, at the fair market value on the date of grant, annually upon
reelection commencing with the 1997 meeting of shareholders. The options will
expire at the earlier of one year after termination of the director's Board
membership or ten years after the date of grant. Directors who are employees
of the Company receive no fees or options for serving as directors.
40
<PAGE>
KEY CONSULTANT
Dr. Dennis J. Hegyi, age 53, has been a key consultant to the Company with
respect to the development of its sensor products, in particular its solar
sensor, since 1989. Dr. Hegyi has been a tenured Professor of Physics at the
University of Michigan in Ann Arbor since 1986. Dr. Hegyi received a B.S. in
Physics from Massachusetts Institute of Technology in 1963 and a Ph.D. in
Physics from Princeton University in 1968.
In April 1995, the Company and Dr. Hegyi entered into a new Consultant's
Agreement, three new license agreements and a new Agreement to Grant License
which were designed to continue, on a long term basis, the relationship
between Dr. Hegyi and the Company started in 1989 when the Company and Dr.
Hegyi entered into a consulting agreement and a solar sensor license agreement
(the "1989 License Agreement"). The new Consultant's Agreement requires the
Company to engage Dr. Hegyi for at least 720 hours of consulting per year,
including design, design modification and marketing assistance services
regarding any current or prospective automotive sensor products. The term of
the new agreement is for six years through March 31, 2001 and requires the
Company to pay Dr. Hegyi $257 per hour (in 1996), plus a cost of living
escalator in each subsequent year. The new agreement replaced a consulting
agreement entered into in 1989 which was restricted to the solar sensor
currently being sold by the Company.
The three new license agreements entered into in April 1995 supplement the
1989 License Agreement regarding the Company's existing solar sensor product.
The three new license agreements are substantially similar to each other and
to the 1989 License Agreement and cover the twilight sensor, the rain and/or
window fog and solar position sensor products also in the development stage at
the Company. The 1989 License Agreement and the new twilight sensor license
agreement each require royalty payments to Dr. Hegyi equal to 5% of the net
selling price of products sold by the Company which are covered by valid
claims in any patent owned by Dr. Hegyi. The royalty rate for the rain and/or
window fog sensor and the solar position sensor is 6% of the net selling price
to the extent the product is covered by a valid claim in a patent owned by Dr.
Hegyi. If any of these products sold by the Company is not covered by a valid
patent claim, but instead utilizes know-how supplied by Dr. Hegyi, the royalty
rate for that product is 5% (6% for rain and/or window fog products and solar
position products) for three years (six years for rain and/or window fog
products and solar position products), 3% for three years, and 1% for three
years. Pursuant to the three new license agreements, the Company has
guaranteed to Dr. Hegyi annual minimum royalty payments, starting at an
aggregate of $15,000 for 1996 and increasing to an aggregate of $260,000 for
2002 and each year thereafter.
The three new license agreements also require the Company to pay Dr. Hegyi
certain cash payments in the event the Company receives a purchase order from
an automotive OEM for a twilight, rain, window fog, or solar position sensor
expected to generate at least $1,000,000 in sales to the Company over the life
of the agreement. The amount of such up front payments are $225,000 for each
of the twilight, rain and window fog sensor products and $125,000 for the
solar position sensor product. The three new license agreements and the 1989
License Agreement grant the Company an exclusive, world-wide license to make,
use, sell, or sublicense the licensed products and require the Company to use
reasonable efforts to commercialize the licensed products.
In April 1995, the Company and Dr. Hegyi also entered into an Agreement to
Grant License which obligates Dr. Hegyi to offer to license to the Company any
new invention of his which involves an automotive component part or any type
of circuit breaker or thermoprotector. This agreement expires in 2001 and any
license required to be granted thereunder must be upon substantially the same
terms as the rain and/or window fog sensor license agreement, except that the
payment on signing the agreement is $15,000, and the royalty rate is 7.5%. Dr.
Hegyi is prohibited from competing with the Company through March 31, 2001,
except with respect to a new invention offered to, but declined by, the
Company for license. In consideration for Dr. Hegyi's obligations in this
agreement, the Company paid him $200,000 and issued him a non-qualified stock
option to purchase up to 200,000 Common Shares exercisable at any time prior
to March 31, 2002. The exercise price per share is the lower of $10.00 or the
offering price per share in this Offering.
41
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Douglas H. Bagin and Messrs. Mossberg and Whitney were members of the
compensation committee of the Board of Directors during the year ended
December 31, 1995. Mr. Atkinson was a member of the compensation committee
until he became Chief Executive Officer of the Company on June 22, 1995. Mr.
Bagin, who became a principal of HKW in 1996, resigned from the Board on July
29, 1996. He had no disagreement with management of the Company or the Board.
Mr. Bagin was an executive officer of Maine Rubber Company ("MRC") during
1995. Mr. Whitney is the Chief Executive Officer and Chairman of the Board of
MRC, and a member of the executive committee of the Board of Directors of MRC,
which performs the functions of a compensation committee.
Since the acquisition of the Business, the Company has paid HKW management
fees of $15,000 per month as compensation for HKW providing managerial and
financial consulting and merger and acquisition advice and assistance. In
1994, 1995, and the first seven months of 1996, such fees totaled $75,000,
$180,000 and $105,000, respectively. Since the acquisition of the Business,
the Company has paid directors' fees, but no salary, to Mr. Whitney. See
"Management."
Mr. Mossberg is an executive officer of O.F. Mossberg. Mr. Whitney is a
director and a member of the compensation committee of the Board of Directors
of O. F. Mossberg.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information regarding
compensation paid by the Company for the year ended December 31, 1995 to the
Company's executive officers. No executive officer held any options to
purchase Common Shares at December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------
OTHER ALL
ANNUAL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS (1) COMPENSATION COMPENSATION
- --------------------------- -------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Ralph R. Whitney, Jr.,
Chairman........................ $ -- $ -- $ -- $15,000(2)
Bruce D. Atkinson,
President and CEO............... 211,647 35,219 1,381(3) 6,660(4)
Jeffrey G. Wood,
Vice President and CFO.......... 145,248 21,011 602(5) 6,587(4)
</TABLE>
- --------
(1) Represents bonus for the five months ended December 31, 1994 paid in 1995.
(2) Represents director's fees paid to Mr. Whitney.
(3) Includes value of personal use of a Company leased automobile and Company
paid life insurance.
(4) Represents contributions to a defined contribution plan by the Company.
(5) Includes value of Company paid life insurance.
EMPLOYEE STOCK OPTION PLANS
The Company has reserved 300,000 Common Shares for issuance pursuant to its
1996 Stock Compensation Plan (the "Plan"). The Plan permits the grant of
Incentive Stock Options within the meaning of Section 422 of the Internal
Revenue Code, nonstatutory options and performance units payable in cash or
Common Shares. No options or performance units have been granted to date. The
Plan is administered by the compensation committee of the Board of Directors.
HAUSER-KAUFFMANN EMPLOYMENT AGREEMENT
The terms of Michel Hauser-Kauffmann's employment with RDI are governed by
(i) his written employment agreement dated January 10, 1986, with amendments
dated March 23, 1986 and March 29, 1996 (the "Employment Agreement"), and (ii)
by the provisions of French law and the National Metal Workers' collective
bargaining agreement.
42
<PAGE>
The Employment Agreement provides that Mr. Hauser-Kauffmann will receive a
gross annual base salary of FF 975,000 (approximately $195,000 at current
exchange rates), plus an annual bonus payment of up to FF 487,000
(approximately $97,000 at current exchange rates). The amount of bonus payment
will depend on whether Mr. Hauser-Kauffmann satisfies certain performance
objectives set annually by management. In addition to his base salary and
bonus payment, Mr. Hauser-Kauffmann receives the use of a company car, health
insurance and supplemental retirement benefits. The Employment Agreement
provides for a contractual severance payment to Mr. Hauser-Kauffmann if RDI
terminates the Employment Agreement for any reason (other than for
exceptionally serious misconduct--"faute lourde") prior to March 29, 1998. The
amount of the contractual severance payment is equal to two years salary and
bonus.
In addition, Mr. Hauser-Kauffmann benefits from the provisions of French
labor law, and the National Metal Workers' collective bargaining agreement
(Convention Collective de la Metallurgie; the "Collective Bargaining
Agreement"), which applies to numerous French companies whose businesses
relate to metal products, including RDI. Both French labor law and the
Collective Bargaining Agreement provide for a minimum notice period prior to
dismissal of an employee and for the payment of termination indemnities. In
addition to these termination indemnities, French law also provides for the
payment of damages if the dismissal is without "real and serious cause."
In general, if Mr. Hauser-Kauffmann is dismissed before March 29, 1998, he
would receive a severance payment under his Employment Agreement. The
Employment Agreement provides that this severance payment is inclusive of any
damages and termination indemnities that may be due under French law or the
Collective Bargaining Agreement. If Mr. Hauser-Kauffmann is dismissed after
March 29, 1998, damages and termination indemnities would be payable under
French law and the Collective Bargaining Agreement, which would take into
account Mr. Hauser-Kauffmann's age and seniority.
43
<PAGE>
CERTAIN TRANSACTIONS
In connection with the purchase of the Business, the Company sold securities
to certain officers and directors in transactions exceeding $60,000, as
follows: 320,690 Common Shares and one Redeemable Preferred Share to Ralph R.
Whitney, Jr. for an aggregate consideration of $110,808; 153,846 Common Shares
and 48 Reedemable Preferred Shares to Bruce D. Atkinson for an aggregate
consideration of $60,000; 20,000 Common Shares and 94 Redeemable Preferred
Shares to Charles M. Brennan III for an aggregate consideration of $100,000;
20,000 Common Shares and 94 Reedemable Preferred Shares to John D. Cooke for
an aggregate consideration of $100,000; and 20,000 Common Shares and 94
Reedemable Preferred Shares to James O. Futterknecht, Jr. for an aggregate
consideration of $100,000. See "Principal Shareholders."
The Company was initially capitalized with an equity investment of
$3,000,000, consisting of $600,000 for an aggregate of 2,000,000 Class A and
Class B Common Shares and $2,400,000 for 2,400 Reedemable Preferred Shares.
The Company financed the acquisition of the Business in part with $15,000,000
from MassMutual and the $1,500,000 Seller Note from GTE. The Company also
obtained a $1,500,000 line of credit from MassMutual, which was subsequently
increased to $3,000,000 in connection with the RDI acquisition. As part of
this financing, the Company sold to MassMutual (i) 435,896 Class B Series 1
Common Shares for an aggregate consideration of $145,000, (ii) 580 Reedemable
Preferred Shares at the stated value of $1,000 per share for a total of
$580,000, and (iii) warrants to purchase 564,100 Class B Series 1 Common
Shares. In connection with the RDI acquisition, the Company paid off the
Seller Note with cash on hand.
MassMutual is expected to exercise such warrants and to convert its Class B
Series 1 Common Shares into Class A Common Shares effective upon the closing
of this Offering. In addition, MassMutual and the other shareholders of the
Company are expected to approve in August 1996, an amendment to the Company's
Articles of Incorporation, to take effect at the closing of this Offering,
reclassifying the Class A Common Shares as Common Shares and eliminating the
designations of Class A Common Shares and Class B Common Shares. See
"Description of Capital Shares."
On April 1, 1995, the Company entered into a Consultant's Agreement and
certain license agreements with Dr. Dennis J. Hegyi, and, in connection
therewith, granted to Dr. Hegyi an option to purchase up to 200,000 Common
Shares. See "Management--Key Consultant" and "Description of Capital Shares--
Options."
The Company pays certain management fees to HKW, of which Messrs. Whitney,
Ramey, Crisman, Scolnik and Bagin are principals. See "Compensation Committee
Interlocks and Insider Participation." Since the acquisition of the Business,
the Company has paid Messrs. Whitney, Ramey, Crisman, Scolnik and Bagin
directors fees. See "Management." Mr. Scolnik, a Director of the Company, also
assists the Company in the management of its legal affairs. During 1994, 1995,
and the first six months of 1996 Mr. Scolnik was paid $16,635, $58,923 and
$23,365, respectively, for such services.
In April 1996, the Company acquired all of the issued and outstanding
capital stock of RDI for a total purchase price of $8,964,000. The Company
paid $6,964,000 in cash, delivered the RDI Notes and delivered the RDI
Convertible Notes. The price was determined in arms length negotiations
between the directors of the Company and the shareholders of RDI, none of whom
were officers of the Company at the time. Mr. Michel Hauser-Kauffman, General
Manager of RDI, received from such consideration in exchange for his shares of
RDI a total of $1,285,515 in cash and $369,200 in aggregate principal amount
of RDI Convertible Notes. Mr. Hauser-Kaufmann's RDI Convertible Notes will
convert automatically upon the closing of this Offering into Common Shares
of the Company assuming an initial offering price of $ per share.
44
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership as of June 30, 1996, of (i) each person known by the Company to
beneficially own 5% or more of the Common Shares, (ii) each current director
of the Company, (iii) each executive officer of the Company and (iv) all
current directors and executive officers as a group. Except as otherwise
indicated, each shareholder has sole voting and investment power with respect
to the shares listed.
<TABLE>
<CAPTION>
PERCENT OWNED
------------------------------
NAME NUMBER OF SHARES (1) BEFORE OFFERING AFTER OFFERING
- ---- -------------------- --------------- --------------
<S> <C> <C> <C>
Ralph R. Whitney, Jr. (2).. 320,690(3) 12.1% 6.9%
Bruce D. Atkinson (2)...... 153,846 5.8 3.3
Jeffrey G. Wood (2)........ 102,564 3.9 2.2
Michel Hauser-Kauffman (2). (4)
Charles M. Brennan, III
(2)....................... 20,000 0.8 0.4
John D. Cooke (2).......... 20,000 0.8 0.4
James O. Futterknecht, Jr.
(2)....................... 20,000(5) 0.8 0.4
Alan I. Mossberg (2)....... 10,000(6) 0.4 0.2
John M. Ramey (2).......... 160,345(7) 6.1 3.5
Glenn Scolnik (2).......... 160,345 6.1 3.5
Massachusetts Mutual Life
Insurance Company and
certain affiliates........ 999,996(8) 37.8 21.5
Dennis J. Hegyi (9)........ 200,000(10) 7.6 4.3
Forrest E. Crisman, Jr.
(11)...................... 160,345 6.1 3.5
All directors and executive
officers as a group
(10 persons)..............
</TABLE>
- --------
(1) Assumes the adjustments described in the Prospectus Summary.
(2) The address for each shareholder, each of whom is an officer or director
of the Company, is the principal office of the Company.
(3) Includes 80,172 shares owned by Mr. Whitney's wife, as to which Mr.
Whitney disclaims beneficial ownership.
(4) Assumes conversion of Mr. Hauser-Kauffman's RDI Convertible Note in the
aggregate principal amount of $369,200 at an assumed initial public
offering price of $ per share.
(5) Includes 5,000 shares held by a revocable trust of which Mr. Futterknecht
is trustee, 5,000 shares held by a revocable trust of which Mr.
Futterknecht's wife is trustee and 10,000 shares held by two irrevocable
trusts for the benefit of Mr. Futterknecht's children, all of such shares
as to which Mr. Futterknecht disclaims beneficial ownership.
(6) Represents shares owned by Mr. Mossberg's wife, as to which Mr. Mossberg
disclaims beneficial ownership.
(7) Includes 60,000 shares owned by Mr. Ramey's wife, as to which Mr. Ramey
disclaims beneficial ownership.
(8) Assuming the adjustments described in the Prospectus Summary, includes
174,199 shares owned by MassMutual Corporate Investors, 57,999 shares
owned by MassMutual Participation Investors, each of which is a mutual
fund managed by Massachusetts Mutual Life Insurance Company, and 174,199
shares owned by Gerlach & Company for the benefit of certain MassMutual
affiliates. Massachusetts Mutual Life Insurance Company disclaims
beneficial ownership of any shares in which it has no actual pecuniary
interest. The address of each shareholder is Massachusetts Mutual Life
Insurance Company, 1295 State Street, Springfield, Massachusetts 01111.
(9) Dr. Hegyi's address is 1708 Morton Avenue, Ann Arbor, Michigan 48104.
(10) Represents Common Shares issuable upon exercise of an outstanding option.
(11) Mr. Crisman's address is 230 Park Avenue, New York, NY 10169.
45
<PAGE>
DESCRIPTION OF CAPITAL SHARES
Following the Offering, the Company will have authorized 16,000,000 Common
Shares and 3,000,000 preferred shares. As of June 30, 1996, 1,999,994 Common
Shares and 2,400 Redeemable Preferred Shares were outstanding. As of June 30,
1996, there were 68 holders of record of Common Shares and 49 holders of
record of Redeemable Preferred Shares.
COMMON SHARES
Holders of Common Shares are entitled to one vote per share. Subject to the
rights of holders of any class having a preference over the Common Shares as
to dividends or upon liquidation, holders of Common Shares are entitled to
such dividends as may be declared by the Company's Board of Directors out of
funds lawfully available therefor. See "Dividend Policy." Subject to the
rights of holders of any class or series of shares having a preference over
the Common Shares upon liquidation, holders of Common Shares are entitled upon
liquidation to receive pro rata the assets available for distribution to
shareholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Shares is The First National
Bank of Boston.
PREFERRED SHARES
The Company has issued and outstanding 2,400 Redeemable Preferred Shares
with a stated value of $1,000 per share, which it intends to redeem with the
proceeds of this Offering. See "Use of Proceeds." The holders of Redeemable
Preferred Shares are entitled to receive cummulative cash dividends at a rate
of 11% per annum, which dividends are required to be paid annually in an
amount not to exceed 25% of the Company's Excess Cash Flow (as defined in its
Articles of Incorporation). The Redeemable Preferred Shares, which are not
convertible, are required to be redeemed on July 29, 2006 at their stated
value plus accrued but unpaid dividends. In addition, the Company is required
to redeem (i) the Redeemable Preferred Shares to the extent 25% of annual
Excess Cash Flow exceeds accrued but unpaid dividends by more than $24,000 and
(ii) 580 Redeemable Preferred Shares issued to MassMutual, plus accrued but
unpaid dividends upon the repayment of the Senior Notes and Subordinated
Notes.
Except to the extent that any of the Redeemable Preferred Shares are not
redeemed in connection with this Offering, there will be no preferred shares
outstanding after this Offering. The Board of Directors will have the
authority, without further action by the shareholders, to issue additional
preferred shares in one or more series and fix the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
preferred shares and to fix the number of shares constituting any series and
the designation of such series, without any further vote or action by the
shareholders. The issuance of preferred shares may have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the shareholders, may discourage bids for the Company's
Common Shares at a premium over the market price of the Common Shares and may
adversely affect the market price of and the voting and other rights of the
holders of Common Shares. The Company has no present plans to issue any
additional preferred shares.
CONVERTIBLE SECURITIES
The Company has issued an option to purchase 200,000 Common Shares at a
price equal to the lower of $10.00 per share or the public offering price per
share in this Offering. Such option expires on March 31, 2002. See
"Management--Key Consultant." Pursuant to the Plan, the Company may issue
options exercisable for 300,000 Common Shares. No options have been granted
under the Plan to date. In addition, as a result of the Company's acquisition
of RDI, there are $892,000 in aggregate principal amount of RDI Convertible
Notes that will automatically convert upon the closing of this Offering into
Common Shares, assuming an initial public offering price of $ per share.
46
<PAGE>
EFFECTS OF INDIANA LAW
In the event any person acquires 10% of the voting power of the Company's
Common Shares (an "Interested Shareholder"), then, for a period of five (5)
years after such acquisition, the Indiana Business Corporation Law (the "BCL")
prohibits certain business combinations between the Company and such
Interested Shareholder unless prior to the acquisition of such Common Shares
by the Interested Shareholder, the Board of Directors of the Company approves
of such acquisition of Common Shares or approves of such business combination.
After such five-year period, only the following three types of business
combinations between the Company and such an Interested Shareholder are
permitted: (i) a business combination approved by the Board of Directors of
the Company before acquisition of Common Shares by the Interested Shareholder,
(ii) a business combination approved by holders of a majority of the Common
Shares not owned by the Interested Shareholder, and (iii) a business
combination in which the shareholders receive a price for their Common Shares
at least equal to a formula price based on the highest price per Common Share
paid by the Interested Shareholder.
REGISTRATION RIGHTS
Upon completion of this Offering, certain shareholders (the "Rightsholders")
will be entitled to require the Company to register under the Securities Act
up to a total of 999,996 Common Shares (the "Registrable Shares"), pursuant to
the terms of the Securities Purchase Agreements dated as of July 29, 1994 (the
"Securities Purchase Agreements"). The Securities Purchase Agreements provide
that, subject to certain conditions and limitations, Rightsholders holding at
least 25% of the Registrable Shares may require the Company to prepare and
file a registration statement under the Securities Act with respect to their
Registrable Shares. In connection with this Offering, the Rightsholders are
expected to agree not to exercise such registration rights for 180 days from
the date of this Prospectus. In addition, the Securities Purchase Agreements
provide that in the event the Company proposes to register any of its
securities, each Rightsholder may require the Company to include Registrable
Shares in such registration; however, in any underwritten offering, the
managing underwriter may exclude some or all Registrable Shares for marketing
reasons but solely to the extent such exclusion is applied pro rata to all
persons, other than the Company, participating in such offering. The
Rightsholders are expected to waive such registration rights with respect to
this Offering. The Company is generally required to bear the expenses of all
such registrations, except underwriting discounts and commissions. The Company
is required to indemnify each Rightsholder in connection with any such
registration.
Prior to this Offering, there has been no public market for the Common
Shares of the Company and no prediction can be made as to the effect, if any,
that market sales of shares or the availability of shares for sale will have
on the market price of the Common Shares prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Shares, or the perception
that such sales could occur, could adversely affect prevailing market prices
for the Common Shares and could impair the Company's future ability to obtain
capital through an offering of equity securities.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Common
Shares. Future sales of substantial amounts of Common Shares in the public
market could adversely effect the trading price of the Common Shares.
Upon completion of this Offering, the Company will have outstanding
Common Shares. Of those shares, 2,000,000 Common Shares sold in this Offering
will be freely tradeable in the public market without restriction or further
registration under the Securities Act unless purchased by "affiliates" of the
Company within the meaning of Rule 144. Of the remaining Common Shares,
Common Shares (collectively the "Restricted Shares") are "restricted
securities" within the meaning of Rule 144 and may not be sold in the absence
of registration under the Securities Act except in compliance with the
limitations set forth in Rule 144 or pursuant to an exemption from
registration.
A total of of the Restricted Shares will be eligible for resale in the
public market pursuant to Rule 144 beginning 180 days after the date of this
Prospectus upon expiration of certain lock-up agreements. Of the balance of
the Restricted Shares, shares will be eligible for resale pursuant to Rule
144 beginning 90 days after the date of the Prospectus, and 564,100 shares
will be eligible for resale pursuant to Rule 144 beginning two years after the
closing of this Offering. Also, beginning 180 days after the date of this
Prospectus, upon expiration of a lock-up agreement, an additional 200,000
Common Shares issuable upon exercise of an outstanding option may be resold in
the public market pursuant to Rule 701.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least
two years (including the holding period of any prior owner other than an
affiliate) is entitled to sell in "broker's transactions" or to market makers,
within any three-month period, a number of shares that does not exceed the
greater of (i) one percent of the number of Common Shares then outstanding
(approximately shares immediately after this Offering), or (ii) the average
weekly trading volume in the Common Shares during the four calendar weeks
preceding the required filing of a Form 144 with respect to such sale. Sales
under Rule 144 are also subject to certain provisions relating to the manner
and notice of sale and availability of current public information about the
Company. Under Rule 144(k), a person is entitled to sell shares beneficially
owned by him or her without compliance with the manner of sale, public
information, volume limitation or notice provisions of Rule 144, provided that
such person is not deemed to have been an affiliate of the Company at any time
during the last ninety days preceding a sale, and a period of at least three
years has elapsed since the later of the date the securities were acquired
from the issuer or from an affiliate of the issuer. In general, under Rule
701, persons other than affiliates of an issuer may resell securities in
reliance on Rule 144 without compliance with holding period or volume
limitations.
The Company sold the RDI Convertible Notes pursuant to Regulation S under
the Securities Act. Regulation S applies to sales of securities to non-U.S.
persons in offshore transactions. A total of Common Shares (assuming an
initial public offering price of $ per share) issuable at the closing of the
Offering upon conversion of the RDI Convertible Notes will be eligible for
resale in offshore transactions after the later of (i) the expiration of lock-
up agreements beginning 180 days after the date of this Prospectus or (ii)
April 1, 1997, which is one year after the date of sale of such Notes.
MassMutual has certain registration rights with respect to 999,996 Common
Shares acquired pursuant to the Securities Purchase Agreements. See
"Description of Capital Shares--Registration Rights."
48
<PAGE>
UNDERWRITING
The Underwriters named below, for whom Dean Witter Reynolds Inc. and Cleary
Gull Reiland & McDevitt Inc. are acting as representatives (the
"Representatives"), have severally agreed, subject to the terms and conditions
of an underwriting agreement (the "Underwriting Agreement"), to purchase from
the Company the number of Common Shares set forth opposite their respective
names below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Dean Witter Reynolds Inc....................................
Cleary Gull Reiland & McDevitt Inc..........................
---------
Total..................................................... 2,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligation is such that they must purchase all of the Common Shares offered to
the public, if any such Common Shares are purchased.
Prior to the Offering, there has been no public market for the Common
Shares. The initial public offering price for the Common Shares was determined
through agreement among the Company and the Representatives. Among the factors
considered in making such determination were the prevailing market conditions
and general economic conditions, the market prices of securities and certain
financial and operating information of publicly traded companies which the
Company and the Representatives believed to be comparable to the Company, the
earnings and certain other financial and operating information of the Company
in recent periods, the future prospects of the Company and its industry in
general and other factors deemed relevant.
The Company has been advised by the Underwriters that the Underwriters
propose to offer the Common Shares directly to the public at the initial
public offering price set forth on the cover page of this Prospectus and to
certain dealers (who may include Underwriters) at the public offering price
less a concession not to exceed $ per share. Such dealers may reallow a
concession not to exceed $ per share in sales to other dealers. After the
initial public offering, the public offering price and concessions and
reallowances to dealers may be changed by the Underwriters.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments the Underwriters may be required to make in respect thereof.
The Company has granted to the Underwriters an option, exercisable within 30
days from the date of this Prospectus, to purchase up to an additional 300,000
Common Shares at the initial public offering price
49
<PAGE>
less underwriting discounts and commissions. The Underwriters may exercise the
option only for the purpose of covering over-allotments, if any, made in
connection with the distribution of the Common Shares to the public. To the
extent that the Underwriters exercise such option, the Underwriters will be
committed, subject to certain conditions, to purchase a number of option
shares proportionate to such Underwriter's initial commitment.
The Company, each of its directors and executive officers who own Common
Shares, certain family affiliates of such directors and executive officers,
each person who beneficially owns more than five percent of the Company's
Common Shares and certain other shareholders of the Company have agreed with
the Underwriters that they will not offer, sell or contract to sell, or
otherwise dispose of or enter into any agreement to sell, directly or
indirectly, any securities convertible into, or exchangeable or exercisable
for, Common Shares for a period of 180 days after the date of this Prospectus
without the prior written consent of Dean Witter Reynolds Inc. See "Shares
Eligible for Future Sale."
At the Company's request, the Representatives have reserved up to 90,000
Common Shares for sale at the initial public offering price to the Company's
employees and other persons having certain relationships with the Company. The
number of Common Shares available for sale to the general public will be
reduced to the extent these persons purchase such reserved shares. Any
reserved shares not purchased will be offered by the Underwriters to the
general public on the same terms as the other shares offered hereby.
LEGAL MATTERS
The validity of the issuance of the Common Shares being offered hereby will
be passed upon for the Company by Sommer & Barnard, PC, Indianapolis, Indiana,
counsel for the Company. Certain legal matters will be passed upon for the
Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The audited financial statements included in this Prospectus and elsewhere
in the Registration Statement have been audited by Arthur Andersen LLP and
Barbier Frinault & Associes, independent public accountants, as indicated in
their reports thereto, and are included herein in reliance upon the authority
of said firms as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement on Form S-1 under
the Securities Act of 1933, as amended, with respect to the Common Shares
offered hereby (the "Registration Statement"). This Prospectus does not
contain all the information set forth in the Registration Statement and in the
exhibits and schedules thereto. For further information about the Company and
the securities offered hereby, reference is hereby made to the Registration
Statement and to the exhibits and schedules thereto. The Registration
Statement, including the exhibits and schedules thereto, may be inspected and
copied at the Commission's Public Reference Room, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: New York Regional Office, 75 Park Place, New York, New York,
10007, and Chicago Regional Office, Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60621-2511. Copies of such material may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington D.C. 20549, at prescribed rates.
50
<PAGE>
INDEX TO FINANCIAL STATEMENTS
CONTROL DEVICES, INC.
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
DECEMBER 31, 1993, 1994, AND 1995, AND JUNE 30, 1995 AND 1996
Report of Independent Public Accountants........................ F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995,
and June 30, 1996 (Unaudited).................................. F-3
Consolidated Statements of Income for the Year Ended December
31, 1993, the Seven Months Ended July 29, 1994, the Five Months
Ended December 31, 1994, the Year Ended December 31, 1995 and
the Six Months Ended June 30, 1995 and 1996 (Unaudited)........ F-4
Consolidated Statements of Shareholders' Equity for the Five
Months Ended December 31, 1994, the Year Ended December 31,
1995 and the Six Months Ended June 30, 1996 (Unaudited)........ F-5
Consolidated Statements of Cash Flows for the Year Ended
December 31, 1993, the Seven Months Ended July 29, 1994, the
Five Months Ended December 31, 1994, the Year Ended December
31, 1995 and the Six Months Ended June 30, 1995 and
1996 (Unaudited)............................................... F-6
Notes to Consolidated Financial Statements...................... F-7 to F-19
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE ("RDI")
Report of Independent Public Accountants........................ F-20
Consolidated Balance Sheets as of December 31, 1994 and 1995.... F-21
Consolidated Statements of Income for the Three Years in the
Period Ended December 31, 1995................................. F-22
Consolidated Statements of Changes in Stockholders' Equity for
the Three Years in the Period Ended December 31, 1995.......... F-23
Consolidated Statements of Cash Flows for the Three Years in the
Period Ended December 31, 1995................................. F-24
Notes to Consolidated Financial Statements...................... F-25 to F-33
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO CONTROL DEVICES, INC.:
We have audited the accompanying balance sheets of Control Devices, Inc. (an
Indiana corporation) as of December 31, 1994 and 1995, and the related
statements of income, shareholders' equity and cash flows for the five months
ended December 31, 1994 and for the year ended December 31, 1995. We have also
audited the accompanying combined statements of income and cash flows of the
Electromechanical Business of GTE Control Devices Incorporated and Dominican
Overseas Company ("Predecessor Company") for the year ended December 31, 1993
and for the seven months ended July 29, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Control Devices, Inc. as
of December 31, 1994 and 1995, and the results of its operations and its cash
flows for five months ended December 31, 1994 and for the year ended December
31, 1995, and of the results of operations and cash flows for the Predecessor
Company for the year ended December 31, 1993 and for the seven months ended
July 29, 1994, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Stamford, Connecticut,
January 21, 1996 (except for Note 4
as to which the date July 15, 1996)
F-2
<PAGE>
CONTROL DEVICES, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................ $ 5,304 $10,459 $ 3,724
Receivables, less allowance for doubtful accounts
of $257, $277 and $484, respectively............ 5,111 4,305 10,482
Inventories...................................... 2,999 3,279 7,158
Other current assets............................. 613 1,001 1,195
------- ------- -------
Total current assets........................... 14,027 19,044 22,559
PROPERTY, PLANT AND EQUIPMENT, net................. 12,024 11,097 13,558
GOODWILL, net...................................... -- -- 6,869
------- ------- -------
$26,051 $30,141 $42,986
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt................ $ -- $ 500 $ 1,279
Short-term debt.................................. -- -- 654
Accounts payable................................. 1,520 1,429 5,356
Accrued employee benefits........................ 1,311 1,459 3,140
Accrued expenses................................. 1,941 1,994 3,615
------- ------- -------
Total current liabilities...................... 4,772 5,382 14,044
LONG-TERM DEBT..................................... 16,320 15,853 16,743
OTHER LIABILITIES.................................. 248 1,001 2,525
REDEEMABLE PREFERRED SHARES........................ 2,400 2,400 2,400
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS' EQUITY:
Class A Common Shares, no par value; 10,000,000
authorized and 1,564,098 issued................. 520 520 520
Class B Series 1 Common Shares, no par value;
4,000,000 authorized and 435,896 issued......... 145 145 145
Warrants......................................... 180 180 180
Foreign currency translation adjustment.......... -- -- (222)
Retained earnings................................ 1,466 4,660 6,651
------- ------- -------
Total shareholders' equity..................... 2,311 5,505 7,274
------- ------- -------
$26,051 $30,141 $42,986
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
CONTROL DEVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
PREDECESSOR COMPANY ENDED JUNE 30,
------------------------- -------------------
SEVEN MONTHS FIVE MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DECEMBER 31, JULY 29, DECEMBER 31, DECEMBER 31,
1993 1994 1994 1995 1995 1996
------------ ------------ ------------ ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
NET SALES............... $39,807 $24,995 $ 18,847 $ 38,881 $ 20,713 28,180
COST OF SALES........... 30,046 17,676 12,159 25,721 13,333 17,870
------- ------- --------- --------- --------- ---------
Gross profit........... 9,761 7,319 6,688 13,160 7,380 10,310
------- ------- --------- --------- --------- ---------
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 3,237 1,896 2,413 3,504 1,972 4,157
RESEARCH AND
DEVELOPMENT............ 2,144 1,598 1,052 2,740 1,402 1,880
------- ------- --------- --------- --------- ---------
5,381 3,494 3,465 6,244 3,374 6,037
------- ------- --------- --------- --------- ---------
Operating income....... 4,380 3,825 3,223 6,916 4,006 4,273
INTEREST EXPENSE........ -- -- 657 1,380 732 828
------- ------- --------- --------- --------- ---------
Income before income
taxes................. 4,380 3,825 2,566 5,536 3,274 3,445
INCOME TAX PROVISION 1,752 1,530 990 2,078 1,310 1,322
------- ------- --------- --------- --------- ---------
Net income............. $ 2,628 $ 2,295 1,576 3,458 1,964 2,123
======= =======
PREFERRED SHARE
DIVIDENDS REQUIREMENTS. 110 264 132 132
--------- --------- --------- ---------
Net income applicable
to common
shareholders.......... $ 1,466 $ 3,194 $ 1,832 $ 1,991
========= ========= ========= =========
EARNINGS PER SHARE...... $ 0.57 $ 1.25 $ 0.71 $ 0.78
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES AND
EQUIVALENTS
OUTSTANDING............ 2,564,094 2,564,094 2,564,094 2,564,094
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
CONTROL DEVICES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
CLASS A CLASS B CURRENCY
COMMON COMMON TRANSLATION RETAINED
SHARES SHARES WARRANTS ADJUSTMENT EARNINGS TOTAL
------- ------- -------- ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, at July 29, 1994
(Initial
Capitalization)......... $455 $145 $ -- $ -- $ -- $ 600
Value assigned to
warrants and Class A
Common Shares issued to
employees (Notes 7 and
10)..................... 65 -- 180 -- -- 245
Net income for the five
months ended
December 31, 1994....... -- -- -- -- 1,576 1,576
Preferred share
dividends............... -- -- -- -- (110) (110)
---- ---- ----- ----- ------ ------
BALANCE, at December 31,
1994.................... 520 145 180 -- 1,466 2,311
Net income............... -- -- -- -- 3,458 3,458
Preferred share
dividends............... -- -- -- -- (264) (264)
---- ---- ----- ----- ------ ------
BALANCE, at December 31,
1995.................... 520 145 180 -- 4,660 5,505
Net income for the six
months ended June 30,
1996 (unaudited)........ -- -- -- -- 2,123 2,123
Preferred share dividends
(unaudited)............. -- -- -- -- (132) (132)
Foreign currency
translation adjustment
(unaudited)............. -- -- -- (222) -- (222)
---- ---- ----- ----- ------ ------
BALANCE, at June 30, 1996
(unaudited)............. $520 $145 $ 180 $(222) $6,651 $7,274
==== ==== ===== ===== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
CONTROL DEVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
---------------------
SEVEN SIX MONTHS
MONTHS FIVE MONTHS ENDED
YEAR ENDED ENDED ENDED YEAR ENDED JUNE 30,
DECEMBER 31, JULY 29, DECEMBER 31, DECEMBER 31, ----------------
1993 1994 1994 1995 1995 1996
------------ -------- ------------ ------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATIONS:
Net income............. $ 2,628 $ 2,295 $ 1,576 $ 3,458 $ 1,964 $ 2,123
Adjustments to
reconcile net income
to cash provided by
operations:
Depreciation and
amortization.......... 1,734 949 673 1,774 872 987
Deferred income taxes.. -- -- (358) 941 595 395
Amortization of debt
discount.............. -- -- -- 33 21 12
Stock compensation
expense............... -- -- 65 -- -- -
Changes in assets and
liabilities:
(Increase) decrease in
receivables.......... (1,260) 1,261 (367) 806 259 (1,507)
(Increase) decrease in
inventories.......... (537) 277 561 (280) (555) (324)
(Increase) decrease in
other current assets. 212 (31) (7) (466) (18) 265
Increase (decrease) in
accounts payable..... 666 (531) 55 (91) (250) (251)
Increase (decrease) in
accrued employee
benefits............. (490) (121) 795 148 247 643
Increase (decrease) in
accrued expenses..... (812) (388) 1,342 (321) (1,348) 616
Increase in other
long-term
liabilities.......... -- -- -- -- -- 18
------- ------- -------- ------- ------- -------
Cash provided by
operations............ 2,141 3,711 4,335 6,002 1,787 2,977
------- ------- -------- ------- ------- -------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Acquisition of the
Business (including
transaction fees and
expenses), net of cash
acquired.............. -- -- (16,929) -- -- (7,232)
Capital expenditures... (1,308) (812) (102) (847) (284) (1,086)
------- ------- -------- ------- ------- -------
Cash used in investing
activities............ (1,308) (812) (17,031) (847) (284) (8,318)
------- ------- -------- ------- ------- -------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of debt............... -- -- 14,820 -- -- --
Repayment of debt...... -- -- -- -- -- (1,685)
Net change in short-
term debt............. -- -- -- -- -- 293
Proceeds from issuance
of redeemable
preferred shares...... -- -- 2,400 -- -- --
Proceeds from issuance
of common shares...... -- -- 600 -- -- --
Proceeds from issuance
of warrants........... -- -- 180 -- -- --
Net transfers to
Sellers............... (833) (2,899) -- -- -- --
------- ------- -------- ------- ------- -------
Cash provided by (used
in) financing
activities............ (833) (2,899) 18,000 -- -- (1,392)
------- ------- -------- ------- ------- -------
EFFECT OF EXCHANGE RATES
ON CASH................ -- -- -- -- -- (2)
------- ------- -------- ------- ------- -------
Increase (decrease) in
cash and cash
equivalents........... -- -- 5,304 5,155 1,503 (6,735)
CASH AND CASH
EQUIVALENTS, beginning
of period.............. -- -- -- 5,304 5,304 10,459
------- ------- -------- ------- ------- -------
CASH AND CASH
EQUIVALENTS, end of
period................. $ -- $ -- $ 5,304 $10,459 $ 6,807 $ 3,724
======= ======= ======== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30,
1995 AND 1996 IS UNAUDITED.)
(1) ORGANIZATION AND BASIS OF PRESENTATION:
Control Devices, Inc. ("CDI"), which was organized on June 10, 1994,
designs, manufactures and markets circuit breakers, electronic sensors and
electronic ceramic component parts used by original equipment manufacturers
("OEMs") in the automotive, appliance and telecommunications markets. On April
1, 1996, CDI purchased Realisations et Diffusion pour l'Industrie ("RDI"),
which distributes these and other products in the Northern European market
from its headquarters near Paris, France. CDI is headquartered in Standish,
Maine and has manufacturing facilities in Standish and Caribou, Maine and San
Cristobal, Dominican Republic. CDI also maintains a sales office in Dearborn,
Michigan. CDI had no significant operations from incorporation through July
29, 1994. The accompanying financial statements include the results of CDI and
RDI from the date of acquisition. The "Company" refers to both CDI and RDI and
its consolidated subsidiaries.
On July 29, 1994, CDI purchased certain assets and liabilities (the
"Business") of GTE Control Devices Incorporated and Dominican Overseas Trading
Company (collectively, the "Seller"), indirect wholly-owned subsidiaries of
GTE Corporation. For periods prior to the acquisition date, the Business is
referred to as the "Predecessor Company". The accompanying financial
statements, including those of the Predecessor Company prior to the
acquisition date have been prepared by CDI management and present the
financial position and results of operations of CDI from the acquisition date
and of the Business for the periods prior to the acquisition date.
Accordingly, the financial information for periods prior to the acquisition
date does not reflect the significant impact of the acquisition, the related
financing and the purchase accounting adjustments on the financial position
and results of operations of CDI.
The Predecessor Company financial statements include all significant
components of the Business and have been prepared solely by CDI as if the
Business were operated as a separate entity for the periods presented. The
Predecessor Company financial statements do not include an allocation of any
assets and liabilities not specifically identified to the Business, including
cash and intercompany debt. Prior to September 28, 1993, the Predecessor
Company also included a telecommunications product division and shared certain
facilities and functions with this division. Certain costs and expenses,
including manufacturing overhead and selling, general and administrative
expenses, were prorated by CDI between the Business and the telecommunications
division in preparing the accompanying Predecessor Company financial
statements. Expenses were allocated based on actual usage or other allocation
methods which approximate actual usage. Management of CDI believes that the
allocation methods are reasonable.
(2) SUMMARY OF ACCOUNTING POLICIES:
Principles of consolidation--
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions
have been eliminated.
Basis of accounting--
The Company maintains its books in accordance with generally accepted
accounting principles. The preparation of the financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and
F-7
<PAGE>
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF ACCOUNTING POLICIES--(CONTINUED):
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Foreign currency translation and transactions--
Assets and liabilities of the Company's foreign operations are translated
into U.S. dollars using the exchange rate in effect at the balance sheet date.
Results of operations are translated using the average exchange rate
prevailing throughout the period. The effects of exchange rate fluctuations on
translating foreign currency assets and liabilities into U.S. dollars are
included in the foreign currency translation adjustment component of
shareholders' equity, while gains and losses resulting from foreign currency
transactions are included in net income.
Cash and cash equivalents--
Cash and cash equivalents include short-term investments with original
maturities of three months or less.
Trade receivables--
RDI's practice is to sell part of its trade receivables to finance their
business. At June 30, 1996, such sales with limited recourse amounted to
$3,108,000 which have been deducted from trade receivables.
Inventories--
Inventories are stated at the lower of cost or market value. Cost of
inventories is determined by the first-in, first-out ("FIFO") method of
inventory valuation.
Property, plant and equipment--
Depreciation is provided using the straight-line and various accelerated
methods over the estimated useful lives of the related plant and equipment.
Ranges of the estimated useful lives are as follows:
<TABLE>
<S> <C>
The Company
Machinery and equipment................................... 3 to 15 years
Building and building equipment........................... 40 years
Predecessor Company
Machinery and equipment................................... 3 to 16 years
Building and building equipment........................... 10 to 50 years
</TABLE>
Leasehold improvements are amortized over the terms of the respective leases
or the estimated useful lives of the improvements, whichever is less.
Maintenance, repairs and renewals are expensed as incurred; betterments are
capitalized.
Goodwill--
As part of the acquisition of RDI, goodwill was recorded which represented
the difference between the purchase price and the fair value of the
identifiable underlying net assets acquired and is carried as an asset, less
accumulated amortization which is calculated on a straight-line basis over the
estimated useful life of 40 years.
The Company periodically evaluates the periods over which intangible assets
are amortized to determine whether events have occurred which would require
modification to the amortization period. The Company reviews anticipated
future operating results and cash flows on an undiscounted basis in
determining whether there has been an impairment in the value of the excess of
purchase price over net assets acquired.
F-8
<PAGE>
CONTROL DEVICES, INC.
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF ACCOUNTING POLICIES--(CONTINUED):
Income taxes--
CDI utilizes the liability method of accounting for income taxes as set
forth in Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." Under this method, deferred income taxes are
determined based on the difference between the financial statement and tax
bases of assets and liabilities using presently enacted tax rates and
regulations.
Retirement benefits--
RDI maintains a defined contribution plan for their employees. The Company
applies SFAS No. 87, "Employer's Accounting for Pensions" to account for
retirement benefits.
Research and development--
Expenditures for Company-sponsored research and new product development are
expensed as incurred.
Environmental expenditures--
Environmental expenditures that relate to current or future revenues are
expensed or capitalized as appropriate. Expenditures that relate to an
existing condition caused by past operations and that do not contribute to
current or future revenues are expensed.
Revenue recognition--
Revenue is recognized when products are shipped.
Earnings per share--
Earnings per share is based on the weighted average number of common shares
and dilutive common share equivalents outstanding during the period.
Fair value of financial instruments--
The fair values of financial instruments closely approximate their carrying
value. The Company has no involvement with derivative financial instruments.
Interim financial statements--
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments, all of which are of a normal
recurring nature, necessary to present fairly the financial position of the
Company as of June 30, 1996 and the results of their operations and changes in
their cash flows for the six month periods ended June 30, 1995 and 1996.
(3) ACQUISITION OF THE BUSINESS:
On July 29, 1994, CDI purchased the Business for $16.4 million in cash and a
$1.5 million note payable to GTE Control Devices Incorporated (the "Seller
Note"). The cash portion of the purchase price and related transaction fees of
approximately $500,000 were financed through a combination of long-term debt
and common and preferred shares issued to various investors.
F-9
<PAGE>
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) ACQUISITION OF THE BUSINESS--(CONTINUED)
The purchase method was used to account for the acquisition. The aggregate
purchase price has been allocated to the assets and liabilities of the
Business based on fair market value.
The net assets acquired after allocating the purchase price are as follows
(in thousands):
<TABLE>
<S> <C>
Receivables..................................................... $ 4,744
Inventories..................................................... 3,560
Other current assets............................................ 110
Property, plant and equipment................................... 12,213
Other assets.................................................... 382
Accounts payable................................................ (1,465)
Accrued employee benefits....................................... (516)
Accrued expenses................................................ (599)
-------
$18,429
=======
</TABLE>
Pursuant to the asset purchase agreement, the Seller retained certain assets
and liabilities including, but not limited to, liabilities for pensions and
post-retirement life and health insurance, certain employee benefits for
active employees and reserves for environmental matters.
The unaudited pro forma results of operations for the years ended December
31, 1993 and 1994, respectively, had the acquisition and initial
capitalization of the Company occurred at the beginning of each of the periods
presented, are provided in the following table. These pro forma results
include adjustments for depreciation and amortization of assets acquired based
on their fair market values at the acquisition date, increased interest on
acquisition debt, elimination of allocated employee benefit and administrative
expenses and the related income tax effect. For purposes of computing income
taxes, an effective tax rate of 40% was used for the Predecessor Company
results of operations. The unaudited pro forma information does not
necessarily represent what the results of operations would have been in such
periods and is not intended to be indicative of future results.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1993 1994
-------- --------
(UNAUDITED-
IN THOUSANDS
EXCEPT PER SHARE)
<S> <C> <C>
Net sales............................................... $39,807 $43,842
Net income applicable to common shareholders............ 1,526 3,131
Earnings per share...................................... 0.60 1.22
</TABLE>
(4) ACQUISITION OF RDI:
On April 1, 1996, the Company purchased all of the issued and outstanding
stock of RDI for $8,964,000. The Company paid $6,964,000 in cash plus
transaction fees of approximately $400,000 from existing cash on hand,
delivered Subordinated Promissory Notes ("RDI Notes") totaling $1,108,000 and
delivered Automatically Converting Subordinated Promissory Notes ("RDI
Convertible Notes") totaling $892,000.
The purchase method was used to account for the acquisition. The aggregate
purchase price has been allocated to the assets and liabilities of RDI based
on preliminary estimates of fair market value. Any adjustments resulting from
the final purchase price allocation, which could result in changes to the
carrying values of assets and liabilities, including goodwill, are not
expected to be material to the financial statements.
F-10
<PAGE>
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) ACQUISITION OF RDI--(CONTINUED):
The net assets acquired after allocating the purchase price are as follows
(in thousands):
<TABLE>
<S> <C>
Cash.............................................................. $ 132
Receivables....................................................... 5,888
Inventories....................................................... 3,642
Other current assets.............................................. 549
Goodwill and other intangible assets.............................. 7,144
Property, plant and equipment..................................... 2,376
Accounts payable.................................................. (5,387)
Accrued expenses.................................................. (3,236)
Debt.............................................................. (1,744)
-------
$ 9,364
=======
</TABLE>
The unaudited pro forma results of operations for the six months ended June
30, 1995 and 1996, respectively, had the acquisition of RDI occurred at
January 1, 1995 and January 1, 1996, respectively, are provided in the
following table. These pro forma results include adjustments for depreciation
and amortization of assets acquired based on their estimated fair market
values at the acquisition date, adjustments for additional interest expense on
acquisition debt, adjustments for the decrease in interest expense on the
Seller Note which was repaid in connection with the acquisition of RDI,
adjustments for the elimination of interest income on excess cash balances,
adjustments for the elimination of intercompany sales and profit in inventory,
and the related income tax effect. The unaudited pro forma information does
not necessarily represent what the results of operations would have been in
such periods and is not intended to be indicative of future results.
<TABLE>
<CAPTION>
SIX MONTHS JUNE
30,
-----------------
1995 1996
-------- --------
(UNAUDITED-
IN THOUSANDS
EXCEPT PER SHARE)
<S> <C> <C>
Net sales............................................... $ 34,968 $ 34,803
Net income applicable to common shareholders............ 1,987 2,066
Earnings per share...................................... 0.77 0.81
</TABLE>
(5) INVENTORIES:
Classes of inventories as of December 31, 1994 and 1995 and June 30, 1996,
are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Raw materials and supplies........................... $1,055 $1,174 $1,298
Work-in-process...................................... 703 613 769
Finished goods....................................... 1,241 1,492 5,091
------ ------ ------
$2,999 $3,279 $7,158
====== ====== ======
</TABLE>
F-11
<PAGE>
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) PROPERTY, PLANT AND EQUIPMENT:
Classes of property, plant and equipment as of December 31, 1994 and 1995,
and June 30, 1996, are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Land.............................................. $ 181 $ 181 $ 486
Building.......................................... 1,440 1,440 2,987
Equipment......................................... 10,796 11,513 13,016
Leasehold improvements............................ 248 248 248
------- ------- -------
12,665 13,382 16,737
Accumulated depreciation.......................... (641) (2,285) (3,179)
------- ------- -------
$12,024 $11,097 $13,558
======= ======= =======
</TABLE>
(7) DEBT:
Debt consists of the following as of December 31, 1994 and 1995, and June
30, 1996, (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
10% Senior Secured Fixed Rate Notes................. $10,500 $10,500 $10,500
11% Senior Subordinated Notes (face value of
$4,500)............................................ 4,320 4,353 4,364
RDI Notes........................................... -- -- 1,108
RDI Convertible Notes............................... -- -- 892
RDI fixed rate loans................................ -- -- 1,158
RDI short-term debt ................................ -- -- 654
Junior Subordinated Promissory Note (Seller Note)... 1,500 1,500 --
------- ------- -------
$16,320 $16,353 $18,676
======= ======= =======
</TABLE>
On July 29, 1994, and as amended on March 29, 1996, CDI entered into
agreements (the "Securities Purchase Agreements") with a group of affiliated
lenders to provide CDI with $15.0 million of term loans and up to $3.0 million
in revolving credit loans (collectively referred to as "Senior Debt"). Loans
available under the revolving credit loan (the "Revolver") will be used from
time to time for working capital and general corporate purposes. The maturity
date of the Revolver is July 29, 1999. Borrowings bear interest at the prime
rate plus 1.5%. A facility fee of 0.5% of the unused commitment under the
Revolver is payable quarterly in arrears. As of, and for the five months ended
December 31, 1994, as of and for the year ended December 31, 1995, and as of
and for the six months ended June 30, 1996, there were no loans outstanding
under the Revolver.
The term loans are comprised of the 10% Senior Secured Fixed Rate Notes and
the 11% Senior Subordinated Notes (collectively the "Senior Notes") both due
July 31, 2004. Interest on the Senior Notes is payable semi-annually on each
January 31 and July 31. The 10% Senior Secured Fixed Rate Notes are payable
beginning July 31, 1996. The 11% Senior Subordinated Notes are payable
beginning July 31, 2000. Optional prepayments without a premium may be made on
the Senior Notes up to an annual maximum of $3,750,000. Upon a change of
control (as defined) or upon an initial public offering of the Company's
common or preferred shares, CDI may also redeem the entire amount of Senior
Notes without a premium. The Senior Debt ranks senior to all other
indebtedness of CDI and is secured by substantially all of the Company's
assets.
F-12
<PAGE>
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) DEBT--(CONTINUED):
Under the Securities Purchase Agreements, warrants to purchase 564,100
shares of Class B Series 1 Common Shares at $.01 per share were issued to the
lenders. The proceeds received upon the issuance of the 11% Senior
Subordinated Notes of $4.5 million were allocated between the notes and the
warrants based on their estimated relative fair values. Accordingly, $180,000,
which represents the amount of the proceeds allocated to the warrants, has
been credited to additional paid-in-capital. The discount is being amortized
over the life of the notes.
In connection with the acquisition of RDI, the Seller Note was repaid
without premium in March 1996. The Seller Note earned interest at 10% payable
quarterly and was due in full on July 29, 1999.
The Securities Purchase Agreements, contains certain restrictive covenants
which include, among other things, a restriction on the payment of dividends
(to no more than 25% of cash flow, as defined), maintenance of a current ratio
of 1.4 and limitation on other indebtedness. The Company was in compliance
with all covenants in 1994 and 1995 and for the six months ended June 30,
1996.
The RDI fixed rate loans bear interest at the weighted average rate of 7.7%
and are secured by certain assets of RDI.
The RDI Notes bear interest at 8% per annum and are due in three equal
annual installments commencing on April 1, 1997. CDI has the right to prepay
the RDI Notes at any time without premium.
The RDI Convertible Notes bear interest at 6.5% per annum and are payable in
full on demand after April 1, 1999. Prior to April 1, 2001, the RDI
Convertible Notes may be prepaid with the consent of the holders. Thereafter,
the RDI Convertible Notes may be prepaid by CDI without premium. Upon the
closing of an initial public offering of CDI's Class A Common Shares, any
remaining principal balance of the RDI Convertible Notes shall be converted
into Class A Common Shares. The conversion price shall be equal to the initial
public offering price per share.
The RDI Notes and RDI Convertible Notes are subordinate to the Senior Debt.
Scheduled principal payment due on debt in the next five years are as
follows (in thousands):
<TABLE>
<CAPTION>
RDI RDI RDI
10% 11% RDI CONVERTIBLE SHORT-TERM FIXED
NOTES NOTES NOTES NOTES DEBT RATE LOANS TOTAL
------ ------ ----- ----------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1996.......... $ 500 $ -- $-- $-- $654 $191 $ 1,345
1997.......... 500 -- 369 -- -- 336 1,205
1998.......... 750 -- 369 -- -- 267 1,386
1999.......... 750 -- 370 892 -- 152 2,164
2000.......... 1,000 900 -- -- -- 80 1,980
Thereafter.... 7,000 3,600 -- -- -- 132 10,732
</TABLE>
Cash paid for interest for the five month period ended December 31, 1994,
for the year ended December 31, 1995 and for the six months ended June 30,
1995 and 1996 was $65,000, $1,702,500, $851,000 and $854,000, respectively.
F-13
<PAGE>
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) OTHER LONG-TERM LIABILITIES:
Other long-term liabilities as of December 31, 1994, 1995 and June 30, 1996,
are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
---- ------ ------
<S> <C> <C> <C>
Deferred tax liabilities................................. $138 $1,001 $1,258
Accrued redeemable preferred share dividends............. 110 -- --
RDI--Retirement benefits................................. -- -- 812
RDI--Profit sharing...................................... -- -- 455
---- ------ ------
$248 $1,001 $2,525
==== ====== ======
</TABLE>
See Note 12 for discussion of RDI retirement benefits and profit sharing.
(9) REDEEMABLE PREFERRED SHARES:
In connection with the acquisition of the Business, CDI issued 2,400 shares
of 11% Cumulative Preferred Shares ("Redeemable Preferred Shares") for $2.4
million. The Redeemable Preferred Shares accrue cumulative dividends at a rate
of 11% per annum and have a liquidation preference value of $2,400,000 plus
accrued and unpaid dividends. The liquidation preference value of the
Redeemable Preferred Shares ($1,000 per share plus accrued dividends) was
$2,510,000, $2,774,000 and $2,906,000 at December 31, 1994 and 1995 and June
30, 1996, respectively. At December 31, 1994 and 1995, and June 30, 1996,
accrued and unpaid dividends were $110,000, $374,000, and $506,000,
respectively, which have been included in accrued expenses, at December 31,
1995, and June 30, 1996 and other long-term liabilities at December 31, 1994.
Dividends are payable after October 1996 assuming that a certain level of cash
flow, as defined, is achieved. The Redeemable Preferred Shares are subject to
redemption at the option of the Company, without a premium, from time to time
with mandatory redemption on July 29, 2006. In addition, 580 Preferred Shares
(aggregating $580,000) issued to the lenders, plus accrued and unpaid
dividends, must be redeemed without a premium if the Senior Notes are prepaid
in full.
(10) SHAREHOLDERS' EQUITY/NET ASSETS:
In connection with the acquisition of the Business, CDI issued 1,564,098
shares of Class A Common Shares and 435,896 shares of Class B Series 1 Common
Shares for an aggregate price of $600,000. The Class A Common Shares are
identical in all respects to the Class B Series 1 Common Shares, except that
the Class B Series 1 Common Shares have limited voting rights. The Class B
Series 1 Common Shares are convertible at any time at the option of the holder
into Class A Common Shares currently on a one-for-one basis, subject to
dilution. No dividends on the Class A Common Shares or the Class B Series 1
Common Shares may be paid until the Seller Note is repaid in full and while
any dividends on the Redeemable Preferred Shares remain unpaid. Accordingly,
no dividends on Common Shares could have been paid as of December 31, 1994 and
1995 and June 30, 1996.
Certain Class A Common Shares were issued to officers of CDI at a price
which was less than the amount paid by other investors. A non-cash charge of
$65,000 was recorded in 1994 as compensation expense for the difference
between the fair value and the purchase price for these shares.
Warrants to purchase 564,100 shares of Class B Series 1 Common Shares for
$.01 per share are outstanding at December 31, 1994. The warrants expire on
July 31, 2004 (see Note 7).
As further discussed in Note 17, in 1995 the Company issued a non-qualified
stock option to purchase 200,000 Class A Common Shares.
In July 1996, the Company reserved, subject to shareholder approval, 300,000
Common Shares for issuance pursuant to its 1996 Stock Compensation Plan (the
"Plan"). The Plan permits the grant of Incentive Stock Options within the
meaning of Section 422 of the Internal Revenue Code, nonstatutory options and
performance units payable in cash or Common Shares. No options or performance
units have been granted to date. The Plan is administered by the compensation
committee of the Board of Directors.
F-14
<PAGE>
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) SHAREHOLDERS' EQUITY/NET ASSETS--(CONTINUED):
Net assets--
Changes in Predecessor Company net assets were as follows (in thousands):
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, JULY 29,
1993 1994
------------ ------------
<S> <C> <C>
Balance, beginning of period.......................... $15,539 $17,334
Net income............................................ 2,628 2,295
Net transfers......................................... (833) (2,899)
------- -------
Balance, end of period................................ $17,334 $16,730
======= =======
</TABLE>
(11) INCOME TAXES:
The Predecessor Company operated as a division, and income taxes were not
allocated to it. The accompanying financial statements of the Predecessor
Company reflect an allocated provision for income taxes using an effective tax
rate of 40%, the estimated combined rate for current and deferred state and
federal income taxes. The related current or deferred income taxes payable
would have been transferred to the Seller, if allocated, and are included in
the net assets of the Predecessor Company.
The components of the provision (benefit) for income taxes for the Company
for the five months ended December 31, 1994, for the year ended December 31,
1995 and for the six months ended June 30, 1995 and 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------- -------------
1994 1995 1995 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Current:
Federal..................................... $1,029 $ 907 $ 572 $ 764
State....................................... 319 230 143 234
------ ------ ------ ------
1,348 1,137 715 998
====== ====== ====== ======
Deferred:
Federal..................................... (277) 729 461 266
State....................................... (81) 212 134 58
------ ------ ------ ------
(358) 941 595 324
------ ------ ------ ------
$ 990 $2,078 $1,310 $1,322
====== ====== ====== ======
</TABLE>
A reconciliation of the income tax provision calculated at the federal
income tax statutory rate and the Company's effective income tax rate for the
five months ended December 31, 1994, for the year ended December 31, 1995 and
for the six months ended June 30, 1995 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------- --------------
1994 1995 1995 1996
------ ------- ------- ------
<S> <C> <C> <C> <C>
Tax at statutory rate..................... $ 872 $ 1,882 $ 1,114 $1,171
State income taxes, net of federal bene-
fit...................................... 157 292 183 193
Other, net................................ (39) (96) 13 (42)
----- ------- ------- ------
$ 990 $ 2,078 $ 1,310 $1,322
===== ======= ======= ======
</TABLE>
F-15
<PAGE>
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(11) INCOME TAXES--(CONTINUED):
The significant components of deferred income tax asset (liability) at
December 31, 1994 and 1995, and June 30, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
----- ------- ------
<S> <C> <C> <C>
Current:
Inventory reserves.............................. $ 108 $ 112 $ 127
Accrued employee benefits....................... 258 76 439
Other........................................... 130 230 287
----- ------- ------
496 418 853
===== ======= ======
Noncurrent:
Depreciation.................................... (240) (1,012) (1,274)
Other........................................... 102 11 16
----- ------- ------
(138) (1,001) (1,258)
----- ------- ------
$ 358 $ (583) $ (405)
===== ======= ======
</TABLE>
The significant components of the deferred income tax provision (benefit)
for the five months ended December 31, 1994, for the year ended December 31,
1995 and for the six months ended June 30, 1995 and 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------- -----------
1994 1995 1995 1996
------ ------ ----- ----
<S> <C> <C> <C> <C>
Current:
Inventory reserves......................... $ (108) $ (4) $ (2) $ (3)
Accrued employee benefits.................. (258) 182 115 16
Other...................................... (130) (100) (63) 54
------ ------ ----- ----
(496) 78 50 67
------ ------ ----- ----
Noncurrent:
Depreciation............................... 240 772 487 262
Other...................................... (102) 91 58 (5)
------ ------ ----- ----
138 863 545 257
------ ------ ----- ----
$ (358) $ 941 $ 595 $324
====== ====== ===== ====
</TABLE>
Cash paid for income taxes for the five months ended December 31, 1994, for
the year ended December 31, 1995, and for the six months ended June 30, 1995
and 1996 was $1,036,600, $1,946,000, $240,000 and $792,000, respectively.
(12) EMPLOYEE BENEFITS:
Effective as of the acquisition date, CDI established a 401(k) savings plan.
Under the plan, CDI matches employee contributions subject to the discretion
of the board of directors. The expense for the employer contribution for the
five months ended December 31, 1994, for the year ended December 31, 1995 and
for the six months ended June 30, 1995 and 1996 was $137,000, $301,000,
$145,000 and $230,000, respectively.
F-16
<PAGE>
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(12) EMPLOYEE BENEFITS--(CONTINUED):
The Predecessor Company employees participated in Seller-sponsored defined
benefit, postretirement health and life insurance, and savings and investment
plans. The expense (income) for these plans, which was allocated by the seller
to the Predecessor Company (see Note 1), was $182,000 and $94,000, for the
year ended December 31, 1993 and for the seven months ended July 29, 1994,
respectively. Pursuant to the Asset Purchase Agreement, the Seller retained
all obligations under these plans. CDI does not sponsor defined benefit or
postretirement benefit plans. Information with respect to actuarial
valuations, funded status, investment activities and other information
regarding the Predecessor Company's participation in the plans is not
available from the Seller, and, accordingly, is not presented.
RDI (Unaudited)--
RDI maintains a government mandated retirement plan for substantially all of
its employees. These benefits do not vest until retirement. The amount of the
benefits to be paid depends upon, among other things, the seniority and salary
of the employees at retirement date. RDI maintains a government mandated
employee profit plan for all employees. The amount of the benefits are based
upon a formula which includes, among other things, net taxable income. The
liability is generally not payable for a period of five years, and is
internally funded. In addition, RDI maintains an incentive plan for certain of
its key executives. The amount of the benefits are based upon a formula which
includes, among other things, net income. The expense for the above plans for
RDI was $99,000 for the three months ended June 30, 1996.
(13) COMMITMENTS AND CONTINGENCIES:
Operating leases--
The Company leases certain buildings, office space, automobiles and
equipment under noncancellable operating leases expiring at various dates
through May 1999. Rental expense under operating leases amounted to $521,000,
$362,000, $236,000, $446,000, $199,000 and $272,000 for the year ended
December 31, 1993, the seven months ended July 29, 1994, the five months ended
December 31, 1994, the year ended December 31, 1995, and for the six months
ended June 30, 1995 and 1996, respectively.
Future minimum rental payments under leases extending for one year or more
are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
1996............................................................. $512
1997............................................................. 315
1998............................................................. 115
1999............................................................. 23
</TABLE>
Employment Agreements (Unaudited)--
The Company has entered into employment agreements with two executives at
RDI. The agreements provide that each executive will receive annual
compensation of up to FF 975,000 (approximately $195,000), plus an annual
bonus of up to FF 487,000 (approximately $97,000), which is based upon meeting
certain performance objectives. The agreements provide for a severance payment
if the Company terminates the executive for any reason other than misconduct
prior to March 29, 1998. The amount of the severance payment to each executive
is equal two years' salary and bonus.
Legal proceedings--
The Company has various claims and contingent liabilities arising in the
ordinary conduct of business. In the opinion of management, they are not
expected to have a material adverse effect on the financial position of the
Company.
F-17
<PAGE>
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(14) RELATED PARTY TRANSACTIONS:
CDI--
Hammond, Kennedy, Whitney & Company ("HKW") provides management services to
the Company. Three directors of the Company are principals of HKW and own
shares of the Company's common and preferred shares. The Company pays HKW
monthly management fees of $15,000 and board of directors fees. These fees
amounted to $91,000, $240,000, $120,000 and $120,000 for the five months ended
December 31, 1994, for the year ended December 31, 1995, and for the six
months ended June 30, 1995 and 1996, respectively. In addition, fees paid to
one of the principals of HKW for professional services amounted to $17,000,
$59,000, $29,000 and $25,000, for the five months ended December 31, 1994, for
the year ended December 31, 1995, and for the six months ended June 30, 1995
and 1996, respectively.
Indemnification from Seller--
Pursuant to the terms of an Environmental Agreement dated July 6, 1994, the
Seller has retained liability and agreed to indemnify CDI for any and all
liabilities arising under CERCLA and other environmental requirements related
to contamination and cleanup at acquired facilities, treatment, storage and
disposal of hazardous materials transported offsite and remediation required
by the State of Maine Department of Environmental Protection or U.S.
Environmental Protection Agency existing or occurring prior to the acquisition
date. The Seller has indemnified CDI against claims pursuant to the
aforementioned issues to the extent the amounts exceed $50,000 in the
aggregate. The Seller has liability for claims relating to soil and
groundwater contamination from the surface impoundment and out-of-service
leachfield at the Company's Standish facility known to exist prior to the
acquisition to the extent the liability exceeds $50,000. The indemnifications
provided by the Seller begin to expire three years after the acquisition date,
with certain indemnifications continuing indefinitely.
Predecessor Company--
The Seller allocated expenses to the Predecessor Company for corporate
accounting, legal and administrative support services. Expenses charged
amounted to $179,000 and $128,000 for the year ended December 31, 1993 and for
the seven months ended July 29, 1994, respectively, and are reflected as
selling, general and administrative expenses in the accompanying statements of
income.
(15) CUSTOMER INFORMATION:
CDI sells its products primarily to OEMs on a worldwide basis in the
automotive, appliance and telecommunications industries. RDI distributes its
products primarily to automobile OEMs in the Northern European market. Sales
are concentrated in North America and Europe with the top 15 customers
accounting for approximately 72% of sales in 1995. Export sales were
$9,700,000, $6,992,000, $4,869,000, $11,729,000, $7,184,000 and $13,188,000
for the year ended December 31, 1993, the seven months ended July 29, 1994,
the five months ended December 31, 1994, the year ended December 31, 1995, and
for the six months ended June 30, 1995 and 1996, respectively. For the year
ended December 31, 1993, the seven months ended July 29, 1994, the five months
ended December 31, 1994, the year ended December 31, 1995 and for the six
months ended June 30, 1995 and 1996, two customers accounted for 18%, 24%,
27%, 33%, 32% and 20% of sales, respectively.
(16) SUPPLIER INFORMATION:
The Company relies on a sole supplier or a limited group of suppliers for
certain key components of its products. The Company does not have a long-term
supply agreement with any of these suppliers, and operates under purchase
orders. The Company's reliance on sole or a limited group of suppliers
involves several risks, including a potential inability to obtain an adequate
supply of required components and reduced control over pricing and timely
delivery of components. Although the timeliness, yield and quality of
deliveries to date from the Company's suppliers have been acceptable, any
prolonged inability to obtain adequate deliveries or any other circumstances
that would require the Company to seek alternative sources of supply could
delay the Company's ability to ship its products, which could damage
relationships with current and prospective customers and could therefore have
a material adverse effect on the Company's results of operations.
F-18
<PAGE>
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(17) CONSULTING AGREEMENTS:
In April 1995, the Company entered several agreements with an individual to
provide design and marketing consulting services to the Company. The terms of
the agreements also provide for minimum cash royalty and license payments. The
agreements begin to expire in March 2001, and allow for cancellation by either
party in certain circumstances. In connection with these agreements, the
Company paid the individual a one time payment of $200,000 in 1995 and granted
a non-qualified stock options to purchase up to 200,000 Class A Common Shares
at any time until March 31, 2002 at the lesser of $10.00 or the initial public
offering price per share. In addition, royalty payments were approximately
$223,000, $115,000 and $120,000 for the year ended December 31, 1995, and for
the six months ended June 30, 1995 and 1996, respectively.
(18) INTERNATIONAL MANUFACTURING AND DISTRIBUTION:
The Company has international manufacturing facilities located in San
Cristobal, Dominican Republic. Included in the Company's balance sheet at
December 31, 1995, are the net assets of the Company's international
manufacturing operations which totaled approximately $1,686,000. This
operation manufactured, products accounting for approximately 40% of the
Company's gross revenues in 1995.
RDI distributes its products primarily to automotive OEMs in Northern
Europe. The Company's results of operations are therefore subject to European
economic conditions. RDI generates revenues and incurs expenses primarily in
currencies other than the U.S. dollar, and the Company does not engage in
currency hedging transactions. As a result, there is increased financial risk
to the Company based on fluctuations in currency exchange rates. Changes in
exchange rates, therefore, may have a significant effect on the Company's
financial condition and results of operations. At June 30, 1996, the net
assets of RDI, including goodwill, were approximately $9.3 million.
(19) SUPPLEMENTARY BALANCE SHEET INFORMATION:
Accrued expenses consisted of the following as of December 31, 1994 and
1995, and June 30, 1996 (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Interest................................................ $ 655 $ 652 $ 692
Dividends............................................... -- 374 791
Legal................................................... 214 176 146
Environmental........................................... 255 305 305
Taxes................................................... 306 34 572
Other................................................... 511 453 1,109
------ ------ ------
$1,941 $1,994 $3,615
====== ====== ======
</TABLE>
F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO REALISATIONS ET DIFFUSION POUR L'INDUSTRIE ("RDI"):
We have audited the accompanying consolidated balance sheets of RDI and its
subsidiaries (the "Company") as of December 31, 1994 and 1995 and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. 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 in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of RDI and its subsidiaries as of
December 31, 1994 and 1995 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with French generally accepted accounting principles.
Accounting practices used by the Company in preparing the accompanying
financial statements conform with generally accepted accounting principles in
France, but do not conform with accounting principles generally accepted in
the United States. A description of these differences and a complete
reconciliation of consolidated net income and stockholders' equity to United
States generally accepted accounting principles is set forth in Note 3.
/s/ Thierry Aymonier
---------------------------------
BARBIER FRINAULT & ASSOCIES
Member of Andersen Worldwide SC
Thierry Aymonier
Paris, France,
May 19, 1996
F-20
<PAGE>
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF FRENCH FRANCS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1994 1995
------ ------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................. 305 380
Receivables ............................................... 30,089 26,930
Inventories ............................................... 14,823 17,221
Deferred tax assets ....................................... 1,049 1,660
Other current assets....................................... 122 296
------ ------
Total current assets..................................... 46,388 46,487
------ ------
GOODWILL AND OTHER INTANGIBLES, net......................... 4,388 4,615
PROPERTY, PLANT AND EQUIPMENT, net ......................... 11,076 13,607
INVESTMENTS AND OTHER ASSETS................................ 722 94
------ ------
Total non-current assets................................. 16,186 18,316
------ ------
62,574 64,803
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt ........................................... 7,582 6,355
Trade accounts payable..................................... 18,515 20,810
Accrued employee benefits and tax expenses................. 7,761 8,146
Other accrued expenses..................................... 1,385 1,514
------ ------
Total current liabilities................................ 35,243 36,825
------ ------
DEFERRED TAX LIABILITIES ................................... 342 515
PROVISION FOR LIABILITIES AND ACCRUALS ..................... 2,181 2,786
LONG TERM DEBT.............................................. 8,445 6,753
------ ------
Total long-term liabilities.............................. 10,968 10,054
------ ------
COMMITMENTS AND CONTINGENCIES (Note 16)
STOCKHOLDERS' EQUITY:
Common stock, 100 nominal value, 70,000 shares authorized,
issued and outstanding in 1995............................ 5,000 7,000
Retained earnings.......................................... 11,363 10,924
------ ------
Total stockholders' equity............................... 16,363 17,924
------ ------
62,574 64,803
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-21
<PAGE>
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF FRENCH FRANCS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1993 1994 1995
------- ------- --------
<S> <C> <C> <C>
NET SALES........................................... 97,662 127,058 149,685
COST OF SALES....................................... (66,483) (82,744) (104,295)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........ (26,201) (34,961) (36,526)
RESEARCH AND DEVELOPMENT EXPENSE.................... (1,193) (1,299) (1,231)
------- ------- --------
Operating income................................... 3,785 8,054 7,633
INTEREST EXPENSE, NET (Note 13)..................... (2,160) (2,365) (2,889)
------- ------- --------
Income before income tax........................... 1,625 5,689 4,744
INCOME TAX PROVISION (Note 11)...................... (556) (1,888) (2,183)
------- ------- --------
Net income......................................... 1,069 3,801 2,561
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-22
<PAGE>
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(IN THOUSANDS OF FRENCH FRANCS)
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
------ -------- ------
<S> <C> <C> <C>
BALANCE, at January 1, 1993............................. 5,000 8,293 13,293
Dividends paid (FF 18 per share)...................... -- (900) (900)
Net income............................................ -- 1,069 1,069
----- ------ ------
BALANCE, at December 31, 1993........................... 5,000 8,462 13,462
Dividends paid (FF 18 per share)...................... -- (900) (900)
Net income............................................ -- 3,801 3,801
----- ------ ------
BALANCE, at December 31, 1994........................... 5,000 11,363 16,363
Stock issued.......................................... 2,000 (2,000) --
Dividends paid (FF 14 per share)...................... -- (1,000) (1,000)
Net income............................................ -- 2,561 2,561
----- ------ ------
BALANCE, at December 31, 1995........................... 7,000 10,924 17,924
===== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-23
<PAGE>
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF FRENCH FRANCS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
-----------------------
1993 1994 1995
------- ------ ------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income.......................................... 1,069 3,801 2,561
Depreciation and amortization..................... 910 1,352 1,356
Loss on disposal of fixed assets.................. 111 32 65
Decrease (Increase) in inventories................ 451 (1,700) (1,264)
Decrease (Increase) in receivables................ 185 (4,035) 5,687
Decrease (Increase) in other current assets....... (60) (206) (735)
Increase (Decrease) in trade accounts payable..... (960) 1,089 257
Increase (Decrease) in accrued employee benefits
and tax expenses................................. (43) 1,846 (46)
Increase (Decrease) in other accrued expenses..... 357 373 129
Increase (Decrease) in other liabilities.......... 653 633 778
------- ------ ------
Cash provided by operations....................... 2,673 3,185 8,788
------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment........... (1,484) (3,457) (3,459)
Sale of property, plant and equipment............... 24 30 284
Acquisition of businesses, net of cash acquired..... (5,880) (2,121) (1,619)
------- ------ ------
Cash used in investing activities................. (7,340) (5,548) (4,794)
------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend............................................ (900) (900) (1,000)
Increase in long-term debt.......................... 4,520(a) 7,630 930
Decrease in long-term debt.......................... -- (a) (7,788) (2,622)
Net variation in short-term debt.................... 1,165 3,558 (1,227)
------- ------ ------
Cash provided by (used in) financing activities... 4,785 2,500 (3,919)
------- ------ ------
Increase in cash and cash equivalents............. 118 137 75
------- ------ ------
CASH AND CASH EQUIVALENTS, beginning of period........ 50 168 305
------- ------ ------
CASH AND CASH EQUIVALENTS, end of period.............. 168 305 380
======= ====== ======
</TABLE>
- --------
(a) The split between increase and decrease in long-term debt was not
available for 1993, and will be presented as a net increase in long-term
debt in 1993.
The accompanying notes are an integral part of these consolidated statements.
F-24
<PAGE>
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF FRENCH FRANCS UNLESS OTHERWISE INDICATED)
(1) ACCOUNTING PRINCIPLES AND POLICIES:
The consolidated financial statements of Realisations et Diffusion pour
l'Industrie ("RDI") (the "Company") have been prepared in accordance with the
French law of January 3, 1985 and its Application Decree of February 17, 1986.
Certain reclassifications of items have been made in these consolidated
financial statements in order to conform to a presentation format which is
more understandable to a United States reader.
Basis of consolidation--
The Company's financial statements include the accounts of all subsidiaries
in which RDI holds, directly or indirectly, a controlling interest.
The results from operations of subsidiaries acquired or sold during the year
are consolidated as from or up to their respective dates of acquisition or
disposal.
Goodwill and intangible assets--
On the acquisition of a subsidiary, goodwill representing the difference
between the purchase price and the fair value of the identifiable underlying
net assets acquired is carried as an asset in the balance sheet and amortized
on a straight line basis against income over a period of 40 years.
Other intangible assets include patents, licenses and trademarks and
software, which are amortized over their useful life ranging from 1 to 5
years.
The Company periodically evaluates the periods over which the intangible
assets are amortized to determine whether events have occurred which would
require modification to the amortization period. The Company reviews
anticipated future operating results and cash flows on an undiscounted basis
in determining whether there has been an impairment in the value of the excess
of purchase price over net assets acquired.
Property, plant and equipment--
Property, plant and equipment are shown at historical cost. Depreciation is
provided, except on freehold land, on a straight-line basis over the estimated
useful lives of the assets, as follows:
<TABLE>
<S> <C>
Buildings.................................................. 40 years
Industrial plant and machinery............................. 5 to 10 years
Other tangible assets...................................... 5 to 10 years
</TABLE>
Investments in unconsolidated companies--
Investments in which the Company owns less than 20% are carried at cost
after deducting appropriate allowances for permanent impairment in value.
Inventories--
Inventories, including work in progress, are valued at the lower of cost and
estimated net realizable value. Cost is determined on an average weighted cost
basis. The cost of work in progress and finished goods comprises materials,
labor and attributable manufacturing overheads.
F-25
<PAGE>
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) ACCOUNTING PRINCIPLES AND POLICIES--(CONTINUED):
Cash and cash equivalents--
Cash and cash equivalents are made up of cash held in banks and in hand and
short-term investments generally having an original maturity of two months or
less (mainly debt securities, short-term loans and accrued interest).
Retirement benefits--
The Company applies Statement of Financial Accounting Standards ("SFAS") No.
87 "Employer's Accounting for Pensions" to account for retirement benefits
except for the non-recognition of minimum liability adjustments reflecting the
excess of the accumulated benefit obligation over the liability accrued in the
financial statements (refer to Notes 3 and 12).
Deferred tax--
The Company utilizes the liability method of accounting for income taxes as
set forth in SFAS No. 109 "Accounting for Income Taxes" effective January 1,
1993. Under this method, deferred income taxes are determined based on the
difference between the financial statement and the tax bases of assets and
liabilities using presently enacted tax rates and regulations. The cumulative
effect of adopting SFAS No. 109 was not significant.
Research and development--
Expenditures for Company research and new product development are expensed
as incurred.
Revenue recognition--
Sales are recorded upon transfer of ownership of the products which usually
corresponds to the date when products are shipped.
(2) ACQUISITIONS AND SIGNIFICANT EVENTS:
Acquisition (1993)--
In April 1993, the Company acquired Totem representing yearly net sales of
FF 18 million.
Acquisitions and significant events (1994)--
In February 1994, the Company acquired Spetelec (yearly net sales of FF 8
million) and in November 1994, Lucca (yearly net sales of FF 9 million).
As part of a reorganization, the activities and the net assets of Totem and
Spetelec were transferred to RDI on January 1, 1994 for Totem, and October 1,
1994 for Spetelec and the subsidiaries were liquidated.
Acquisition (1995)--
In June 1995, RDI acquired Futurelec which represented yearly net sales of
FF 2 million.
F-26
<PAGE>
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) ACQUISITIONS AND SIGNIFICANT EVENTS--(CONTINUED):
The following represents the non-cash impact of the acquisitions noted
above:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Fair value of assets acquired...................... 10,546 4,107 3,764
Liabilities assumed................................ (7,471) (3,415) (2,469)
Goodwill........................................... 2,805 1,429 324
------ ------ ------
Cash paid.......................................... (5,880) (2,121) (1,619)
====== ====== ======
</TABLE>
(3) SUMMARY OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY THE
COMPANY AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:
The accompanying consolidated financial statements have been prepared in
accordance with the accounting policies described in Accounting Principles and
Policies above ("French GAAP") which differ in certain respects from those
applicable in the United States ("US GAAP").
a) Retirement benefits
Under US GAAP, a minimum liability adjustment would have been recognized as
a reduction in shareholders' equity for the difference between the accumulated
benefit obligation and the net accrual at year end.
The minimum liability adjustment amounts to:
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Minimum liability adjustment................................. 1,317 1,085
Deferred tax effect.......................................... (439) (398)
----- -----
Minimum liability adjustment, net............................ 878 687
===== =====
</TABLE>
b) Other differences
Other differences relate to the non-capitalization of capital leases, to the
non-recognition of unrealized exchange gains and to the lack of capitalization
of interest incurred during the construction period of RDI's headquarters.
None of these items in the aggregate or individually have an impact on
shareholders' equity as of December 31, 1995 and 1994 or net income for 1994
and 1995 higher than FF 200 before tax.
Therefore, these items were not included in the reconciliation below between
French and US GAAP.
c) US GAAP reconciliation
The following is a summary of the adjustments to shareholders' equity for
the years ended December 31, 1994 and 1995 which would be required if US GAAP
had been applied instead of French GAAP.
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
AS OF DECEMBER 31,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Amounts per accompanying consolidated financial
statements........................................ 16,363 17,924
Retirement benefits, net........................... (878) (687)
---------- ----------
Approximate amounts under US GAAP.................. 15,485 17,237
========== ==========
</TABLE>
F-27
<PAGE>
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) SUMMARY OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY THE
COMPANY AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES--
(CONTINUED):
There is no significant adjustments to be made to reconcile 1995 and 1994 net
income from French to US GAAP.
(4) GOODWILL AND OTHER INTANGIBLES:
<TABLE>
<CAPTION>
OTHER
GOODWILL INTANGIBLES TOTAL
-------- ----------- -----
<S> <C> <C> <C>
Gross book value at January 1, 1994.............. 3,065 390 3,455
Accumulated depreciation at January 1, 1994...... (58) (361) (419)
----- ---- -----
Net book value at January 1, 1994............ 3,007 29 3,036
Additions........................................ 1,429 49 1,478
Amortization provided in 1994.................... (76) (50) (126)
----- ---- -----
Gross book value at December 31, 1994............ 4,494 439 4,933
Accumulated depreciation at December 31, 1994.... (134) (411) (545)
----- ---- -----
Net book value as of December 31, 1994....... 4,360 28 4,388
Additions........................................ 324 93 417
Amortization provided in 1995.................... (91) (99) (190)
----- ---- -----
Gross book value at December 31, 1995............ 4,818 532 5,350
Accumulated depreciation at December 31, 1995.... (225) (510) (735)
----- ---- -----
Net book value at December 31, 1995.......... 4,593 22 4,615
===== ==== =====
</TABLE>
Other intangible assets mainly comprise software, patent licenses and
trademarks.
(5) PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment as of December 31, 1994 and 1995, consists of:
<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Land..................................................... 1,383 1,383
Building................................................. 6,372 10,587
Equipment................................................ 8,665 8,544
Other.................................................... 1,779 --
------ ------
18,199 20,514
Less: Accumulated depreciation........................... (7,123) (6,907)
------ ------
Total................................................ 11,076 13,607
====== ======
</TABLE>
(6) INVENTORIES:
<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Raw materials and consumable............................. 1,409 1,194
Work in progress......................................... 117 243
Finished goods........................................... 15,141 16,962
------ ------
16,667 18,399
Less: Valuation allowance................................ (1,844) (1,178)
------ ------
Total................................................ 14,823 17,221
====== ======
</TABLE>
F-28
<PAGE>
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) TRADE AND OTHER RECEIVABLES:
<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Trade receivables............................................ 30,055 26,451
Other receivables............................................ 916 1,347
------ ------
30,971 27,798
Less: Allowance for doubtful accounts........................ (882) (868)
------ ------
Total.................................................... 30,089 26,930
====== ======
</TABLE>
The Company's practice is to sell part of its trade receivables to finance
the business. At December 31, 1995, such sales with limited recourse amounted
to FF 16,708 (1994--FF 7,416) which have been deducted from trade receivables
accordingly. Discounted bills with recourse are disclosed in Note 16.
For cash flow statement purposes, proceeds from these transfers of
receivables have been classified in cash from operating activities.
(8) LONG-TERM DEBT:
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Employee profit sharing.......................................... 1,486 1,851
Banks loans...................................................... 6,735 4,753
Other............................................................ 224 149
----- -----
Total long-term debt......................................... 8,445 6,753
===== =====
</TABLE>
Loan repayment schedule (excluding short-term portion of long-term debt).
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
1996............................................................. 2,384 --
1997............................................................. 2,164 2,118
1998............................................................. 1,475 1,485
1999............................................................. 1,562 1,360
2000............................................................. 413 1,343
2001 and thereafter.............................................. 447 447
----- -----
Total........................................................ 8,445 6,753
===== =====
</TABLE>
All long term loans are in French Francs and are secured by certain assets of
the Company.
Analysis of long term debt by interest rate:
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Fixed rates:
--8% and under................................................... 5,008 3,955
--over 8%........................................................ 1,064 391
Floating rates (*)............................................... 2,373 2,407
----- -----
Total........................................................ 8,445 6,753
===== =====
</TABLE>
- --------
(*)Floating rates are principally based on PIBOR.
F-29
<PAGE>
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) SHORT-TERM DEBT:
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Bank overdraft................................................... 3,625 2,135
Current portion of long-term debt................................ 1,996 2,319
Other............................................................ 1,961 1,901
----- -----
Total........................................................ 7,582 6,355
===== =====
</TABLE>
(10) COMMON STOCK:
The common stock consists of fully paid shares with a nominal value of FF
100:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
(IN NUMBER OF SHARES)
<S> <C> <C>
At January 1st,........................................ 50,000 50,000
Issued................................................. -- 20,000
---------- ----------
At December 31,...................................... 50,000 70,000
========== ==========
</TABLE>
The increase in common stock was effected through a stock dividend.
At December 31, 1995 there are no outstanding shares that might be issued.
(11) INCOME TAX:
Provision for income tax basis is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ------ ------
<S> <C> <C> <C>
Current:
Domestic............................................. (549) (1,849) (2,621)
Deferred:
Domestic............................................. (7) (39) 438
---- ------ ------
Total.............................................. (556) (1,888) (2,183)
==== ====== ======
</TABLE>
The provision for income tax differs from the amount computed by applying the
French statutory income tax rate of 33 1/3% in 1993 and 1994 and 36 2/3% in
1995 because of the effect of the following items:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Net income.......................................... 1,069 3,801 2,561
Provision for income tax............................ (556) (1,888) (2,183)
------ ------ ------
Pretax income....................................... 1,625 5,689 4,744
French statutory tax rate........................... 33 1/3% 33 1/3% 36 2/3%
------ ------ ------
Computed income tax at French statutory tax rate.... 542 1,896 1,739
Permanent differences............................... 18 42 (14)
Change in valuation allowance on deferred tax
assets............................................. -- -- 492
Other, net.......................................... (4) (50) (34)
------ ------ ------
Provision for income tax............................ 556 1,888 2,183
====== ====== ======
</TABLE>
F-30
<PAGE>
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(11) INCOME TAX--(CONTINUED):
Deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Gross deferred tax assets:
Net operating loss carry forwards............................ -- 492
Allowances and accruals not currently deductible for tax
purposes.................................................... 356 648
Retirement benefits.......................................... 693 1,012
----- -----
Gross deferred tax assets.................................... 1,049 2,152
Valuation allowance on deferred tax assets................... -- (492)
----- -----
Deferred tax assets........................................ 1,049 1,660
Gross deferred tax liabilities:
Excess book over tax basis of property, plant and equipment.. 342 515
----- -----
Deferred tax liabilities................................... 342 515
----- -----
Net deferred tax asset................................... 707 1,145
===== =====
</TABLE>
Distribution to shareholders of the FF 10,990 retained earnings of the parent
company available for distribution as of December 31, 1995 would trigger a
taxation ("precompte") of a total amount of approximately FF 309 which would be
withheld from the amount distributed.
(12) PROVISIONS FOR LIABILITIES AND ACCRUALS:
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Retirement benefits.............................................. 2,078 2,762
Other............................................................ 103 24
----- -----
Total.......................................................... 2,181 2,786
===== =====
</TABLE>
Movements in provisions are analyzed as follows:
<TABLE>
<CAPTION>
RETIREMENT PURCHASE OTHER
BENEFITS ACCOUNTING PROVISIONS TOTAL
---------- ---------- ---------- ------
<S> <C> <C> <C> <C>
At, January 1, 1994................. 1,440 922 176 2,538
Additions........................... 638 -- 103 741
Purchase accounting and other
movements.......................... -- 836 -- 836
Deductions made against expenses
incurred........................... -- (1,758) (176) (1,934)
----- ------ ---- ------
At, December 31, 1994............... 2,078 -- 103 2,181
Additions........................... 684 -- 24 708
Purchase accounting and other
movements.......................... -- 165 -- 165
Deductions made against expenses
incurred........................... -- (165) (103) (268)
----- ------ ---- ------
At, December 31, 1995............... 2,762 -- 24 2,786
===== ====== ==== ======
</TABLE>
Retirement indemnities
The Company has applied SFAS No. 87 "Employers' Accounting for Pensions"
except for the non-recognition of a minimum liability as explained in Note 3 as
follows:
F-31
<PAGE>
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(12) PROVISIONS FOR LIABILITIES AND ACCRUALS--(CONTINUED):
The transition obligation has been determined as of January 1, 1993 as
being the difference between the liabilities accounted for under prior
years' accounting policies and the funded status of the plans resulting
from actuarial calculations; this transition obligation as determined at
January 1, 1993, has been reduced to its amortized value as if SFAS No. 87
had been applied from 1989. The amortization period is the average residual
active life of the population covered by the plan (13 years). The remaining
transition obligation is amortized over 6 years;
The plan covered is a retirement lump sum indemnities plan. The actuarial
method used is the projected unit credit method.
The funded status of the retirement benefit plan is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation....................... -- -- --
Non-vested benefit obligation................... (2,987) (3,395) (3,847)
------ ------ ------
Accumulated benefit obligation.................... (2,987) (3,395) (3,847)
Effect of salary increases...................... (139) (158) (179)
------ ------ ------
Projected benefit obligation...................... (3,126) (3,553) (4,026)
Plan assets at fair value....................... -- -- --
------ ------ ------
Projected benefit obligation in excess of plan
assets........................................... (3,126) (3,553) (4,026)
Unrecognized net transition obligation.......... 1,686 1,475 1,264
------ ------ ------
Net pension accrual............................... (1,440) (2,078) (2,762)
====== ====== ======
</TABLE>
The net periodic pension cost of the Company's pension plan includes the
following components:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Service cost--benefits earned during the year............... 182 195 211
Interest cost on projected benefit obligation............... 204 233 263
Actual return on plan assets................................ -- -- --
Net amortization and deferral............................... 210 210 210
--- --- ---
Net pension cost.......................................... 596 638 684
=== === ===
</TABLE>
Average assumptions used in accounting for the Company's plan were:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate............................................ 7.0% 7.0% 7.0%
Rate of increase in compensation levels.................. 3.0% 3.0% 3.0%
</TABLE>
Post-retirement benefits
The Company does not have any post-retirement benefit obligation that could
be covered by SFAS No. 106.
Purchase Accounting
These provisions relate only to purchase accounting provisions for Totem,
Spetelec and Lucca acquisitions.
F-32
<PAGE>
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(13) INTEREST EXPENSE (NET):
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Net interest income.................................. 83 76 56
Interest on debt..................................... (2,243) (2,441) (2,945)
------ ------ ------
Total............................................ (2,160) (2,365) (2,889)
====== ====== ======
</TABLE>
(14) STAFF COSTS:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Wages and salaries including social security and other
related costs........................................ 21,696 28,012 30,066
Average number of employees during the year........... 94 100 116
Number of employees at year end....................... 100 102 114
</TABLE>
(15) SUBSEQUENT EVENTS:
RDI was acquired by Control Devices, Inc. on April 1, 1996.
As this transaction constitutes an event subsequent to the December 31, 1995
balance sheet, the consolidated financial statements of RDI for the year
ended December 31, 1995 do not give effect to any adjustments which may
arise from this transaction.
(16) COMMITMENTS AND CONTINGENCIES:
Commitments not otherwise disclosed amounted to:
<TABLE>
<CAPTION>
1994 1995
----- ------
<S> <C> <C>
Discounted bills with recourse.................................. 7,416 16,708
Other commitments............................................... 107 551
</TABLE>
(17) INFORMATION BY BUSINESS SEGMENT AND GEOGRAPHICAL AREA:
The Company operates mainly on the European market and distributes their
products primarily to automobile original equipment manufacturers.
(18) LIST OF COMPANY ENTITIES AT DECEMBER 31, 1995:
<TABLE>
<CAPTION>
COMPANY PERCENTAGE
COMPANY ENTITIES COUNTRY INTEREST OF CONTROL
---------------- ------- -------- ----------
<S> <C> <C> <C>
Lucca France 100% 100%
Futurelec France 100% 100%
</TABLE>
F-33
<PAGE>
INSIDE BACK COVER PAGE
Under the heading "Appliance Market--Control Devices provides the appliance
market with circuit breakers for many residential and industrial
applications," there is a photograph of a number of the Company's glass
enclosed circuit breakers with the caption "The Company is one of only two
worldwide manufacturers of glass enclosed hermetic circuit breakers for many
residential and commercial applications" and a photograph of a compressor with
the caption "A typical application for the Company's hermetic glass enclosed
circuit breakers is to protect compressor motors used in residential and
commercial refrigeration equipment."
Under the heading "Telecommunications Market--Control Devices designs and
manufactures ceramic products for both wire and wireless applications," there
is a photograph of Dielectric Resonators with the caption "Dielectric
Resonators are an integral part of the rapidly expanding wireless PCS and
cellular communication markets," and a photograph of PTC thermistors and a
protection module with the caption "The Company has an exclusive contract to
supply its PTC thermistors for use in the module that protects GTE's central
office equipment."
<PAGE>
CONTROL DEVICES, INC.
[LOGO]
2,000,000
COMMON SHARES
PROSPECTUS
DEAN WITTER REYNOLDS INC.
CLEARY GULL REILAND & MCDEVITT INC.
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the actual or estimated expenses, other than the
underwriting discounts and commissions, payable by the Company in connection
with the issuance and distribution of the Common Shares being registered. All
of the amounts shown are estimates except for the SEC registration fee, the
NASD filing fee and the Nasdaq Application Fee:
<TABLE>
<S> <C>
Registration Fee................................................. $ 9,518
Printing of Registration Statement and Prospectus................ 130,000
Accounting Fees and Expenses..................................... 300,000
Legal Fees....................................................... 225,000
Transfer Agent Fees and Expenses................................. 5,000
NASD Filing Fees................................................. 3,260
Nasdaq Application Fee........................................... 16,500
Blue Sky Fees and Expenses....................................... 20,000
Miscellaneous.................................................... 40,722
--------
Total........................................................ $750,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Chapter 37 of the Indiana Business Corporation Law, as amended (the "Act")
grants to each Indiana corporation broad powers to indemnify directors,
officers, employees or agents against expenses incurred in certain proceedings
if the conduct in question was found to be in good faith and was reasonably
believed to be in the corporation's best interests. This statute provides,
however, that this indemnification should not be deemed exclusive of any other
indemnification rights provided by the articles of incorporation, by-laws,
resolution or other authorization adopted by a majority vote of the voting
shares then issued and outstanding. Section 7.02 of the Code of By-Laws of the
Company reads as follows:
Clause 7.021. Definitions. Terms defined in Chapter 37 of the Indiana
Business Corporation Law (Ind. Code (S)(S) 23-1-37, et seq.) which are used in
this Article 7 shall have the same definitions for purposes of this Article 7
as they have in such chapter of the Indiana Business Corporation Law.
Clause 7.022. Indemnification of Directors and Officers. The Corporation
shall indemnify any individual who is or was a director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, partner or trustee of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise whether or not for profit, against liability and expenses,
including attorneys fees, incurred by him in any action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, and whether formal
or informal, in which he is made or threatened to be made a party by reason of
being or having been in any such capacity, or arising out of his status as
such, except (i) in the case of any action, suit, or proceeding terminated by
judgment, order, or conviction, in relation to matters as to which he is
adjudged to have breached or failed to perform the duties of his office and
the breach or failure to perform constituted willful misconduct or
recklessness; and (ii) in any other situation, in relation to matters as to
which it is found by a majority of a committee composed of all directors not
involved in the matter in controversy (whether or not a quorum) that the
person breached or failed to perform the duties of his office and the breach
or failure to perform constituted willful misconduct or recklessness. The
Corporation may pay for or reimburse reasonable expenses incurred by a
director or officer in defending any action, suit, or proceeding in advance of
the final disposition thereof upon receipt of (i) a written affirmation of the
director's or officer's good faith belief that such director or officer has
met the standard conduct prescribed by Indiana law; and (ii) an undertaking of
the director or officer to repay the amount paid by the Corporation if it is
ultimately determined that the director or officer is not entitled to
indemnification by the Corporation.
II-1
<PAGE>
Clause 7.023. Other Employees or Agents of the Corporation. The Corporation
may, in the discretion of the Board of Directors, fully or partially provide
the same rights of indemnification and reimbursement as hereinabove provided
for directors and officers of the Corporation to other individuals who are or
were employees or agents of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
whether or not for profit.
Clause 7.024. Non-exclusive Provision. The indemnification authorized under
Section 7.02 above is in addition to all rights to indemnification granted by
Chapter 37 of the Indiana Business Corporation Law (Ind. Code (S)(S) 23-1-37,
et seq.) and in no way limits the indemnification provisions of such Chapter.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information is provided with respect to all sales of
securities by the Company within the past three years which were not
registered under the Securities Act:
On July 29, 1994, the Company: (i) sold 1,564,098 Common Shares for an
aggregate consideration of $455,000 in cash, to 56 persons each of whom was an
accredited investor, including each of the executive officers and directors of
the Company; (ii) sold 435,896 Common Shares to MassMutual for an aggregate
consideration of $145,000 in cash; (iii) granted to MassMutual warrants to
purchase up to 564,100 Common Shares; (iv) sold 2,400 11% Cumulative Preferred
Shares to certain of the purchasers referred to in (i) and (ii) for an
aggregate consideration of $2,400,000 in cash; (v) sold to MassMutual
$10,500,000 in principal amount of 10% Senior Secured Fixed Rate Notes; and
(vi) sold to MassMutual $4,500,000 in principal amount of 11% Senior
Subordinated Notes. All of such transactions were effected in reliance on the
exemption under Rule 506 of Regulation D.
On April 1, 1995, the Company granted to Dr. Dennis J. Hegyi, in connection
with the execution by Dr. Hegyi of a consulting agreement and certain license
agreements, an option to purchase 200,000 Common Shares, in reliance on the
exemption from registration under Section 4(2) of the Securities Act.
On April 1, 1996, the Company sold: (i) $1,108,000 in aggregate principal
amount of the RDI Notes; and (ii) $892,000 in aggregate principal amount of
the RDI Convertible Notes, as part of the consideration for the acquisition
for RDI to seven residents of France, in reliance on Regulation S.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Form of Articles of Incorporation of the Company to be filed at
closing of the offering
3.2* Form of Code of By-laws of the Company to be effective at the closing
of the offering
4.1* Specimen of Common Share certificate
4.2 Article III of the Articles of Incorporation of the Company (included
in Exhibit 3.1)
4.3* The Code of By-laws of the Company (included in Exhibit 3.2)
4.4 Form of (i) Securities Purchase Agreement dated July 29, 1994 entered
into between Control Devices, Inc. and certain investors; and (ii) 10%
Senior Secured Fixed Rate Notes, 11% Senior Subordinated Notes, and
Senior Secured Floating Rate Revolving Credit Notes issued pursuant to
the Securities Purchase Agreement.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.5 Agreement to furnish copies of certain long term debt agreements.
5.1* Form of Opinion of Sommer & Barnard, PC
10.1 Environmental Agreement dated July 6, 1994 among Control Devices,
Inc., GTE Products of Connecticut Corporation, GTE Corporation, GTE
Control Devices Incorporated and Dominican Overseas Trading Company
10.2 Lease Assignment, Assumption Agreement and Release dated July 29, 1994
between GTE Control Devices, Incorporated and Control Devices, Inc.
with respect to the Lease dated September 23, 1993 between
Westinghouse Electric Corporation and GTE Control Devices,
Incorporated attached as Exhibit 1 thereto
10.3 Lease Assignment, Assumption Agreement and Release dated July 29, 1994
between GTE Control Devices, Incorporated and Control Devices, Inc.
with respect to the Lease dated December 1, 1993 between John Hancock
Mutual Life Insurance Company and GTE Control Devices Incorporated
attached as Exhibit 1 thereto
10.4 Lease Agreement dated December 30, 1994 between Mecon Mfg. and Control
Devices, Inc.
10.5 1996 Stock Compensation Plan
10.6 Consultant's Agreement dated April 1, 1995 between Control Devices,
Inc. and Dr. Dennis J. Hegyi
10.7 Agreement to Grant License dated April 1, 1995 between Control
Devices, Inc. and Dr. Dennis J. Hegyi
10.8 Option to Purchase 200,000 Class A Common Shares of Control Devices,
Inc. granted to Dr. Dennis J. Hegyi
10.9 Agreement dated April 1, 1995 between Control Devices, Inc. and Dr.
Dennis J. Hegyi
10.10 License Agreement (Rain Sensor and Fog Sensor) dated April 3, 1995,
between Control Devices, Inc. and Dr. Dennis J. Hegyi
10.11 License Agreement (Solar Position Sensor) dated April 3, 1995, between
Control Devices, Inc. and Dr. Dennis J. Hegyi
10.12 License Agreement (Twilight Sensor) dated April 3, 1995, between
Control Devices, Inc. and Dr. Dennis J. Hegyi
10.13 Stock Purchase Agreement dated March 29, 1996, by and among the
Company and each of the shareholders of RDI
10.14 Employment Agreement with Michel Hauser-Kauffmann
23.1* Consent of Sommer & Barnard, PC (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP, Independent Public Accountants
23.3 Consent of Barbier Frinault & Associes, Independent Public Accountants
24 Power of Attorney (included on signature page of the Registration
Statement)
27 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment
(b) Financial Statement Schedules
Financial statement schedules are omitted because they are not applicable or
the required information is shown in the financial statements or notes
thereto.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To provide to the underwriter at the closing specified in the
underwriting agreements certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to
each purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions
described in Item 14, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(3) For the purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as a
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(4) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF STANDISH, STATE OF
MAINE, ON THE FIRST DAY OF AUGUST, 1996.
Control Devices, Inc.
By: /s/ Ralph R. Whitney, Jr.
---------------------------------
RALPH R. WHITNEY, JR.
CHAIRMAN OF THE BOARD
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Bruce D. Atkinson and Jeffrey G. Wood, and each
of them, his true and lawful attorney-in-fact and agent with full power of
substitution for him in his name, place and stead, in any and all capacities
to sign any and all amendments (including pre-effective and post-effective
amendments and any registration statement related to this offering that is to
be effective upon filing pursuant to Rule 462(b) under the Act) to this
registration statement, and to file the same with all exhibits thereto and
other documents in connection therewith with the Securities and Exchange
Commission, grants unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully as to all intents and
purposes as he might or could do in person, and hereby ratifies and confirms
all that said attorneys-in-fact and agents or their or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSON IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE(S) DATE
--------- ------- ----
/s/ Ralph R. Whitney, Jr. Chairman of the August 1, 1996
- ------------------------------------- Board
RALPH R. WHITNEY, JR. Principal Executive
Officer
/s/ Jeffrey G. Wood Vice President, August 1, 1996
- ------------------------------------- Chief Financial
JEFFREY G. WOOD Officer, Secretary
and Treasurer
Principal Financial
and Accounting
Officer
/s/ Bruce D. Atkinson President, Chief August 1, 1996
- ------------------------------------- Executive Officer
BRUCE D. ATKINSON and Director
II-5
<PAGE>
SIGNATURE TITLE(S) DATE
/s/ C. M. Brennan Director August 1, 1996
- -------------------------------------
C. M. BRENNAN
/s/ John D. Cooke Director August 1, 1996
- -------------------------------------
JOHN D. COOKE
/s/ James O. Futterknecht, Jr. Director August 1, 1996
- -------------------------------------
JAMES O. FUTTERKNECHT, JR.
/s/ Alan I. Mossberg Director August 1, 1996
- -------------------------------------
ALAN I. MOSSBERG
/s/ John M. Ramey Director August 1, 1996
- -------------------------------------
JOHN M. RAMEY
/s/ Glenn Scolnik Director August 1, 1996
- -------------------------------------
GLENN SCOLNIK
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Form of Articles of Incorporation of the Company to be filed at
closing of the offering
3.2* Form of Code of By-laws of the Company to be effective at the closing
of the offering
4.1* Specimen of Common Share certificate
4.2 Article III of the Articles of Incorporation of the Company (included
in Exhibit 3.1)
4.3* The Code of By-laws of the Company (included in Exhibit 3.2)
4.4 Form of (i) Securities Purchase Agreement dated July 29, 1994 entered
into between Control Devices, Inc. and certain investors; and (ii) 10%
Senior Secured Fixed Rate Notes, 11% Senior Subordinated Notes, and
Senior Secured Floating Rate Revolving Credit Notes issued pursuant to
the Securities Purchase Agreement.
4.5 Agreement to furnish copies of certain long-term debt agreements.
5.1* Form of Opinion of Sommer & Barnard, PC
10.1 Environmental Agreement dated July 6, 1994 among Control Devices,
Inc., GTE Products of Connecticut Corporation, GTE Corporation, GTE
Control Devices Incorporated and Dominican Overseas Trading Company
10.2 Lease Assignment, Assumption Agreement and Release dated July 29, 1994
between GTE Control Devices, Incorporated and Control Devices, Inc.
with respect to the Lease dated September 23, 1993 between
Westinghouse Electric Corporation and GTE Control Devices,
Incorporated attached as Exhibit 1 thereto
10.3 Lease Assignment, Assumption Agreement and Release dated July 29, 1994
between GTE Control Devices, Incorporated and Control Devices, Inc.
with respect to the Lease dated December 1, 1993 between John Hancock
Mutual Life Insurance Company and GTE Control Devices Incorporated
attached as Exhibit 1 thereto
10.4 Lease Agreement dated December 30, 1994 between Mecon Mfg. and Control
Devices, Inc.
10.5 1996 Stock Compensation Plan
10.6 Consultant's Agreement dated April 1, 1995 between Control Devices,
Inc. and Dr. Dennis J. Hegyi
10.7 Agreement to Grant License dated April 1, 1995 between Control
Devices, Inc. and Dr. Dennis J. Hegyi
10.8 Option to Purchase 200,000 Class A Common Shares of Control Devices,
Inc. granted to Dr. Dennis J. Hegyi
10.9 Agreement dated April 1, 1995 between Control Devices, Inc. and Dr.
Dennis J. Hegyi
10.10 License Agreement (Rain Sensor and Fog Sensor) dated April 3, 1995,
between Control Devices, Inc. and Dr. Dennis J. Hegyi
10.11 License Agreement (Solar Position Sensor) dated April 3, 1995, between
Control Devices, Inc. and Dr. Dennis J. Hegyi
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.12 License Agreement (Twilight Sensor) dated April 3, 1995, between
Control Devices, Inc. and Dr. Dennis J. Hegyi
10.13 Stock Purchase Agreement dated March 29, 1996, by and among the
Company and each of the shareholders of RDI
10.14 Employment Agreement with Michel Hauser-Kauffmann
23.1* Consent of Sommer & Barnard, PC (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP, Independent Public Accountants
23.3 Consent of Barbier Frinault & Associes, Independent Public Accountants
24 Power of Attorney (included on signature page of the Registration
Statement)
27 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment
<PAGE>
EXHIBIT 3.1
JULY 29, 1996
AMENDED AND RESTATED ARTICLES OF INCORPORATION
----------------------------------------------
OF
--
CONTROL DEVICES, INC.
---------------------
ARTICLE I
---------
Name
----
The name of the Corporation is Control Devices, Inc.
ARTICLE II
----------
Registered Office and Registered Agent
--------------------------------------
The street address of the Corporation's registered office in Indiana and
the name of its registered agent at that office are Glenn Scolnik, Hammond,
Kennedy, Whitney & Company, Inc., 8888 Keystone Crossing, Suite 690,
Indianapolis, Indiana 46240.
ARTICLE III
-----------
Shares
------
Section 3.1. Number. The total number of shares which the Corporation is
----------- ------
authorized to issue is Nineteen Million (19,000,000) shares.
Section 3.2. Designation of Classes and Number of Shares. The authorized
----------- -------------------------------------------
shares shall be divided into Sixteen Million (16,000,000) shares of the
Corporation which shall be designated as "Common Shares" and Three Million
(3,000,000) shares of the Corporation which shall be designated as "Preferred
Shares."
Section 3.3. Rights, Privileges, Limitations and Restrictions of Common
----------- ----------------------------------------------------------
Shares.
- ------
(1) Single Class. Effective as of the time of the filing of these Amended and
------------
Restated Articles of Incorporation ("Amended Articles") with the Secretary of
State of the State of Indiana (the "Effective Time") and until such time as
these Amended Articles are further amended, the Common Shares shall constitute a
separate and single class and shall not be issued in series. All Common Shares
shall be identical with each other in all respects. Any "Class A common shares,"
"Class B Series 1 common shares" and "Class B Series 2 common shares" of the
Corporation issued and outstanding
<PAGE>
as of the Effective Time shall without further action be Common Shares
identical in all respects with all other Common Shares. Outstanding stock
certificates representing "Class A common shares," "Class B Series 1 common
shares" or "Class B Series 2 common shares" of the Corporation as of the
Effective Time shall after the Effective Time represent Common Shares
without further action.
(2) Dividends. Subject to any limitations prescribed in this
---------
Article III and any further limitations prescribed in accordance
therewith, and subject to any prior rights that may be conferred upon
the holders of any series of the Preferred Shares established by the
Board of Directors pursuant to authority herein provided, and except as
otherwise provided by law, the holders of Common Shares shall be
entitled to receive when and as declared by the Board of Directors, out
of the assets of the Corporation which are by law available therefor,
pro rata dividends payable either in cash, in property or securities of
the Corporation.
(3) Liquidation. In the event of any voluntary or involuntary
-----------
liquidation, dissolution, or winding up of the Corporation, the holders
of the Common Shares shall be entitled, after payment or provision for
payment of the debts and other liabilities of the Corporation and of
all Preferred Shares having priority over the Common Shares, to share
ratably in the remaining net assets of the Corporation.
(4) Voting Rights. Subject to any voting rights that may be
-------------
conferred upon holders of any series of Preferred Shares established by
the Board of Directors pursuant to authority herein provided or as
otherwise provided by law, every holder of Common Shares shall have the
right, at every shareholders' meeting, to one vote for each Common
Share standing in such shareholder's name on the books of the
Corporation.
Section 3.4. Rights of Preferred Shares
----------- --------------------------
(1) Preferred Shares may be issued from time to time in one or
more series, which series may have such voting powers, full or limited,
or no voting powers, and such designations, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as shall be stated and expressed
in the resolution or resolutions providing for the issue of such shares
adopted by the Board of Directors. The authority for the adoption of
such resolution or resolutions is hereby expressly granted to and
vested in the Board of Directors and shall include authority to specify
the number of Preferred Shares of any series and to provide, as to any
series of Preferred Shares, such voting powers, and such designations,
preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, as are
from time to time permitted under the Indiana Business Corporation Law.
<PAGE>
(2) Designation of Rights of 11% Cumulative Preferred Shares.
--------------------------------------------------------
(a) Authorization and Designation. The Corporation is authorized
-----------------------------
to issue a series of its Preferred Shares consisting of 2,400 shares having
a stated value of One Thousand Dollars ($1,000.00) per share, to be
designated as the 11% Cumulative Preferred Shares (hereinafter referred to
as the "11% Cumulative Preferred Shares"). Holders of 11% Cumulative
Preferred Shares will not have any preemptive rights. The 11% Cumulative
Preferred Shares shall be senior, in respect of the right to receive
dividends or assets upon liquidation, dissolution or winding up of the
Corporation, to the Common Shares and all other series of Preferred Shares
hereafter established by the Board of Directors unless the holders of at
least 80% of the 11% Cumulative Preferred Shares vote for or consent to the
creation of a series having rights prior to or on a parity with the 11%
Cumulative Preferred Shares in respect of such matters.
(b) Dividends. Holders of 11% Cumulative Preferred Shares will
---------
be entitled to receive cash dividends at a rate of 11% per annum ($110.00)
per share. Dividends will be payable to holders of record of 11% Cumulative
Preferred Shares as they appear on the books of the Corporation on such
record dates, not less than 10 days and not more than 60 days preceding the
payment dates thereof, as may be fixed by the Board of Directors of the
Corporation. Dividends shall be fully cumulative and shall accrue from the
date of original issuance of the 11% Cumulative Preferred Shares. No
dividends may be paid prior to the first Mandatory Dividend Payment Date
(as defined below) except upon redemption of all of the 11% Cumulative
Preferred Shares prior to such first Mandatory Dividend Payment Date. From
and after such first Mandatory Dividend Payment Date, dividends shall be
paid at the times required below and may be paid, at the discretion of the
Board of Directors, at any other time. Dividends may be paid to the extent
that the Corporation's total assets exceed its total liabilities, without
regard to the liquidation preference of any class or series of shares
senior to the 11% Cumulative Preferred Shares.
On the 90th day after the close of each fiscal year, commencing
with the fiscal year ending July 31, 1996 (each a "Mandatory Dividend
Payment Date"), the Corporation shall be required to pay all dividends
accrued but unpaid as of the close of such fiscal year up to a maximum
aggregate amount not greater than the Maximum Required Dividend (as defined
below) as of the close of such fiscal year. "Maximum Required Dividend" for
any fiscal year, as used herein shall mean 25% of the Excess Cash Flow (as
defined below) of the Corporation for such fiscal year.
<PAGE>
"Excess Cash Flow" for any fiscal year shall mean the consolidated
net income of the Corporation for the relevant fiscal year (excluding all
extraordinary, unusual, nonrecurring and/or nonoperating items), after
restoring thereto amounts deducted for (a) taxes in respect of income and
profits, (b) interest expense, and (c) depreciation and amortization, and
after reducing the amount so obtained by (x) amounts actually expended by
the Corporation and its subsidiaries for capital expenditures during such
year and (y) all payments of principal of and/or interest on indebtedness
for borrowed money of the Corporation and its subsidiaries made during such
year, provided, however, there shall be no deduction for prepayments of
-------- -------
principal on any such indebtedness to the extent such prepayments are made
with the net proceeds of the sale by the Corporation of its securities
after July 29, 1994; all determined in accordance with generally accepted
accounting principles.
Except as described below, no dividends shall be paid or declared
and set apart for payment on any class or series of shares of the
Corporation junior to the 11% Cumulative Preferred Shares for any period
unless all dividends accrued on the 11% Cumulative Preferred Shares since
the date of original issuance thereof shall have been paid in full. In no
event may dividends be paid or declared and set apart for payment on any
class or series of shares of the Corporation junior to or on a parity with
the 11% Cumulative Preferred Shares following the twelfth anniversary of
the date of original issuance of the 11% Cumulative Preferred Shares if any
11% Cumulative Preferred Shares remain outstanding after such twelfth
anniversary. A dividend payable in Common Shares or another class of shares
junior to the 11% Cumulative Preferred Shares may, however, be made. When
full cumulative dividends are not paid upon the 11% Cumulative Preferred
Shares and any other class of shares ranking on parity with the 11%
Cumulative Preferred Shares, all dividends declared upon such shares shall
be declared pro rata in accordance with the respective dividends which
would be payable on such shares if all accrued and unpaid dividends thereon
were paid in full. The holders of 11% Cumulative Preferred Shares shall not
be entitled to the payment of interest with respect to dividend payments
that may be in arrears.
(c) Liquidation Rights. In the event of any voluntary or
------------------
involuntary liquidation, dissolution or winding up of the Corporation, the
holders of 11% Cumulative Preferred Shares are entitled to receive out of
assets of the Corporation available for distribution to shareholders,
before any distribution or payment is made to holders of Common Shares, or
holders of any other shares of the Corporation ranking junior upon
liquidation to the 11% Cumulative Preferred
<PAGE>
Shares, liquidation distributions in the amount of $1,000.00 per share,
plus accrued and unpaid dividends. If upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the assets of
the Corporation shall be insufficient to make the full payment of $1,000.00
per share, plus all accrued and unpaid dividends thereon, on the 11%
Cumulative Preferred Shares and similar payments on any other class of
shares ranking on a parity with the 11% Cumulative Preferred Shares upon
liquidation, then the holders of the 11% Cumulative Preferred Shares and of
such other shares will share ratably in any such distribution of assets of
the Corporation in proportion to the full respective distributable amounts
to which they are entitled. A consolidation or merger of the Corporation
with or into one or more corporations, or a sale, lease or other
disposition of all or substantially all of the assets of the Corporation
which does not involve a distribution by the Corporation of cash or other
property to the holders of the Common Shares, shall not be deemed to be a
liquidation, dissolution or winding up of the Corporation.
After payment of the full amount of the liquidating distribution
to which they are entitled, the holders of 11% Cumulative Preferred Shares
will not be entitled to any further participation in any distributions or
payments by the Corporation.
(d) Redemption.
----------
(i) Optional Redemption. The 11% Cumulative Preferred
-------------------
Shares may be redeemed at the option of the Corporation in whole
or in part at any time or from time to time. The redemption price
will be $1,000.00 per 11% Cumulative Preferred Share plus accrued
and unpaid dividends. If less than all of the outstanding 11%
Cumulative Preferred Shares are to be redeemed, they shall be
redeemed on a pro rata basis from among all then outstanding 11%
Cumulative Preferred Shares (with adjustments to avoid fractional
shares).
(ii) Discretionary Redemption. Commencing with the
------------------------
first Mandatory Dividend Payment Date, whenever the Maximum
Required Dividend as of the close of any fiscal year exceeds the
aggregate amount of dividends accrued but unpaid on the 11%
Cumulative Preferred Shares as of the close of such fiscal year by
at least $24,000.00, the Corporation shall redeem, unless the
Board of Directors of the Corporation determines in its reasonable
discretion that such redemption would not be
<PAGE>
in the best interests of the Corporation, on the Mandatory
Dividend Payment Date for such year a number of 11% Cumulative
Preferred Shares equal to the quotient of (x) the excess of the
Maximum Required Dividend over the aggregate amount of dividends
accrued but unpaid as of the end of such fiscal year divided by
(y) 1000. The redemption price will be $1000.00 per 11% Cumulative
Preferred Share. If less than all of the outstanding 11%
Cumulative Preferred Shares are to be redeemed, they shall be
redeemed on a pro rata basis from among all then outstanding 11%
Cumulative Preferred Shares (with adjustments to avoid fractional
shares).
(iii) Mandatory Redemption on Twelfth Anniversary. On the
-------------------------------------------
twelfth anniversary of the date of original issuance of the 11%
Cumulative Preferred Shares, the Corporation shall redeem all 11%
Cumulative Preferred Shares then outstanding at a redemption price
equal to $1,000.00 per 11% Cumulative Preferred Share, plus
accrued and unpaid dividends.
(iv) Special Mandatory Redemption. Notwithstanding
----------------------------
anything to the contrary contained herein, upon the prepayment in
full of the then outstanding principal balance, if any, of the
Senior Fixed Rate Notes (as defined in the Securities Purchase
Agreements hereinafter referred to) and of the then outstanding
principal balance, if any, of the Subordinated Notes (as defined
in the Securities Purchase Agreements hereinafter referred to)
pursuant to section 9.5 or 9.7 of the Securities Purchase
Agreements dated as of July 29, 1994, as amended from time to
time, by and between the Corporation and the institutional
investors named therein, the Corporation shall, concurrently with
such prepayment, redeem all 11% Cumulative Preferred Shares which
were originally issued and sold pursuant to such Securities
Purchase Agreements and which are outstanding on the date of such
prepayment, at a redemption price equal to $1,000.00 per 11%
Cumulative Preferred Share, plus accrued and unpaid dividends.
(v) Effect of Redemption. From and after the date fixed
--------------------
for redemption of 11% Cumulative Preferred Shares, if but only if
the Corporation has duly paid in cash or set aside for payment in
cash, the full redemption price for the 11% Cumulative Preferred
Shares to be so redeemed,
<PAGE>
dividends on 11% Cumulative Preferred Shares called for redemption
shall cease to accrue, such 11% Cumulative Preferred Shares shall
no longer be deemed to be outstanding and all rights of the
holders of 11% Cumulative Preferred Shares as shareholders of the
Corporation shall cease.
(e) Voting Rights. Holders of 11% Cumulative Preferred Shares
-------------
are entitled to one vote per 11% Cumulative Preferred Share on all
matters submitted to a vote or for the consent of the shareholders.
Unless the vote or consent of the holders of a greater number of
shares shall then be required by law, so long as any 11% Cumulative
Preferred Shares are outstanding, the Corporation will not (a) without
the affirmative vote or consent of the holders of at least 80% of the
outstanding 11% Cumulative Preferred Shares, voting as a separate voting
group, amend any of the provisions of the Articles of Incorporation so
as to affect adversely the powers, preferences or special rights of the
11% Cumulative Preferred Shares; and (b) without the affirmative vote or
consent of the holders of at least 80% of the outstanding 11% Cumulative
Preferred Shares, merge or consolidate with or into any other
corporation if such merger or consolidation would adversely affect the
powers, preferences or rights of the 11% Cumulative Preferred Shares.
ARTICLE IV
----------
Directors
---------
Any director may be removed, either with or without cause, at any
meeting of the Shareholders by the affirmative vote of a majority in number
of shares of the Shareholders of record present, in person or by proxy, and
entitled to vote for the election of directors, if notice of the intention
to act upon such matter shall have been given in the notice calling such
meeting.
ARTICLE V
---------
Incorporator
------------
The name and address of the incorporator of the Corporation are Glenn
Scolnik, Hammond, Kennedy, Whitney & Company, Inc., 8888 Keystone Crossing,
Suite 690, Indianapolis, Indiana 46240.
<PAGE>
EXHIBIT 4.4
CONFORMED COPY
================================================================================
CONTROL DEVICES, INC.
$10,500,000 10% Senior Secured Fixed Rate Notes due July 31, 2004
$1,500,000 Senior Secured Floating Rate Revolving Credit Notes due July 29,
1999
$4,500,000 11% Senior Subordinated Notes due July 31, 2004
580 11% Cumulative Preferred Shares, $1,000 stated value
435,897.43 Class B Series 1 Common Shares, no par value
Warrants for 564,102.56 Class B Series 1 Common Shares, no par value,
(subject to adjustment)
--------------
SECURITIES PURCHASE AGREEMENT
--------------
As of July 29, 1994
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1. Authorization of Securities; Security for the Notes; Other
Purchasers; etc..................................................... 1
2. Sale and Purchase of Securities...................................... 4
3. Closing.............................................................. 5
4. Conditions to Closing................................................ 5
4.1. Representations and Warranties Correct........................ 5
4.2. Performance; No Default....................................... 6
4.3. Related Transactions.......................................... 6
4.4. Compliance Certificate........................................ 7
4.5. Security Documents; Collateral................................ 8
4.6. Opinions of Counsel for the Company........................... 9
4.7. Opinions of Your Special Counsels............................. 9
4.8. Certain Additional Documents to be Delivered at or Prior
to the Closing............................................... 9
4.9. Sale of Securities to Other Purchasers........................ 10
4.10. Legal Investment; Certificate................................. 10
4.11. Sale and Purchase Not Forbidden by Law........................ 10
4.12. Payment of Transaction Costs.................................. 10
4.13. Proceedings and Documents..................................... 11
5. Representations and Warranties....................................... 11
5.1. Organization, Standing, etc. of the Company................... 11
5.2. Subsidiaries.................................................. 11
5.3. Qualification................................................. 11
5.4. Business, etc................................................. 11
5.5. Capital Stock................................................. 12
5.6. Financial Statements.......................................... 13
5.7. Changes; Solvency, etc........................................ 14
5.8. Tax Returns and Payments...................................... 14
5.9. Funded Debt, Current Debt, Liens, Investments, Transactions
with Affiliates and Leases................................... 14
5.10. Title to Properties; Liens; Leases............................ 15
5.11. Litigation, etc............................................... 15
5.12. Valid and Binding Obligations; Compliance with Other
Instruments, Borrowing Restrictions, etc..................... 16
5.13. ERISA......................................................... 18
5.14. Consents, etc................................................. 19
5.15. Proprietary Rights............................................ 19
5.16. Offer of Securities........................................... 19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
5.17. Government Regulation......................................... 20
5.18. Regulation G, etc............................................. 20
5.19. Foreign Credit Restraints..................................... 20
5.20. Investment Bankers, etc....................................... 20
5.21. Disclosure.................................................... 21
5.22. Franchises, Licenses, etc..................................... 21
5.23. Labor Relations; Suppliers and Customers...................... 21
5.24. Voting Provisions............................................. 22
5.25. Additional Representations and Warranties..................... 22
6. Use of Proceeds...................................................... 22
7. Financial Statements and Information................................. 22
8. Inspection........................................................... 27
9. Prepayment of Notes.................................................. 28
9.1. Required Annual Prepayment Without Premium of Senior
Fixed Rate Notes............................................. 28
9.2. Optional Annual Prepayment Without Premium of Senior
Fixed Rate Notes............................................. 28
9.3. Required Annual Prepayment Without Premium of
Subordinated Notes........................................... 28
9.4. Optional Annual Prepayment Without Premium of
Subordinated Notes........................................... 29
9.5. Optional Prepayment Without Premium of Senior Fixed Rate
Notes and/or Subordinated Notes with the Proceeds of
Certain Public Offerings..................................... 29
9.6. Optional Semi-Annual Prepayment With Premium of Senior
Fixed Rate Notes and/or Subordinated Notes................... 30
9.7. Prepayment Without Premium of Notes at the Option of Holders
of such Notes or at the Option of the Company upon a
Change of Control............................................ 30
9.8. Required Prepayment Without Premium of Senior Fixed Rate
Notes on Account of Damage, Destruction or Taking and
from Proceeds of Title Insurance............................. 32
9.9. Allocation of Partial Prepayments of Notes.................... 32
9.10. Notice of Optional Prepayments of Notes....................... 32
9.11. Maturity; Accrued Interest; Surrender, etc. of Notes.......... 33
9.12. Purchase of Notes............................................. 33
9.13. Payment on NonBusiness Days................................... 33
9.14. Application of Subordinated Notes in Satisfaction of
Exercise Price of Warrants................................... 33
10. Subordination of Subordinated Notes.................................. 33
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
10.1. Certain Definitions........................................... 33
10.2. Subordinated Indebtedness Subordinated to Superior
Indebtedness; No Amendments; No Security..................... 34
10.3. Dissolution, Liquidation, Reorganization, etc................. 35
10.4. No Payments With Respect to Subordinated Indebtedness
in Certain Circumstances..................................... 37
10.5. Payments and Distributions Received........................... 39
10.6. Subrogation................................................... 39
10.7. Notice........................................................ 39
10.8. Subordination Not Affected, etc............................... 39
10.9. Obligations Unimpaired........................................ 40
10.10. Permitted Payments............................................ 40
10.11. Holders of Subordinated Indebtedness Entitled to Assume
Payments Not Prohibited in Absence of Notice................. 41
10.12. References in Subordinated Notes to Terms of Subordination.... 41
10.13. Reinstatement of Terms of Subordination....................... 41
10.14. Limitation on Right of Action................................. 42
11. Registration, etc.................................................... 42
11.1. Certain Definitions........................................... 42
11.2. Registration on Request....................................... 43
11.3. Incidental Registration....................................... 45
11.4. Permitted Registration........................................ 46
11.5. Registration Procedures....................................... 46
11.6. Indemnification............................................... 47
11.7. Restrictions on Other Agreements.............................. 48
12. The Revolving Credit Facility........................................ 48
12.1. Certain Definitions........................................... 48
12.2. Revolving Commitment.......................................... 48
12.3. Prepayments of the Senior Revolving Credit Notes.............. 49
12.4. Permanent Reduction or Termination of Total Revolving
Commitment................................................... 50
12.5. Facility Fee.................................................. 50
12.6. Notice of Prepayments, Reductions or Terminations............. 50
12.7. Pro Rata Treatment............................................ 51
12.8. Permanent Termination of the Total Revolving Commitment
Upon the Occurrence of an Event of Default or a Change
of Control................................................... 51
12.9. Books and Records............................................. 51
13. Board Visitation Rights; Preemptive Rights........................... 52
14. Covenants of the Company............................................. 55
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
14.1. Books of Record and Account; Reserves......................... 54
14.2. Payment of Taxes; Corporate Existence; Maintenance of
Properties; Compliance with Laws; Lines of Business;
Proprietary Rights........................................... 55
14.3. Insurance..................................................... 57
14.4. Limitation on Discount or Sale of Receivables................. 57
14.5. Limitation on Funded Debt and Current Debt.................... 57
14.6. Limitation on Restricted Payments; Prepayments on Seller Note. 59
14.7. Current Ratio................................................. 61
14.8. Limitation on Rental Obligations on Long-Term Leases.......... 61
14.9. Limitation on Liens........................................... 61
14.10. Limitation on Transactions with Affiliates.................... 63
14.11. Limitation on Investments..................................... 64
14.12. Limitation on Issuance of Shares of Subsidiaries; Disposition
of Shares and Indebtedness of Subsidiaries................... 64
14.13. Limitation on Subsidiary's Consolidation, Merger or
Disposition of Property...................................... 65
14.14. Limitation on Company's Consolidation or Merger............... 66
14.15. Additional Limitation on Disposition of Property.............. 67
14.16. ERISA Compliance.............................................. 68
14.17. Limitation on Leasebacks...................................... 68
14.18. Modification of Certain Documents, Agreements and Instruments. 69
14.19. Limitation on Tax Consolidation............................... 69
14.20. Further Assurances............................................ 69
15. Definitions.......................................................... 70
15.1. Definitions of Capitalized Terms.............................. 70
15.2. Other Definitions............................................. 87
15.3. Accounting Terms and Principles; Laws......................... 87
16. Remedies............................................................. 88
16.1. Events of Default Defined; Acceleration of Maturity........... 88
16.2. Suits for Enforcement, etc.................................... 93
16.3. Remedies Cumulative........................................... 93
16.4. Remedies Not Waived........................................... 93
16.5. Notice of Action of Claimed Defaults.......................... 93
16.6. Application of Payments....................................... 93
17. Registration, Transfer and Exchange of Securities.................... 94
18. Replacement of Securities............................................ 95
19. Amendment and Waiver................................................. 95
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
20. Method of Payment of Securities...................................... 97
21. Liabilities to Subsequent Holders.................................... 97
22. Expenses; Indemnity.................................................. 97
23. Taxes................................................................ 99
24. Communications.......................................................100
25. Survival of Agreements, Representations and Warranties, etc..........101
26. Successors and Assigns; Rights of Other Holders......................102
27. Purchase for Investment; ERISA.......................................102
28. Certain Regulatory Matters...........................................103
29. Governing Law; Jurisdiction; Waiver of Jury Trial....................103
30. Miscellaneous........................................................104
</TABLE>
<TABLE>
<CAPTION>
Schedule I Schedule of Purchasers
<S> <C>
Exhibit 1(a)(i) Form of Senior Fixed Rate Note
Exhibit 1(a)(ii) Form of Senior Revolving Credit Note
Exhibit 1(a)(iii) Form of Subordinated Note
Exhibit 1(a)(iv)(A) Form of the Company's Charter (including terms of the 11%
Cumulative Preferred Shares and conversion rights of
Common Shares)
Exhibit 1(a)(iv)(B) Form of Certificate of 11% Cumulative Preferred Shares
Exhibit 1(a)(v) Forms of Certificates of Each Class of Common Shares
Exhibit 1(a)(vi) Form of Warrant
Exhibit 1(c) Form of Note Guarantee
Exhibit 1(d)(i) Form of Security Agreement
Exhibit 1(d)(ii) Form of Mortgage
Exhibit 4.3(b)(i) Form of Seller Note
Exhibit 4.3(b)(ii) Form of Seller Note Subordination Agreement
Exhibit 4.3(f) Form of Buy-Sell Agreement
Exhibit 4.6(a) Opinion of Sommer & Barnard, P.C., counsel to the Company
Exhibit 4.6(b) Opinion of Verrill & Dana, special Maine counsel to the
Company
Exhibit 4.7(a) Opinion of Choate, Hall & Stewart, special counsel to the
Purchasers
Exhibit 5.5 Capital Stock
Exhibit 5.6 Financial Statements
Exhibit 5.9 Funded Debt, Current Debt, Liens, Investments,
Transactions with Affiliates and Leases
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
Schedule I Schedule of Purchasers
<S> <C>
Exhibit 5.12(a) Valid and Binding Obligations
Exhibit 5.12(c) Violations
Exhibit 5.12(d) Environmental and Other Matters
Exhibit 6 Use of Proceeds
Exhibit 7(c)(iv) Information as to New Subsidiaries
Exhibit 12.2(b) Form of Officers' Certificate (re: Revolving Credit Loans)
</TABLE>
vi
<PAGE>
CONTROL DEVICES, INC.
Route 35
Standish, Maine 04084
As of July 29, 1994
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
1295 State Street
Springfield, Massachusetts 01111
Ladies and Gentlemen:
CONTROL DEVICES, INC., an Indiana corporation (the "Company"), agrees with
you as follows:
1. Authorization of Securities; Security for the Notes; Other Purchasers; etc.
---------------------------------------------------------------------------
(a) The Company has authorized the issue and sale of:
(i) its 10% Senior Secured Fixed Rate Notes due July 31, 2004
(herein, together with any notes issued in exchange therefor or replacement
thereof, called the "Senior Fixed Rate Notes") in the aggregate principal
amount of $10,500,000. The Senior Fixed Rate Notes are to be substantially
in the form of Exhibit 1(a)(i) attached hereto;
---------------
(ii) its Senior Secured Floating Rate Revolving Credit Notes due July
29, 1999 (herein, together with any notes issued in exchange therefor or
replacement thereof, called the "Senior Revolving Credit Notes") in the
aggregate principal amount not to exceed $1,500,000. The Senior Revolving
Credit Notes are to be substantially in the form of Exhibit 1(a)(ii)
----------------
attached hereto;
(iii) its 11% Senior Subordinated Notes due July 31, 2004 (herein,
together with any notes issued in exchange therefor or replacement thereof,
called the "Subordinated Notes") in the aggregate principal amount of
$4,500,000. The Subordinated Notes are to be substantially in the form of
Exhibit 1(a)(iii) attached hereto;
-----------------
-1-
<PAGE>
CONTROL DEVICES, INC.
Route 35
Standish, Maine 04084
As of July 29, 1994
MASSMUTUAL CORPORATE INVESTORS
c/o Massachusetts Mutual Life
Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Ladies and Gentlemen:
CONTROL DEVICES, INC., an Indiana corporation (the "Company"), agrees with
you as follows:
1. Authorization of Securities; Security for the Notes; Other Purchasers; etc.
---------------------------------------------------------------------------
(a) The Company has authorized the issue and sale of:
(i) its 10% Senior Secured Fixed Rate Notes due July 31, 2004
(herein, together with any notes issued in exchange therefor or replacement
thereof, called the "Senior Fixed Rate Notes") in the aggregate principal
amount of $10,500,000. The Senior Fixed Rate Notes are to be substantially
in the form of Exhibit 1(a)(i) attached hereto;
---------------
(ii) its Senior Secured Floating Rate Revolving Credit Notes due July
29, 1999 (herein, together with any notes issued in exchange therefor or
replacement thereof, called the "Senior Revolving Credit Notes") in the
aggregate principal amount not to exceed $1,500,000. The Senior Revolving
Credit Notes are to be substantially in the form of Exhibit 1(a)(ii)
----------------
attached hereto;
(iii) its 11% Senior Subordinated Notes due July 31, 2004 (herein,
together with any notes issued in exchange therefor or replacement thereof,
called the "Subordinated Notes") in the aggregate principal amount of
$4,500,000. The Subordinated Notes are to be substantially in the form of
Exhibit 1(a)(iii) attached hereto;
-----------------
-1-
<PAGE>
CONTROL DEVICES, INC.
Route 35
Standish, Maine 04084
As of July 29, 1994
MASSMUTUAL PARTICIPATION INVESTORS
c/o Massachusetts Mutual Life
Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Ladies and Gentlemen:
CONTROL DEVICES, INC., an Indiana corporation (the "Company"), agrees with
you as follows:
1. Authorization of Securities; Security for the Notes; Other Purchasers; etc.
---------------------------------------------------------------------------
(a) The Company has authorized the issue and sale of:
(i) its 10% Senior Secured Fixed Rate Notes due July 31, 2004
(herein, together with any notes issued in exchange therefor or replacement
thereof, called the "Senior Fixed Rate Notes") in the aggregate principal
amount of $10,500,000. The Senior Fixed Rate Notes are to be substantially
in the form of Exhibit 1(a)(i) attached hereto;
---------------
(ii) its Senior Secured Floating Rate Revolving Credit Notes due July
29, 1999 (herein, together with any notes issued in exchange therefor or
replacement thereof, called the "Senior Revolving Credit Notes") in the
aggregate principal amount not to exceed $1,500,000. The Senior Revolving
Credit Notes are to be substantially in the form of Exhibit 1(a)(ii)
----------------
attached hereto;
(iii) its 11% Senior Subordinated Notes due July 31, 2004 (herein,
together with any notes issued in exchange therefor or replacement thereof,
called the "Subordinated Notes") in the aggregate principal amount of
$4,500,000. The Subordinated Notes are to be substantially in the form of
Exhibit 1(a)(iii) attached hereto;
-----------------
-1-
<PAGE>
(iv) 580 of its 11% Cumulative Preferred Shares, $1,000 stated value
per share (the "Preferred Shares"), (such 580 Preferred Shares, together
with any shares issued in exchange therefor or replacement thereof, herein
the "Purchased Preferred Shares"). The provisions of the Company's charter,
including those relating to the terms of the Preferred Shares and those
relating to conversion rights of holders of Class B Series 1 Common Shares
and Class B Series 2 Common Shares, are (or will be at the Closing) as set
forth on Exhibit 1(a)(iv)(A) attached hereto. The form of stock
-------------------
certificate for the Preferred Shares is attached hereto as Exhibit 1
---------
(a)(iv)(B); and
----------
(v) 435,897.43 of its Class B Series 1 Common Shares, no par value,
(such 435,897.43 Class B Series 1 Common Shares, together with any shares
issued in exchange therefor or replacement thereof, herein the "Purchased
Common Shares"), or such other number of Class B Series 1 Common Shares as
shall constitute at Closing 17% of the Company's outstanding Common Shares,
calculated on a fully-diluted basis. The forms of stock certificates for
the Class A Common Shares, the Class B Series 1 Common Shares and the Class
B Series 2 Common Shares are attached hereto as Exhibit 1(a)(v); and
---------------
(vi) its stock purchase warrants evidencing rights to purchase
564,102.56 Class B Series 1 Common Shares (subject to adjustment) or such
other number of Class B Series 1 Common Shares as shall constitute at
Closing 22% of the Company's outstanding Common Shares, calculated on a
fully-diluted basis (herein, together with any stock purchase warrants
issued in exchange therefor or replacement thereof, called the "Warrants").
The Warrants are to be substantially in the form of Exhibit 1(a)(vi)
----------------
attached hereto. The period during which the Warrants may be exercised and
the amount to be paid upon exercise for the Class B Series 1 Common Shares
upon exercise are, among other things, set forth in the Warrants.
The Senior Fixed Rate Notes and the Senior Revolving Credit Notes are
collectively referred to as the "Senior Notes" and each as a "Senior Note."
The Senior Notes and the Subordinated Notes are collectively referred to as the
"Notes" and each as a "Note". The Notes, the Purchased Preferred Shares, the
Purchased Common Shares, the Warrants and, unless the context clearly requires
otherwise, the Warrant Shares (as defined in the Warrants), are collectively
referred to as the "Securities" and each as a "Security".
(b) Interest on the Senior Fixed Rate Notes and on the Subordinated Notes
is payable semi-annually on each January 31 and July 31, commencing January
31, 1995. Interest on the Senior Revolving Credit Notes is payable on the last
day of each month, commencing August 31, 1994. In no event shall the amount
-2-
<PAGE>
paid or agreed to be paid by the Company as interest and premium on any Note
exceed the highest lawful rate permissible under any law applicable thereto.
(c) The Senior Notes and the Subordinated Notes are to be guaranteed,
pursuant to separate guarantees each substantially in the form of Exhibit 1(c)
------------
attached hereto (each, a "Note Guarantee"; collectively, the "Note
Guarantees"), by each Person which hereafter becomes a Subsidiary of the
Company.
(d) The Senior Notes shall be secured by and entitled to the benefits of
the following:
(i) first priority perfected security interests in all presently-
owned and after-acquired tangible and intangible personal property and
fixtures of the Company and of each Person which hereafter becomes a
Subsidiary of the Company, including, without limitation, a first priority
perfected pledge of all outstanding shares of capital stock or other
securities of each Person which hereafter becomes a Subsidiary of the
Company and all rights to acquire any such shares or other securities,
pursuant to one or more security and pledge agreements substantially in the
form of Exhibit 1(d)(i) attached hereto (each, a "Security Agreement";
---------------
collectively, the "Security Agreements");
(ii) first priority perfected chattel mortgages or other Liens in all
presently-owned and after-acquired tangible and intangible personal
property, fixtures and leasehold interests of the Company and of each
Person which hereafter becomes a Subsidiary of the Company to the extent
such property, fixtures and leasehold interests are located in the
Dominican Republic, pursuant to one or more chattel mortgages and one or
more other Dominican Republic security instruments satisfactory in scope
and form to the Required Holders of the Senior Notes (each such chattel
mortgage and each such other Dominican Republic security instrument, a
"Dominican Republic Security Instrument"; and collectively, the "Dominican
Republic Security Instruments"); and
(iii) first priority mortgages or deeds of trust or leasehold
mortgages or leasehold deeds of trust on all real estate (and appurtenant
interests) now or hereafter owned or leased by the Company and by each
Person which hereafter becomes a Subsidiary of the Company, pursuant to one
or more mortgages or deeds of trust substantially in the form of Exhibit
-------
1(d)(ii) attached hereto (each a "Mortgage" and collectively, the
--------
"Mortgages") or leasehold mortgages or leasehold deeds of trust in form and
substance satisfactory to the Required Holders of the Senior Notes (each, a
"Leasehold Mortgage" and collectively, the "Leasehold Mortgages").
-3-
<PAGE>
The Note Guarantees, Security Agreements, Dominican Republic Security
Instruments, Mortgages and Leasehold Mortgages, together with any and all
other agreements, documents and instruments heretofore or hereafter
securing the Notes and/or any other obligations of the Company and/or any
Subsidiaries of the Company under the Operative Documents, as amended,
modified or supplemented from time to time, are sometimes hereinafter
referred to collectively as the "Security Documents" and each,
individually, as a "Security Document". All personal property, fixtures,
capital stock and real estate described in the foregoing clauses (i), (ii)
and (iii) of this section 1(d), together with any additions thereto and
replacements and proceeds thereof, all as further described in any of the
Security Documents, are sometimes hereinafter referred to collectively as
the "Collateral".
(e) The Securities are to be issued under this Agreement and
separate Securities Purchase Agreements (such agreements, as amended from
time to time, the "Other Securities Purchase Agreements") identical
herewith (except as to the name and address of each of the other
purchasers) being entered into concurrently by the Company with each of the
other purchasers (the "Other Purchasers") named in Schedule I attached
----------
hereto. The issue of Securities to you and the issues of Securities to each
of the Other Purchasers are separate transactions and you shall not be
liable or responsible for the acts or defaults of the Other Purchasers.
2. Sale and Purchase of Securities. The Company will issue and sell to you
-------------------------------
and, subject to the terms and conditions hereof and in reliance upon the
representations and warranties of the Company contained herein and in the other
Operative Documents, you will purchase from the Company, at the Closing, as
specified in section 3, such Securities as are specified on that portion of
Schedule I attached hereto as is applicable to you and are to be issued and
- ----------
sold at the Closing. The purchase price of (a) the Senior Fixed Rate Notes and
-
the Subordinated Notes shall be 100% of the principal amount thereof, (b) the
-
Purchased Preferred Shares shall be $1,000 per share, and (c) the Purchased
Common Shares shall be $0.33265 per share. The Warrants shall be issued for no
additional consideration. The Senior Revolving Credit Notes, in an aggregate
principal amount of $1,500,000, will be issued at the Closing against the
disbursement of the Revolving Credit Loans to be made at the Closing, if any,
(provided that the Company shall have specified the aggregate amount of such
- ---------
Revolving Credit Loans in an Officers' Certificate delivered to you not less
than three Business Days prior to the Closing Date) and against the commitment
of the holders thereof under section 12 of this Agreement and the Other
Securities Purchase Agreements to make Revolving Credit Loans. The Company,
you and each of the Other Purchasers agree that the values ascribed to the
Securities (which values shall be used by the Company, you and the Other
Purchasers, as well as any subsequent holder of any of the Securities, for all
purposes, including the preparation of tax returns) shall be consistent with
the foregoing.
-4-
<PAGE>
3. Closing.
-------
(a) The closing of the sale and purchase of the Securities hereunder
(the "Closing") shall take place at the office of Messrs. Choate, Hall &
Stewart, Exchange Place, 53 State Street, Boston, Massachusetts 02109, on
July 29, 1994 (the "Closing Date") not later than 11:00 A.M. Boston time
(your reinvestment deadline).
(b) At the Closing, the Company will deliver to you the Securities
to be purchased by you at the Closing against payment of the purchase price
thereof (or, in the case of the Senior Revolving Credit Notes issued at the
Closing, against disbursement of the Revolving Credit Loans to be made by
you at the Closing, if any) to (or for the benefit of) the Company in
immediately available funds in accordance with the following instructions:
Bank: Morgan Guaranty Trust
ABA No: 021000238
For Account Number: 00139440 of GTE Control Devices Incorporated
Delivery of the Securities to be purchased by you shall be made in the form
of one or more of each of the Senior Fixed Rate Notes, Senior Revolving
Credit Notes, Subordinated Notes, certificates for the Purchased Preferred
Shares and for the Purchased Common Shares, and Warrants, in such
denominations, amounts or numbers of shares, as the case may be, and in
each case, dated and, in the case of each Note, bearing interest from, the
Closing Date and registered in such name or names as are specified on
Schedule I attached hereto.
----------
(c) If at the Closing the Company shall fail to tender the
Securities to be delivered to you thereat as provided herein, or if at the
Closing any of the conditions specified in section 4 shall not have been
fulfilled to your satisfaction or duly waived by you in writing, you shall,
at your election, be relieved of all further obligations under this
Agreement, without thereby waiving any other rights you may have by reason
of such failure or such non-fulfillment.
4. Conditions to Closing. Your obligation to purchase and pay for the
---------------------
Securities to be purchased by you hereunder at the Closing is subject to the
fulfillment to your satisfaction, prior to or at the Closing, of the following
conditions:
4.1. Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by the Company herein and in the other Operative Documents and
otherwise made in writing by or on behalf of the Company in connection with the
transactions contemplated by the Operative Documents shall have been correct
when made and shall be correct at and as of the time of the Closing (both
before and after giving effect to the transactions consummated at the Closing,
including, without limitation, those referred to in section 4.3).
-5-
<PAGE>
4.2. Performance; No Default. The Company shall have performed in all
-----------------------
material respects all agreements and complied with all conditions contained
herein and in the other Operative Documents required to be performed or
complied with by it prior to or at the Closing, including, without limitation,
those referred to in section 4.3, and at the time of the Closing, no Default or
Event of Default shall exist and no condition shall exist which has resulted
in, or could reasonably be expected to result in, a Material Adverse Change.
4.3. Related Transactions.
--------------------
(a) Pursuant to and in accordance with the terms of (i) the Asset
-
Purchase Agreement dated as of July 6, 1994 by and among GTE Products of
Connecticut Corporation, a Connecticut corporation ("GTE Connecticut"), GTE
Control Devices Incorporated, a Delaware corporation ("GTE Control"),
Dominican Overseas Trading Company, a Delaware corporation ("DOTC" and
collectively with GTE Connecticut and GTE Control, the "Sellers" and each
individually a "Seller") and the Company (such Asset Purchase Agreement, as
the same may be amended from time to time in accordance with this
Agreement, the "Acquisition Agreement"), (ii) the Environmental Agreement
--
dated as of July 6, 1994 by and among the Sellers, GTE Corporation, a New
York corporation, and the Company, as amended by an Amendment to
Environmental Agreement dated as of July 29, 1994 (such Environmental
Agreement, as the same may be amended from time to time in accordance with
this Agreement, the "Environmental Agreement"), and (iii) the Control
---
Devices Employee Transfer Agreement dated as of July 6, 1994 by and among
the Sellers and the Company (such Employee Transfer Agreement, as the same
may be amended from time to time in accordance with this Agreement, the
"Employee Transfer Agreement") (the Acquisition Agreement, the
Environmental Agreement and the Employee Transfer Agreement and the other
agreements, documents and instruments executed in connection therewith, as
the same may be amended from time to time in accordance with this
Agreement, are sometimes collectively referred to as the "Acquisition
Documents"), the Company shall have acquired from Sellers (the
"Acquisition") substantially all of the assets of GTE Control and DOTC in
the manner set forth in the Acquisition Agreement, the Environmental
Agreement and the Employee Transfer Agreement (such assets being
hereinafter collectively referred to as the "Acquired Assets") and shall
have assumed certain of the liabilities of GTE Controls and DOTC relating
to the Acquired Assets (such liabilities being hereinafter collectively
referred to as the "Assumed Liabilities"; the Acquired Assets and the
Assumed Liabilities are referred to collectively herein as the "Acquired
Business") and, except as described in the opinion of counsel of Sommer &
Barnard PC delivered to you at Closing, no condition under any of the
Acquisition Documents for the benefit of the Company shall have been waived
without the written consent of the Required Holders of the Securities.
-6-
<PAGE>
(b) The Company shall have paid not more than an aggregate of
$19,000,000 (subject to adjustment following the Closing pursuant to
section 1.5(b) of the Acquisition Agreement) plus the assumption of the
Assumed Liabilities to purchase the Acquired Assets. As payment of a
portion of the purchase price of the Acquired Business, the Company shall
have issued to GTE Control the Company's 10% Junior Subordinated Promissory
Note due July 29, 1999 in the original principal amount of $1,500,000
substantially in the form of Exhibit 4.3(b)(i) attached hereto (the "Seller
-----------------
Note"). You, the Other Purchasers, the Sellers and the Company shall have
entered into a seller note subordination agreement in substantially the
form of Exhibit 4.3(b)(ii) attached hereto, subordinating the payment of
------------------
the Seller Note to the prior payment of the Notes on the terms and
conditions set forth therein (such seller note subordination agreement, as
amended from time to time, the "Seller Note Subordination Agreement").
(c) The capitalization of the Company shall be in all respects
satisfactory to you and, without limiting the generality of the foregoing,
shall reflect permanent capital contributions of not less than an aggregate
of $2,175,000 made in cash by the HK Investors and the Outside Investors
(as such terms are defined in the Buy-Sell Agreement) for the purchase of
1,740 Preferred Shares and 1,307,692.32 Class A Common Shares and of not
less than an aggregate of $100,000 made in cash by Messrs. Bruce D.
Atkinson and Jeffrey G. Wood for the purchase of 80 Preferred Shares and
256,410.25 Class A Common Shares.
(d) The amount of closing costs incurred by the Company in
connection with the transactions to be consummated on or prior to the
Closing, including, without limitation, those referred to in this section
4.3, shall not exceed $500,000 in the aggregate.
(e) The Company shall have amended its charter such that, on and
after the Closing, the provisions of the Company's charter are as set forth
in Exhibit 1(a)(iv)(A) attached hereto.
-------------------
(f) You, the Company, and each other holder of any outstanding
capital stock of the Company shall have entered into a buy-sell agreement
substantially in the form of Exhibit 4.3(f) attached hereto (such agreement
--------------
as amended from time to time in accordance with this Agreement, the "Buy-
Sell Agreement") and such agreement shall be in full force and effect.
4.4. Compliance Certificate. At the Closing, you shall have received an
----------------------
Officers' Certificate, dated the Closing Date, certifying that the conditions
specified in sections 4.1 and 4.2 have been fulfilled.
-7-
<PAGE>
4.5. Security Documents; Collateral.
------------------------------
(a) The Security Documents (other than the Note Guarantees) shall
have been duly authorized, executed and delivered by each of the parties
thereto and shall be in full force and effect and all agreements, documents
and instruments required to be executed, delivered, filed and/or recorded
in connection therewith shall have been so executed, delivered, filed
and/or recorded so as to perfect the Liens created by the Security
Documents and such Liens shall be subject to no prior Lien except such
other Liens as may be permitted under section 14.9 or consented to in
writing by the holders of the Senior Notes.
(b) You and your special counsel shall be satisfied in all respects
as to: (i) the insurance coverages (including title insurance) applicable
-
to any portion or all of the Collateral; (ii) compliance by the Company
--
with all laws, statutes, rules and regulations applicable to any portion or
all of the Collateral (including those relating to permitting, zoning
and/or to environmental matters); (iii) the title to the Collateral (and
---
the absence of any Liens, other than those permitted under section 14.9, or
any outstanding claims); (iv) the condition and value of the Collateral;
--
(v) the recording, filing, validity, perfection and priority of all Liens
-
created by the Security Documents (and the payment of all related fees and
taxes) and (vi) the receipt by the Company of all consents of landlords,
--
tenants and subtenants or other parties to any agreement whose consent is
or may be necessary in connection with the execution, delivery and
performance of any of the Operative Documents.
(c) In connection with the foregoing, at or prior to the Closing,
you shall have received the following items, each of which shall be in form
and substance satisfactory to you:
(i) a certificate or certificates of insurance evidencing the
insurance coverages maintained by the Company, which certificates
shall name you and each of the Other Purchasers as additional insureds
and loss payees, as applicable, and shall demonstrate that the
insurance policies evidenced thereby comply with the terms of this
Agreement and of the other Operative Documents relating to insurance
matters, including, without limitation, section 3(d) of the Security
Agreement, section 2.4 of the Mortgage relating to the real property
in Standish, Maine (the "Standish Mortgage");
(ii) a mortgagee's title insurance policy insuring the first
priority of the Standish Mortgage, free from all Liens and
encumbrances and without exception for (A) filed or unfiled mechanics'
-
liens, (B) survey matters and (C) any other matters, except for
- -
"Permitted Encumbrances" as defined in the Standish Mortgage, such
policy to be issued by a title
-8-
<PAGE>
insurance company satisfactory to you and containing such endorsements
and affirmative insurance as you may request;
(iii) current instrument surveys (with surveyors'
certifications) of the "Land" (as defined in the Standish Mortgage);
(iv) UCC financing statements (naming the Company as debtor and
the holders of the Senior Notes as secured parties) in proper form for
filing in the offices specified on Exhibit 5.12(a);
---------------
(v) lien searches on the Company and the Sellers from the
applicable offices in each jurisdiction in which any of the assets and
properties of the Company shall be located at or after the Closing,
which searches shall not reveal any prior financing statement covering
any portion or all of the Collateral (other than financing statements
to be terminated at or prior to the Closing).
4.6. Opinions of Counsel for the Company. At the Closing, you shall have
-----------------------------------
received an opinion, dated the Closing Date, from (a) Messrs. Sommer & Barnard,
-
P.C., counsel for the Company, substantially in the form of Exhibit 4.6(a)
--------------
attached hereto; (b) Messrs. Verrill & Dana, special Maine counsel for the
-
Company, substantially in the form of Exhibit 4.6(b) attached hereto; and (c)
-------------- -
Messrs. Troncoso & Caceres, special Dominican Republic counsel for the Company,
in form and substance reasonably satisfactory to you and the Other Purchasers.
4.7. Opinions of Your Special Counsels. At the Closing, you shall have
---------------------------------
received an opinion dated the Closing Date, from (a) Messrs. Choate, Hall
-
& Stewart, your special counsel, substantially in the form of Exhibit 4.7(a)
--------------
attached hereto; and (b) Messrs. Russin Vecchi & Heredia Bonetti, your special
-
Dominican Republic counsel, in form and substance reasonably satisfactory to
you and the Other Purchasers.
4.8. Certain Additional Documents to be Delivered at or Prior to the
---------------------------------------------------------------
Closing. You shall have received the following items, each of which shall be in
-------
form and substance acceptable to you:
(a) true, correct and complete copies of the agreements, documents
and instruments referred to in section 4.3 and of all other related
documents;
(b) copies of each consent, approval or authorization of, and each
declaration or filing with, any other Person, including, without
limitation, any creditor of or lender to the Company or any of the Sellers
and any governmental authority, which is required as a condition precedent
to the valid execution, delivery and performance of the Operative
Documents, each such consent, approval, authorization, declaration and
filing to be unconditional, in full force and effect and not subject to
appeal or review;
-9-
<PAGE>
(c) (i) a copy of the Exporter License issued to the Company by the
-
Dominican Export Promotions Center (the "Exporter License") or evidence
satisfactory to you that the National Free Zone Council of the Dominican
Republic has duly approved the issuance of the Exporter License to the
Company by the Dominican Export Promotions Center, and (ii) a copy of the
--
Operational License issued by the National Free Zone Council of the
Dominican Republic and transferred by GTE Control to the Company (the
"Operational License") or evidence satisfactory to you that the National
Free Zone Council of the Dominican Republic has duly approved the transfer
of the Operational License to the Company by GTE Control;
(d) a letter from the CUSIP Bureau of Standard & Poor's Corporation
assigning private placement numbers to the Securities; and
(e) a letter, dated the Closing Date, from Hammond, Kennedy,
Whitney & Company, Inc. concerning the offering of the Securities issued at
the Closing.
4.9. Sale of Securities to Other Purchasers. At the Closing, the Company
--------------------------------------
shall sell to the Other Purchasers the Securities to be purchased at the Closing
by the Other Purchasers pursuant to the Other Securities Purchase Agreements and
shall receive payment in full of the purchase price thereof.
4.10. Legal Investment; Certificate. At the time of the Closing, your
-----------------------------
purchase of the Securities to be issued pursuant hereto shall be permitted under
the laws and regulations of any jurisdiction to which you are subject (without
resort to any provision of any such law permitting limited investments by you
without restriction as to the character of the particular investment), and you
shall, if requested by you, have received an Officers' Certificate, dated the
Closing Date, certifying as to such matters as you may request to enable you to
determine whether your purchase is so permitted.
4.11. Sale and Purchase Not Forbidden by Law. At the time of the Closing,
--------------------------------------
the offer, issue, sale and delivery by the Company of the Securities to be
issued pursuant hereto and your purchase of such securities at the Closing shall
not be prohibited by and shall not subject you to any tax, penalty, liability or
other onerous condition under or pursuant to any law, statute, rule or
regulation.
4.12. Payment of Transaction Costs. At the time of the Closing, the
----------------------------
Company shall have paid all fees, expenses and disbursements incurred by you at
or prior to the time of the Closing in connection with the transactions
contemplated by the Operative Documents, including, without limitation, the
reasonable fees, expenses and disbursements of your special counsels.
4.13. Proceedings and Documents. At the time of the Closing, all corporate
-------------------------
and other proceedings in connection with the transactions contemplated by the
Operative Documents and all agreements, documents and instruments incident to
such transactions
-10-
<PAGE>
shall be satisfactory in substance and form to you and your special counsels,
and you and your special counsels shall have received all such counterpart
originals or certified or other copies of such agreements, documents and
instruments as you or they may reasonably request.
5. Representations and Warranties. The Company represents and warrants that
------------------------------
(immediately after giving effect to the consummation of the transactions
contemplated by section 4.3, it being agreed that references to the Company in
this section 5 shall be deemed to refer to the Company in its own right and
also to the Company as successor in interest to the Sellers as owners/operators
of the Acquired Business):
5.1. Organization, Standing, etc. of the Company. The Company is a
-------------------------------------------
corporation duly organized and validly existing under the laws of the State of
Indiana and has all requisite corporate power and authority to own, lease and
operate its properties, to carry on its business as now conducted, and now
proposed to be conducted as described in the Disclosure Document referred to in
section 5.4, to execute, deliver and perform each of the Operative Documents to
which it is (or is to be) a party and to consummate the transactions
contemplated by the Operative Documents, including, without limitation, (a) the
-
offer, issue, sale and delivery of the Securities and (b) the grant of the
-
Liens created by the Security Documents to which it is (or is to be) a party,
and no approval of the stockholders of the Company or any class thereof is
required in connection therewith.
5.2. Subsidiaries. The Company has no Subsidiaries (corporate or other).
------------
5.3. Qualification. The Company is duly qualified or licensed to do
-------------
business and is in good standing in each jurisdiction in which the character of
the properties owned or leased or the nature of the activities conducted makes
such qualification or licensing necessary, except for those jurisdictions in
which the failure to be so qualified or licensed or to be in good standing has
not resulted in, and could not reasonably be expected to result in, a Material
Adverse Change. Without limiting the scope of the preceding sentence, the
Company is duly qualified or licensed to do business and is in good standing in
each of the State of Maine, the State of Michigan and, except as specified on
Exhibit 5.12(c) attached hereto, the Dominican Republic.
- ---------------
5.4. Business, etc. The Company is engaged in the business of
--------------
manufacturing, distributing and selling electromechanical circuit protection
devices, thermoprotectors, sensors and electro/ceramic current limiters, heaters
and resonators for the automotive, appliance and lighting industries, as further
described in the Confidential Memorandum dated October 1993, including all
exhibits thereto, prepared by Sellers with the assistance of Goldman, Sachs &
Co. and Merrill Lynch & Co. (the "Disclosure Document"), a true, correct and
complete copy of which has been furnished to you. The Company has acquired
title to the Acquired Assets and has assumed the Assumed Liabilities in
accordance with the Acquisition Documents.
-11-
<PAGE>
5.5. Capital Stock.
-------------
(a) The authorized capital stock of the Company consists of: (i)
-
1,000,000 Preferred Shares and (ii) 18,000,000 Common Shares, of which (A)
-- -
10,000,000 are Class A Common Shares, no par value (the "Class A Common
Shares"), (B) 4,000,000 are Class B Series 1 Common Shares, no par value
-
(the "Class B Series 1 Common Shares"), and (C) 4,000,000 are Class B
-
Series 2 Common Shares, no par value (the "Class B Series 2 Common
Shares"). After consummation of the transactions contemplated hereby,
including, without limitation, the issuance of the Purchased Preferred
Shares, the Purchased Common Shares and Warrants to you and the Other
Purchasers, (i) 1,564,102.57 Class A Common Shares, 435,897.43 Class B
Series 1 Common Shares, and 2,400 Preferred Shares will be issued and
outstanding, and (ii) (x) 999,999.99 Class B Series 2 Common Shares will
--
be reserved for issuance upon conversion of a like number of Class B Series
1 Common Shares or for issuance upon exercise of the Warrants, (y)
564,102.56 Class B Series 1 Common Shares will be initially reserved for
issuance upon exercise of the Warrants, and (z) 999,999.99 Class A Common
Shares will be initially reserved for issuance upon conversion of the Class
B Series 1 Common Shares and Class B Series 2 Common Shares or for issuance
upon exercise of the Warrants. All of the outstanding shares of capital
stock of the Company are, and all Purchased Preferred Shares and Purchased
Common Shares and any Common Shares issued upon exercise of the Warrants in
accordance with the terms thereof will be, validly issued, fully paid and
non-assessable and not subject to preemptive rights on the part of the
holders of any securities of the Company, and all such shares have been (or
will have been) offered, issued and sold by the Company in compliance with
all applicable laws. The Common Shares and Preferred Shares outstanding on
the date hereof, after giving effect to the issuance of the Purchased
Common Shares and Purchased Preferred Shares pursuant hereto and pursuant
to the Other Securities Purchase Agreements, are owned of record and
beneficially and free of any Lien (other than restrictions on transfer
pursuant to the Buy-Sell Agreement) by the Persons (and in the amounts) set
forth on Exhibit 5.5 attached hereto. You have good title to the Purchased
-----------
Common Shares, Purchased Preferred Shares and Warrants issued to you
pursuant to this Agreement, free and clear of any Lien (other than any Lien
which may have been granted by you), proxy, voting agreement, voting trust
or similar agreement or restriction, except as provided in the Buy-Sell
Agreement.
(b) Except as set forth on Exhibit 5.5 attached hereto and in the
-----------
Buy-Sell Agreement and the Designation of Preferred Shares and except for
the Warrants: (i) there are no outstanding rights, options, warrants or
-
agreements for the purchase from, or sale or issuance by, the Company of
any capital stock or securities convertible into or exercisable or
exchangeable for such stock; (ii) there are no agreements on the part
--
of the Company to issue, sell or distribute any securities or any assets of
the Company (other than sales of inventory in the ordinary course of
business); (iii) the Company has no obligation (contingent or
---
-12-
<PAGE>
otherwise) to purchase, redeem or otherwise acquire any of its securities
or any interest therein or to pay any dividend or make any distribution in
respect thereof; and (iv) no Person is entitled to (A) any preemptive or
-- -
similar right with respect to the issuance of any securities of the Company
except pursuant to section 13(b) of this Agreement and the Other Securities
Purchase Agreements or (B) any rights with respect to the registration of
any securities of the Company under the Securities Act except pursuant to
section 11 of this Agreement and the Other Securities Purchase Agreements.
5.6. Financial Statements.
--------------------
(a) You have been furnished with the financial statements and/or
information referred to on Exhibit 5.6 attached hereto. Except as set forth
-----------
on such Exhibit 5.6, such financial statements are complete and correct in
-----------
all material respects (subject, in the case of any unaudited financial
statements, to normal year-end and audit adjustments) and have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods covered thereby.
Except as set forth on such Exhibit 5.6, the balance sheets referred to on
-----------
such Exhibit 5.6 (together with the pertinent notes thereto, if any)
-----------
present fairly in all material respects the financial position of the
Person(s) purported to be covered thereby as at the respective dates
indicated, and in each case reflect all material liabilities, contingent or
other, at such dates, required by generally accepted accounting principles
to be reflected therein, and, except as set forth on such Exhibit 5.6,
-----------
the statements of operations referred to on such Exhibit 5.6 present fairly
-----------
in all material respects the results of operations of the Person(s)
purported to be covered thereby for the respective periods indicated in
conformity with generally accepted accounting principles (subject, in the
case of any unaudited financial statements, to normal year-end and audit
adjustments).
(b) The Company has furnished to you certain projected financial
information, true, correct and complete copies of which are included in the
Disclosure Document. Such projections were prepared in good faith, are
based upon assumptions that the Company believes are reasonable and take
into account all material information regarding the matters set forth
therein. Such projections represent the Company's best estimate of the
future financial performance of the Company. The Company does not presently
anticipate any material deviation from such projections and the Company
reasonably believes that the results of operations reflected therein are
attainable.
5.7. Changes; Solvency, etc.
----------------------
(a) Since June 30, 1994: (i) there has been no change in the assets,
-
liabilities or financial condition of the Company (as acquiror to the
Acquired Business) other than changes in the ordinary course of business
which have not been, either in any case or in the aggregate, materially
adverse; and (ii) no
--
-13-
<PAGE>
condition or event has occurred which has resulted in, or could reasonably
be expected to result in, a Material Adverse Change.
(b) The Company is and, after giving effect to the transactions
contemplated by the Operative Documents, will be Solvent.
5.8. Tax Returns and Payments. The Company has filed all tax returns
------------------------
required by law to be filed and has paid all taxes, assessments and other
governmental charges levied upon any of its properties, assets, income,
franchises or sales other than those not yet delinquent and those, not
substantial in aggregate amount, being or about to be contested as provided in
section 14.2(a). The Company has not executed any waiver or waivers that would
have the effect of extending the applicable statute of limitations in respect of
income tax liabilities. The charges, accruals and reserves in the financial
statements of the Company in respect of taxes for all fiscal periods are
adequate in the opinion of the Company, and the Company knows of no unpaid
assessments for additional taxes for any fiscal period or of any basis therefor.
5.9. Funded Debt, Current Debt, Liens, Investments, Transactions with
----------------------------------------------------------------
Affiliates and Leases. Exhibit 5.9 attached hereto correctly describes:
- --------------------- -----------
(a) all Funded Debt and/or Current Debt of the Company to be
outstanding immediately following the Closing, in each case in which the
outstanding principal amount thereof exceeds $250,000, and/or all
agreements pursuant to which the Company has the right to incur the same in
each case in which the principal amount thereof could exceed $250,000, and
identifies any collateral which secures (or will secure) the same;
(b) all Liens to which any of the properties and assets of the
Company will be subject immediately following the Closing (other than (i)
-
those arising under the Security Documents and (ii) those of the character
--
described in section 14.9(a)(ii));
(c) all Investments (and all agreements and commitments to make
Investments) of the Company to be owned or held (or in effect) immediately
following the Closing, in any case in which the aggregate amount of such
Investment exceeds (or pursuant to any such agreement or commitment will
exceed) $250,000 (other than Investments of the character described in
clauses (a) through (f), inclusive, of the definition of Permitted
Investments);
(d) all transactions with Affiliates of the Company involving
$250,000 or more which were consummated during the 12-month period ended on
the Closing Date or which the Company is now obligated or now intends to
consummate at any time in the future, other than any such transaction
consummated or to be consummated in the ordinary course of business and on
arm's-length terms; and
-14-
<PAGE>
(e) each lease (specifying which are Long-Term Leases), other than
Capital Leases, under which the Company is lessee or sublessee and is or
shall be obligated to pay $50,000 or more during any period of twelve
consecutive months, and, with respect to each such lease, the name of the
lessor, the lessee or sublessee, the property leased, the annual Rental
Obligations payable thereunder and the term thereof.
5.10. Title to Properties; Liens; Leases. The Company has good and
----------------------------------
marketable title to all of its properties and assets, including, without
limitation, the Acquired Assets and the properties and assets reflected in the
Sellers' Statements of Net Assets To Be Sold and Net Working Capital as of
December 31, 1993, referred to on Exhibit 5.6 attached hereto, except
-----------
properties and assets disposed of since such date in the ordinary course of
business. None of such properties or assets is subject to any Lien, except
those (a) arising under the Security Documents, (b) of the character described
- -
in section 14.9(a)(ii) and (c) those described on Exhibit 5.9 attached hereto.
- -----------
The Company enjoys peaceful and undisturbed possession under all material
leases under which it operates, and all of such leases are valid, subsisting
and in full force and effect. None of such leases contains any unusual or
burdensome provision, which, in either case, has resulted in, or could
reasonably be expected to result in, a Material Adverse Change. The only
leases of real property are the leases of the Company for the premises located
at Commerce Park South, Dearborn, Michigan, Steep Falls, Maine and Parque
Industrial Itabo, Haina, Dominican Republic. There are no tenants or subtenants
of any real property owned (or leased) by the Company.
5.11. Litigation, etc. There is no action, proceeding or investigation
----------------
pending or, to the best of the Company's knowledge, threatened (or any basis
therefor known to the Company) which questions the validity of any of the
Operative Documents or any action taken or to be taken pursuant thereto or
which has resulted in, or could reasonably be expected to result in, a Material
Adverse Change. There is no outstanding judgment, decree or order which has
resulted in, or could reasonably be expected to result in, a Material Adverse
Change.
5.12. Valid and Binding Obligations; Compliance with Other Instruments,
-----------------------------------------------------------------
Borrowing Restrictions, etc.
- ---------------------------
(a) This Agreement has been duly authorized by the Company and
constitutes the valid and legally binding obligation of the Company
enforceable against the Company in accordance with its terms. Each of the
other Operative Documents to which the Company is (or is to be) a party has
been duly authorized by the Company and, when executed and delivered, will
constitute the valid and legally binding obligation of the Company,
enforceable against it in accordance with its terms. The provisions of the
Security Documents are effective to create in favor of and for the benefit
of the holders of the Senior Notes and the other Secured Obligations (as
defined in the Security Documents) legal, valid and enforceable Liens in
and on all of the right, title and interest of the Company in
-15-
<PAGE>
the Collateral. At the Closing, by virtue of the recording and filing of
the Standish Mortgage, the Dominican Republic Security Instruments,
financing statements and other instruments specified on Exhibit 5.12(a)
---------------
attached hereto in the applicable offices listed on such exhibit, all of
which recordings and filings will have been made and will be in full force
and effect at or prior to the Closing, there shall have been created in
favor of such holders fully perfected first and prior Liens in and on all
right, title and interest of the Company in the Collateral, subject to no
other Liens or claims of any other Person other than those permitted under
section 14.9. No other filing or action is required in order to perfect
such Liens.
(b) The Company is not in violation of or in default under any term
of its charter, by-laws or other organizational document, or of any
agreement, document, instrument, judgment, decree, order, law, statute,
rule or regulation applicable to the Company or any of its properties and
assets, in any way which has resulted in, or could reasonably be expected
to result in, a Material Adverse Change.
(c) Except as set forth on Exhibit 5.12(c) attached hereto, the
---------------
execution, delivery and performance of and the consummation of the
transactions contemplated by the Operative Documents will not violate or
constitute a default under, or permit any Person to accelerate or to
require the prepayment of any Indebtedness of the Company or to terminate
any material lease or agreement of the Company pursuant to, or result in
the creation of any Lien (other than the Liens created by the Security
Documents) upon any of the properties or assets of the Company pursuant to,
any term of the charter, by-laws or other organizational document of the
Company or of any agreement, document, instrument (including, without
limitation, any agreement, document or instrument evidencing, securing
and/or relating to any Funded Debt and/or Current Debt of the Company),
judgment, decree, order, law, statute, rule or regulation applicable to the
Company or any of its properties and assets.
(d) Without limiting the generality of the foregoing and except as
disclosed on Exhibit 5.12(d) hereto, the Company is in compliance with (and
---------------
has not received any notice to the contrary) and, to the Company's
knowledge, there is no likelihood of any liability of or any judgment,
decree or order binding upon or applicable to the Company or any of its
properties or assets under or on account of:
(i) any law, statute, rule, regulation or other governmental
standard or requirement relating or pertaining to (A) the generation,
-
manufacture, management, handling, use, sale, transportation,
treatment, storage, disposal, delivery, discharge, release or
emission of any waste, pollutant or toxic, hazardous or other
substance, or (B) any other act,
-
-16-
<PAGE>
omission or condition affecting or involving the environment or air
or water pollution or soil or groundwater contamination; and/or
(ii) any regulation, requirement and/or policy promulgated by
the U.S. Occupational Safety and Health Administration (or any other
analogous governmental authority of any other jurisdiction);
except where, under clauses (i) and/or (ii), the same has not resulted in,
and could not reasonably be expected to result in, a Material Adverse
Change. In connection with any of the matters cited above in this section
5.12(d), except as disclosed on Exhibit 5.12(d) hereto, no action has been
---------------
taken, nor has any action been omitted to be taken, nor has any notice been
received, by the Company or any of its predecessors in interest (including
any of the Sellers) or, to the best knowledge of the Company, by any other
Person, and no condition exists which has resulted in, or could reasonably
be expected to result in, a Material Adverse Change.
(e) The Company is not a party to or bound by or subject to any
charter, by-law or other organizational document, or any agreement,
document, instrument, judgment, decree, order, law, statute, rule or
regulation (i), except for the Seller Note and the Seller Note
-
Subordination Agreement, which restricts its right or ability to incur
Funded Debt or Current Debt; (ii) under the terms of or pursuant to which
--
its obligation to pay all amounts due from it and/or to perform all
obligations imposed on it and/or to comply with the terms applicable to it
under any of the Operative Documents is in any way restricted; (iii),
---
except for the Seller Note, the Seller Note Subordination Agreement and the
Designation of Preferred Shares, which restricts its right or ability to
pay dividends and/or to make any other distributions in respect of its
capital stock, to mortgage or dispose of its properties, to make
Investments or capital expenditures, to enter into and perform leases
and/or to pay executive compensation, or (iv) which has resulted in, or
--
could reasonably be expected to result in, a Material Adverse Change.
(f) The Company anticipates that future expenditures required by or
required to comply with the provisions of, any judgment, decree, order,
law, statute, rule or regulation will not be so burdensome as to result in
any Material Adverse Change.
5.13. ERISA.
-----
(a) Each Employee Benefit Plan is in compliance with the applicable
provisions of ERISA and the Code, except for any noncompliance which has
not resulted in, and could not reasonably be expected to result in, a
Material Adverse Change. No Termination Event has occurred or is reasonably
expected to occur, nor does any condition exist nor has any event occurred
that could reasonably be expected to result in any Termination Event, which
in any such case has resulted in, or could reasonably be expected to result
in, a Material Adverse Change. If
-17-
<PAGE>
any Employee Benefit Plan were terminated, neither the Company nor any
ERISA Affiliate would incur any liability which could reasonably be
expected to result in a Material Adverse Change. No Pension Plan which is
subject to section 302 of ERISA or section 412 of the Code has incurred any
"accumulated funding deficiency" (as defined in such sections), whether or
not waived, as of the end of the most recent fiscal year of such plan ended
prior to the date hereof. No Employee Benefit Plan provides death or
medical benefits (including insured benefits) to employees beyond their
retirement or other termination of service, except death or medical
benefits required by law or death benefits under a plan qualified under
section 401(a) of the Code or death benefits under a deferred compensation
arrangement accrued as liabilities on the books of the Company or an ERISA
Affiliate.
(b) The Company and its ERISA Affiliates have made all required
contributions to Multiemployer Plans. Neither the Company nor any ERISA
Affiliate has incurred, nor would reasonably expect to incur, any
Withdrawal Liability upon a complete or partial withdrawal from any
Multiemployer Plan. To the best of the Company's knowledge, no
Multiemployer Plan is, or is reasonably expected to be, insolvent, in
reorganization or terminated within the meaning of Title IV of ERISA.
(c) Neither the Company, nor any ERISA Affiliate, nor any Person
entitled to indemnification or reimbursement from the Company or any ERISA
Affiliate with respect to an Employee Benefit Plan or a Pension Plan, has
engaged in any transaction or conduct that could reasonably be expected to,
directly or indirectly, result in any material liability to the Company
pursuant to section 409, 502(c)(2), 502(i) or 4069 of ERISA or section
4971, 4975, 4976 or 4980B of the Code.
(d) Based upon your representations and warranties set forth in
section 27(b), the consummation of the transactions contemplated by the
Operative Documents will not result in any prohibited transaction described
in section 406 of ERISA or section 4975 of the Code for which an exemption
is not available.
(e) No employee benefit plan or related trust maintained by the
Company or any ERISA Affiliate maintains any contract with you or any of
the Other Purchasers under which any assets of any such plan or trust are
currently managed or invested by you or any of the Other Purchasers
(insofar as any such Person is an insurance company).
5.14. Consents, etc. Except as set forth on Exhibit 5.12(c) attached
------------- ---------------
hereto, no consent, approval or authorization of, or declaration or filing
with, or other action by, any Person (including, without limitation, any
creditor of or lender to the Company and any governmental authority) is
required as a condition precedent to the valid creation, execution, delivery
and performance of and the consummation of the transactions
-18-
<PAGE>
contemplated by the Operative Documents (including, without limitation, (a) the
-
valid offer, issue, sale and delivery of the Securities and (b) the valid
-
creation, grant and perfection of the Liens created by the Security Documents)
and/or the exercise by any holder of any Securities of any of its rights under
the Operative Documents or otherwise in respect of the Securities, other than
the filing and recording of the Security Documents and/or related financing
statements and instruments specified on Exhibit 5.12(a) attached hereto, all of
---------------
which filings and recordings have been made (or will have been made on or before
the Closing). Without limiting the generality of the foregoing, no filing under
the Clayton Act or the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
each as in effect on the date hereof, is required in connection with the
Acquisition, and no notice or payments to employees is required under The Worker
Adjustment and Retraining Notification Act, 29 U.S.C. (S)2101 et. seq., in
-- ---
connection with the Acquisition.
5.15. Proprietary Rights. The Company has all Proprietary Rights as are
------------------
adequate in the opinion of the Company for the conduct of its business as now
conducted and now proposed to be conducted, without any known conflict with the
rights of others. Each such Proprietary Right is in full force and effect, and
the Company has fulfilled and performed all of its material obligations with
respect thereto. No default in the performance or observance by the Company of
its obligations thereunder has occurred which permits, or after notice or lapse
of time or both would permit, the revocation or termination of any such
Proprietary Right or which has resulted in, or could reasonably be expected to
result in, a Material Adverse Change.
5.16. Offer of Securities. Neither the Company nor any Person acting on
-------------------
its behalf has directly or indirectly offered the Securities or any part thereof
or any similar securities for issue or sale to, or solicited any offer to buy
any of the same from, anyone other than you, the Other Purchasers and not more
than ten other institutional investors, and solely with respect to Preferred
Shares and Common Shares eighty individuals, each of whom the Company reasonably
believes was an "accredited investor" as defined in Regulation D under the
Securities Act. Neither the Company nor any Person acting on its behalf has
taken or will take any action which would bring the issuance and sale of the
Securities within the provisions of Section 5 of the Securities Act or the
registration or qualification provisions of any applicable blue sky or other
securities laws.
5.17. Government Regulation. The Company is not subject to regulation
---------------------
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Investment Company Act of 1940, the Investment Advisers Act of 1940, the
Interstate Commerce Act or any other law, statute, rule or regulation which
regulates the incurrence of Indebtedness by the Company.
5.18. Regulation G, etc. The Company does not own, will not use all or
-----------------
any part of the proceeds of the sale of the Securities to acquire, and has no
intention of acquiring, any "margin stock" within the meaning of Regulation G
(12 CFR Part 207) of the Board of Governors of the Federal Reserve System
(herein called a "margin security"). None of the proceeds of the Securities will
be used directly or indirectly, for
-19-
<PAGE>
the purpose of purchasing or carrying any margin security or for the purpose of
reducing or retiring any Indebtedness which was originally incurred to purchase
or carry any margin security or for any other purpose which might constitute the
transactions contemplated by the Operative Documents a "purpose credit" within
the meaning of said Regulation G or cause this Agreement or any of the other
Operative Documents to violate Regulation G or any other regulation of the Board
of Governors of the Federal Reserve System, or the Exchange Act.
5.19. Foreign Credit Restraints. Neither the consummation nor performance
-------------------------
of the transactions contemplated by the Operative Documents nor the use of the
proceeds of the sale of the Securities nor any activity now conducted or
proposed to be conducted by the Company will violate any provision of any
applicable law, statute, rule, regulation, decree or order of, or any
restriction imposed by, the United States of America or any other applicable
domestic or foreign jurisdiction, including without limitation the Dominican
Republic, or any authorized official, board, department, instrumentality or
agency thereof, relating to the control of foreign or overseas lending,
investment or business.
5.20. Investment Bankers, etc. Neither the Company nor any Person acting
-----------------------
on its behalf has dealt with any broker, finder, commission agent or other
similar Person in connection with the sale of the Securities and the other
transactions contemplated by the Operative Documents, other than Robert Smaha
and Decision Development Group, and neither the Company nor any other Person
acting on its behalf is under any obligation to pay any broker's fee, finder's
fee or commission in connection with such transactions, other than a fee to
Robert Smaha and Decision Development Group, which fee is the obligation solely
of the Company.
5.21. Disclosure. Neither this Agreement nor any of the other Operative
----------
Documents nor any other document, certificate or written statement furnished to
you by or on behalf of the Company in connection with the transactions
contemplated by the Operative Documents (including, without limitation, the
Disclosure Document), contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
herein and therein not misleading in the light of the circumstances under which
such statements were made, it being understood that, except as set forth in
section 5.6, no representation or warranty is made with respect to any
projections or other prospective financial information. There is no fact known
to the Company (other than information concerning general economic conditions
known to the public generally) which has resulted in, or could reasonably be
expected to result in, a Material Adverse Change which has not been set forth in
this Agreement, the other Operative Documents and the other documents,
certificates and written statements referred to above in this section 5.21.
5.22. Franchises, Licenses, etc. Except as disclosed on Exhibit 5.12(c)
------------------------- ---------------
attached hereto, the Company validly holds all certificates of public
convenience and necessity, franchises, licenses, permits and authorizations,
including, without limitation, the Exporter
-20-
<PAGE>
License and the Operational License, from each governmental authority, free from
unduly burdensome restrictions or conditions of an unusual character, that are
necessary in any material respect for the ownership, maintenance and operation
of its properties and assets or for the conduct of its businesses, as now
conducted and now proposed to be conducted as described in the Disclosure
Document, and the Company is not in violation of any term or provision thereof
in any respect which has resulted in, or could reasonably be expected to result
in, a Material Adverse Change. So far as the Company can now foresee, each of
the same will be renewed or replaced at or prior to the expiration thereof so as
to avoid any Material Adverse Change.
5.23. Labor Relations; Suppliers and Customers.
----------------------------------------
(a) No dispute or controversy involving employees of the Company has
resulted in, or could reasonably be expected to result in, a Material
Adverse Change. The Company does not anticipate that its relationships with
its unions, if any, or its employees will result in, or are reasonably
likely to result in, any Material Adverse Change. The Company is not in
violation of any law, statute, rule or regulation relating to non-
discrimination in employment, the payment of wages or any other employee or
workplace matter which has resulted in, or could reasonably be expected to
result in, a Material Adverse Change.
(b) The relationships with the suppliers to and customers of the
Company are satisfactory commercial working relationships and, during the
12-month period ended on the Closing Date, no such supplier or customer has
cancelled or otherwise terminated its relationship with or decreased its
services, supplies or materials to or its usage or purchase of the services
or products of the Company, in a manner which has resulted in, or could
reasonably be expected to result in, a Material Adverse Change. The Company
is not aware of, nor has any of them received any notice concerning, any
plan or intention of any such supplier or customer to take any such action.
5.24. Voting Provisions. Neither the charter (other than Article III
-----------------
Section C, clause (d), Section D, clause (d) and Section F(2), clauses (a) and
(e)), the bylaws nor any other agreement, document or instrument binding on or
applicable to the Company or the holders of its capital stock, contains any
provision requiring a higher voting requirement with respect to action taken
(and/or to be taken) by the Board of Directors or the holders of the capital
stock of the Company than that which would apply in the absence of such
provision.
5.25. Additional Representations and Warranties. The representations and
-----------------------------------------
warranties made or to be made by the Company or any of the Sellers in the
Acquisition Documents or in any of the other agreements, documents and/or
instruments referred to in section 4.3 and in any other agreement, document or
instrument delivered pursuant to the terms thereof are, and when made will be,
true and correct in all material respects. You are entitled to rely upon such
representations and warranties to the same extent as if fully
-21-
<PAGE>
set forth in this section 5. The Company will give prompt written notice to each
holder of the Securities of any claim for indemnification or any notice of any
breach given or received by the Company pursuant to any of those agreements,
documents or instruments.
6. Use of Proceeds.
---------------
(a) The proceeds of the sale of the Securities will be used on the
Closing Date to make the payments to the Persons and for the purposes
specified on Exhibit 6 attached hereto and any remaining balance of such
---------
proceeds will be used for general corporate purposes. The proceeds of the
Revolving Credit Loans made after the Closing will be used for working
capital purposes.
(b) The Company will not, and will not permit any Subsidiary to,
directly or indirectly, use any part of such proceeds for any purpose which
would violate any provision of (i) Regulation G or any other regulation of
-
the Board of Governors of the Federal Reserve System, or the Exchange Act
or (ii) any other applicable law, statute, regulation, rule, order or
--
restriction.
7. Financial Statements and Information. The Company will furnish to you in
------------------------------------
duplicate, so long as you shall be obligated to purchase Securities hereunder or
shall hold any of the Securities, and to each other institutional holder from
time to time of the Securities:
(a) as soon as available and in any event within (i) 30 days after
-
the end of each monthly accounting period and (ii) 45 days after the end of
--
each quarterly accounting period in each fiscal year of the Company (other
than the last quarterly accounting period of each such fiscal year), the
consolidated and, if the Company has any Subsidiaries, consolidating
balance sheets of the Company and its Subsidiaries as at the end of such
period and the related consolidated and, if the Company has any
Subsidiaries, consolidating statements of operations, retained earnings and
cash flows for such period and for the portion of such fiscal year ended on
the last day of such period, in each case for periods commencing on and
after August 1, 1995, setting forth in comparative form the corresponding
figures for the same period and portion of the next preceding fiscal year
of the Company and its Subsidiaries, all in reasonable detail and certified
by the chief financial officer of the Company to be true and correct in all
material respects and to have been prepared in accordance with generally
accepted accounting principles (except for the omission of footnotes),
subject to normal year-end and audit adjustments;
(b) as soon as available and in any event within 90 days after the
end of each fiscal year of the Company, the consolidated and, if the
Company has any Subsidiaries, consolidating balance sheets of the Company
and its Subsidiaries as at the end of such year and the related
consolidated and, if the Company has any Subsidiaries, consolidating
statements of operations, retained earnings and cash flows for such year,
in each case commencing with the fiscal year ending
-22-
<PAGE>
July 31, 1996 setting forth in comparative form the corresponding figures
for the next preceding fiscal year of the Company and its Subsidiaries, all
in reasonable detail and accompanied by the unqualified report on such
consolidated financial statements of the Company and its Subsidiaries of
Flackman, Goodman & Potter or other accountants of recognized national
standing selected by the Company and satisfactory to the Required Holders
of each class of Securities, which report shall (i) state that the audit of
-
such accountants in connection with such consolidated financial statements
has been conducted in accordance with generally accepted auditing standards
and that such accountants believe that such audit provides a reasonable
basis for their opinion, (ii) contain the other statements required from
--
time to time by the American Institute of Certified Public Accountants for
an auditor's standard unqualified opinion (and shall not contain any
additional explanatory paragraph concerning uncertainties or other matters)
and (iii) include the opinion of such accountants that such consolidated
---
financial statements present fairly in all material respects the
consolidated financial position of the Company and its Subsidiaries as at
the end of such fiscal year and the consolidated results of operations and
cash flows for such fiscal year, in conformity with generally accepted
accounting principles;
(c) together with each delivery of financial statements pursuant to
sections 7(a)(ii) and 7(b), an Officers' Certificate which shall:
(i) state that the signers are familiar with the terms of the
Operative Documents and with the transactions and condition of the
Company and its Subsidiaries during the fiscal period covered by such
financial statements, and that, after due inquiry, the signers do not
have knowledge of the existence, during such period or as at the date
of such Officers' Certificate, of (A) any Change of Control, (B) any
- -
"reportable condition" (as defined in Statement on Auditing Standards
No. 60 issued by the Auditing Standards Board of the American
Institute of Certified Public Accountants) in the internal control
structure of the Company or any of its Subsidiaries or (C) any
-
Default or Event of Default, or, if such is not the case, specifying
in reasonable detail the nature and period of existence thereof and
what action the Company or the applicable Subsidiary has taken, is
taking and proposes to take with respect thereto;
(ii) set forth in reasonable detail (with all computations made
in determining the same) the amount available at the end of such
fiscal period for Restricted Payments under section 14.6;
(iii) show in reasonable detail all computations required to
demonstrate compliance, during and at the end of the fiscal period
covered by such financial statements, with the provisions of sections
14.5, 14.6, 14.7, 14.8, 14.11, 14.14(c) and 14.15, including, without
limitation, computations of the following items for such fiscal
period or as at the last
-23-
<PAGE>
day of such fiscal period, as applicable: Consolidated Adjusted Net
Income, Consolidated Capitalization, Consolidated Current Assets,
Consolidated Current Debt, Consolidated Current Liabilities,
Consolidated Net Income, Consolidated Net Worth, Consolidated Total
Assets, Consolidated Total Debt, Pro Forma Fixed Charges and Rental
Obligations;
(iv) if there shall exist any Subsidiary of the Company as of
the date of such Officers' Certificate which did not exist as of the
date of the last Officers' Certificate delivered pursuant to this
section 7(c), specify with respect to each such Subsidiary the
information called for by Exhibit 7(c)(iv) with respect to each such
----------------
Subsidiary and contain a brief description of the nature of each such
Subsidiary's business and certify that each such new Subsidiary is a
party to all Security Documents to which it is required to be a party
pursuant to section 14.20; and
(v) include a discussion of any significant variations from
the projected results of operations and/or financial condition for
such period as set forth in the budget for such period delivered
pursuant to section 7(j).
(d) together with each delivery of financial statements pursuant to
section 7(b), separate reports of the accountants reporting on such
financial statements which shall:
(i) state that their audit in connection with such financial
statements has been made in accordance with generally accepted
auditing standards, and provide negative assurance relative to
compliance with the applicable covenants of the Operative Documents
as they relate to accounting matters;
(ii) state whether or not their examination has disclosed the
existence, during or at the end of the fiscal year covered by such
financial statements and/or the date of such certificate, of (A) any
-
Change of Control (as defined in section 9.7), (B) any "reportable
-
condition" in the internal control structure of the Company or any of
its Subsidiaries or (C) any Default or Event of Default insofar as
-
such Default or Event of Default relates to accounting matters and,
if their examination has disclosed such a condition or event,
specifying in reasonable detail the nature and period of existence
thereof;
(iii) state that each holder of the Securities may rely upon the
report of such accountants referred to in section 7(b); and
(iv) provide negative assurance relative to compliance with the
requirements, insofar as they relate to accounting matters, specified
in the Officers' Certificates delivered in connection with the
quarterly financial
-24-
<PAGE>
statements pursuant to section 7(c) for the quarterly accounting
periods in such fiscal year, based upon their audit;
(e) as promptly as practicable (but in any event not later than five
days) after receipt thereof, copies of all reports or written comments
(including, without limitation, audit reports, so-called management letters
and any other reports or communications with respect to the internal
control structure of the Company or any of its Subsidiaries) submitted to
the Company or any of its Subsidiaries by independent accountants or other
management consultants in connection with each annual, interim or special
audit in respect of the financial statements or the accounts or the
financial or accounting systems or controls of the Company or any
Subsidiary of the Company;
(f) at such time as any securities of the Company or any Subsidiary
of the Company are publicly held, as promptly as practicable (but in any
event not later than five days) after the same are available, copies of (i)
-
all material press releases issued by the Company or any Subsidiary of the
Company, and all notices, proxy statements, financial statements, reports
and documents as the Company shall send or make available generally to its
stockholders or as any Subsidiary of the Company shall send or make
available generally to its stockholders other than the Company and (ii) all
--
periodic and special reports, documents and registration statements (other
than on Form S-8) which the Company or any Subsidiary of the Company
furnishes or files, or any officer or director or stockholder of the
Company or any of its Subsidiaries furnishes or files with respect to the
Company or any of its Subsidiaries, with the Commission (or any analogous
foreign governmental authority) or any securities exchange (including,
without limitation, reports on Schedules 13D under Section 13 of the
Exchange Act and Forms 3, 4 and 5 under Section 16 of the Exchange Act, to
the extent furnished or available to the Company);
(g) as promptly as practicable (but in any event not later than five
days) after any executive officer of the Company or any of its Subsidiaries
obtains knowledge of the occurrence of any condition or event which would
render inaccurate the representations and warranties contained in section
5.13 if such representations and warranties were being made immediately
after the happening of such condition or event, an Officers' Certificate
specifying in reasonable detail the nature and period of existence thereof,
what action the Company or any of its Subsidiaries has taken, is taking and
proposes to take with respect thereto, and, when known, any action taken
and/or proposed to be taken by the Internal Revenue Service, the PBGC or
any other governmental agency with respect thereto;
(h) as promptly as practicable (but in any event not later than five
days) after any executive officer of the Company or any of its Subsidiaries
obtains knowledge of the occurrence of any Default or Event of Default, an
Officers'
-25-
<PAGE>
Certificate specifying in reasonable detail the nature and period of
existence thereof, what action the Company or any of its Subsidiaries has
taken, is taking and proposes to take with respect thereto and the date, if
any, on which it is estimated the same will be remedied;
(i) as promptly as practicable (but in any event not later than five
days) after any executive officer of the Company or any of its Subsidiaries
obtains knowledge of the occurrence of any condition or event which has
resulted in, or could reasonably be expected to result in, a Material
Adverse Change, an Officers' Certificate specifying in reasonable detail
the nature and period of existence of such condition or event, what action
the Company or any of its Subsidiaries has taken, is taking and proposes to
take with respect thereto and the date, if any, on which it is estimated
the same will be remedied;
(j) as promptly as practicable (but in any event not later than 30
days) prior to the end of each fiscal year of the Company, an annual budget
prepared on a monthly basis for the Company and its Subsidiaries for the
succeeding fiscal year (displaying anticipated consolidated and, if the
Company has any Subsidiaries, consolidating balance sheets and statements
of income, retained earnings and cash flows) and, promptly upon preparation
thereof, any other significant budgets which the Company or any of its
Subsidiaries prepares and any revisions of such annual or other budgets;
(k) as promptly as practicable (but in any event not later than five
days) after the occurrence of any condemnation, taking or destruction of or
damage to (whether or not covered by insurance) any of the Collateral
having a value in excess of $250,000, an Officers' Certificate specifying
in reasonable detail the nature of such event, what action the Company or
any of its Subsidiaries has taken, is taking and proposes to take with
respect thereto and the date, if any, on which it is estimated the same
will be remedied;
(l) as promptly as practicable (but in any event not later than five
days) after receipt thereof, copies of all notices and communications,
including without limitation, claims for indemnification, given or received
by the Company under the Acquisition Documents;
(m) such other material information relating to the Company and/or
any of its Subsidiaries as shall be furnished to any bank, financial
institution or other Person to which the Company or any of its Subsidiaries
is indebted for borrowed money (other than information relating solely to
collateral for such Indebtedness); and
(n) such other information as from time to time may reasonably be
requested.
-26-
<PAGE>
The Company will keep at its principal executive office a true copy of each
of the Operative Documents and each other agreement pursuant to which the
Company or any of its Subsidiaries has borrowed money or issued securities (or
has the right or obligation to do the same) as at the time in effect, including
all exhibits thereto and all amendments, supplements, waivers and consents in
respect thereof, and will furnish copies thereof to, and will cause the same to
be available for inspection at such office during normal business hours by, any
institutional holder of a Security.
8. Inspection. The Company will permit any Person designated by any
----------
institutional holder of any of the Securities on reasonable notice and at such
holder's expense (unless a Default or Event of Default shall have occurred and
be continuing, in which case, at the Company's expense), to visit and inspect
any of the properties of the Company and its Subsidiaries, to examine its and
their books and records (and to make copies thereof and take extracts
therefrom) and to discuss its and their affairs, finances and accounts with and
to be advised as to the same by, its and their officers, consultants, counsel
and accountants, all at such reasonable times and intervals as such holder may
desire.
9. Prepayment of Notes.
-------------------
9.1. Required Annual Prepayment Without Premium of Senior Fixed Rate
---------------------------------------------------------------
Notes. In addition to paying the entire outstanding principal amount and the
-----
interest due on the Senior Fixed Rate Notes on the maturity date thereof, on
each July 31, commencing July 31, 1996, until the Senior Fixed Rate Notes have
been paid in full, the Company will prepay without premium a principal amount of
the Senior Fixed Rate Notes applicable in accordance with the following table
(or such lesser principal amount thereof as shall then be outstanding):
<TABLE>
<CAPTION>
================================================================================
Principal Amount Principal Amount
Prepayment Date to be Prepaid Prepayment Date to be Prepaid
- -------------------------------------------------------------------------
<S> <C> <C> <C>
July 31, 1996 $500,000 July 31, 2000 $1,000,000
July 31, 1997 $500,000 July 31, 2001 $1,500,000
July 31, 1998 $750,000 July 31, 2002 $1,500,000
July 31, 1999 $750,000 July 31, 2003 $2,000,000
================================================================================
</TABLE>
No partial prepayment of the Senior Fixed Rate Notes pursuant to section 9.2,
9.5, 9.6, 9.7 or 9.8 or any other provision of this Agreement shall alter the
obligation of the Company to make the required prepayments provided for in this
section 9.1.
9.2. Optional Annual Prepayment Without Premium of Senior Fixed Rate
---------------------------------------------------------------
Notes. On any July 31, when a prepayment is made on the Senior Fixed Rate Notes
- -----
pursuant to section 9.1, the Company may, at its option, upon notice as set
forth in section 9.10, prepay without premium a principal amount of the Senior
Fixed Rate Notes (in an integral multiple of $50,000 and a minimum of $100,000
or such lesser principal
-27-
<PAGE>
amount thereof as shall then be outstanding) not exceeding the principal amount
of the Senior Fixed Rate Notes being prepaid on such date pursuant to section
9.1, provided that the aggregate principal amount of the Senior Fixed Rate Notes
--------
prepaid pursuant to this section 9.2 shall not exceed $2,625,000. The right to
make any particular optional prepayment under this section 9.2 shall not be
cumulative and, if and to the extent not exercised on any such July 31, the
right to make such prepayment shall lapse; provided that such lapse shall not
--------
affect the right of the Company to make subsequent prepayments in accordance
with the terms hereof. Any partial prepayment of Senior Fixed Rate Notes
pursuant to this section 9.2 shall be applied to the payment of installments of
principal of the Senior Fixed Rate Notes in inverse order of maturity.
9.3. Required Annual Prepayment Without Premium of Subordinated Notes.
----------------------------------------------------------------
In addition to paying the entire outstanding principal amount and the interest
due on the Subordinated Notes on the maturity date thereof, on each July 31,
commencing July 31, 2000, until the Subordinated Notes have been paid in full,
the Company will prepay without premium $900,000 in principal amount of the
Subordinated Notes (or such lesser principal amount thereof as shall then be
outstanding). No partial prepayment of the Subordinated Notes pursuant to
section 9.4, 9.5, 9.6 or 9.7 or any other provision of this Agreement shall
alter the obligation of the Company to make the required prepayments provided
for in this section 9.3.
9.4. Optional Annual Prepayment Without Premium of Subordinated Notes.
----------------------------------------------------------------
On any July 31, when a prepayment is made on the Subordinated Notes pursuant to
section 9.3, the Company may, at its option, upon notice as set forth in section
9.10, prepay without premium a principal amount of the Subordinated Notes (in an
integral multiple of $50,000 and a minimum of $100,000 or such lesser principal
amount thereof as shall then be outstanding) not exceeding the principal amount
of the Subordinated Notes being prepaid on such date pursuant to section 9.3,
provided that (a) the aggregate principal amount of the Subordinated Notes
- -------- -
prepaid pursuant to this section 9.4 shall not exceed $1,125,000 and (b) no
-
prepayment of Subordinated Notes may be made pursuant to this section 9.4 unless
there shall have been pro rata prepayments (based on the original aggregate
--- ----
principal amount) of the Senior Fixed Rate Notes pursuant to sections 9.2, 9.5
and/or 9.6 simultaneously with or prior to such prepayment of Subordinated
Notes. Each notice of a prepayment under this section 9.4 shall be accompanied
by an Officers' Certificate certifying and demonstrating that this section 9.4
is being complied with in connection with such prepayment. The right to make any
particular optional prepayment under this section 9.4 shall not be cumulative
and, if and to the extent not exercised on any such July 31, the right to make
such prepayment shall lapse; provided that such lapse shall not affect the right
--------
of the Company to make subsequent prepayments in accordance with the terms
hereof. Any partial prepayment of Subordinated Notes pursuant to this section
9.4 shall be applied to the payment of installments of principal of the
Subordinated Notes in inverse order of maturity.
9.5. Optional Prepayment Without Premium of Senior Fixed Rate Notes
--------------------------------------------------------------
and/or Subordinated Notes with the Proceeds of Certain Public Offerings. At
- -----------------------------------------------------------------------
any time or from
-28-
<PAGE>
time to time, the Company may, at its option, upon notice as set forth in
section 9.10, prepay all or any part (in an integral multiple of $50,000 and a
minimum of $100,000 or such lesser principal amount thereof as shall then be
outstanding) of the Senior Fixed Rate Notes and/or the Subordinated Notes from
the net proceeds received by the Company from the contemporaneous sale to the
public of Common Shares or any of its Preferred Stock pursuant to a registration
statement filed by the Company with the Commission under the Securities Act;
provided that no prepayment of Subordinated Notes may be made pursuant to this
- --------
section 9.5 unless there shall have been pro rata prepayments (based on the
--- ----
original aggregate principal amount) of the Senior Fixed Rate Notes pursuant to
this section 9.5 and/or section 9.6 simultaneously with such prepayment of
Subordinated Notes. Each notice of a prepayment under this section 9.5 shall be
accompanied by an Officers' Certificate certifying and demonstrating that this
section 9.5 is being complied with in connection with such prepayment and
specifying the source or sources of funds to be used for such prepayment. Any
partial prepayment of Notes pursuant to this section 9.5 shall be applied to the
payment of installments of principal on such Notes in inverse order of maturity.
9.6. Optional Semi-Annual Prepayment With Premium of Senior Fixed Rate
-----------------------------------------------------------------
Notes and/or Subordinated Notes. On any January 31 or July 31, the Company
- -------------------------------
may, at its option, upon notice as set forth in section 9.10, prepay all or any
part (in an integral multiple of $50,000 and a minimum of $100,000 or such
lesser principal amount thereof as shall then be outstanding) of the Senior
Fixed Rate Notes and/or the Subordinated Notes, upon the concurrent payment of
an amount equal to the Make Whole Amount; provided that no prepayment of
--------
Subordinated Notes may be made pursuant to this section 9.6 unless there shall
have been pro rata prepayments of the Senior Fixed Rate Notes pursuant to
--- ----
section 9.5 and/or this section 9.6 simultaneously with such prepayment of
Subordinated Notes. Any partial prepayment of Notes pursuant to this section
9.6 shall be applied to the payment of installments of principal on such Notes
in inverse order of maturity.
9.7. Prepayment Without Premium of Notes at the Option of Holders of
---------------------------------------------------------------
such Notes or at the Option of the Company upon a Change of Control.
- -------------------------------------------------------------------
(a) If any Change of Control is to occur, then not less than 30 days
nor more than 90 days prior to the occurrence of such Change of Control,
the Company will notify each holder of any Notes (including, for purposes
of section 12.8, each holder of any Senior Revolving Credit Notes) of such
pending Change of Control and the date upon which it is scheduled to occur.
If the Required Holders of any class of Notes then outstanding furnish a
written request for prepayment to the Company (in accordance with section
24) not more than 30 days after receipt by such holders of such notice of
such Change of Control from the Company, the Company will prepay without
premium all (but not less than all) of the Notes of such class then
outstanding. Each such prepayment shall occur on the date upon which the
Change of Control occurs, unless the Company and the Required Holders of
each such class of Notes being prepaid agree to a
-29-
<PAGE>
different date, and no prepayment requested pursuant to this section 9.7(a)
shall be due unless the Change of Control shall occur.
(b) On the date of any Change of Control, provided such Change of
--------
Control has resulted directly from a sale of not less than 51% of the
outstanding Common Shares of the Company or a sale or other disposition of
all or substantially all of the assets of the Company, the Company may, at
its option, upon notice as set forth in section 9.10, prepay without
premium all (but not less than all) of the Notes then outstanding.
(c) In the event the Company fails to deliver to each holder of any
Notes the notice of a pending Change of Control as required by section
9.7(a), any holder of a Note may, upon obtaining knowledge of a pending or
completed Change of Control, notify the Company of such Change of Control,
whereupon the Company shall, and any holder of a Note may, promptly notify
each other holder of any Notes (including, for purposes of section 12.8,
each holder of any Senior Revolving Credit Notes) of such pending or
completed Change of Control and the date upon which it is scheduled to
occur or did occur. If any holder of a Note furnishes a written request for
prepayment to the Company (in accordance with section 24) not more than 60
days after receipt by such holder of such notice of such Change of Control
from the Company, the Company will prepay without premium the principal
amount of the Notes specified in such request. Each such prepayment shall
occur (x) in the case of a pending Change of Control, on the date on which
-
such Change of Control occurs and (y) in the case of a completed Change of
-
Control, on the 30th day after such written request is so given by any such
holder, unless the Company and such holder agree to a different date.
Timely and complete compliance by the Company with the provisions of this
section 9.7(c) shall relieve the Company of its obligations under section
9.7(a) and shall be deemed to cure any Default or Event of Default
resulting from the Company's failure to fulfill its obligations under
section 9.7(a). Any partial prepayment of Notes pursuant to this section
9.7 shall be applied to the payment of installments of principal on such
Notes in inverse order of maturity.
(d) For purposes of this section 9.7, the term "Change of Control"
-----------------
shall mean (i) the sale of more than 50% of the outstanding Common Shares
-
of the Company in a single transaction (other that a sale of securities
registered under the Securities Act), (ii) the four principals (Ralph R.
--
Whitney, Jr., John M. Ramey, Forrest E. Crisman, Jr. and Glenn Scolnik) of
Hammond, Kennedy, Whitney & Company, Inc. ("Hammond, Kennedy"), members of
their immediate families and trusts established for the benefit of any
members of their immediate families owning less than the Required
Percentage (as defined below) of the Common Shares of the Company which
such principals owned on the Closing Date as set forth on Exhibit 5.5
-----------
attached hereto, or (iii) the persons who comprise the Board of Directors
---
of the Company on August 31, 1994 (the Original Directors"), any persons
nominated, appointed or elected by a majority of the Original Directors to
-30-
<PAGE>
fill any vacancies on the Board of Directors of the Company, and any
persons approved in writing by all of the principals of Hammond, Kennedy to
fill any vacancies on the Board of Directors of the Company comprising less
than a majority of the members of the Board of Directors of the Company.
For purposes of this section 9.7, "Required Percentage" shall mean 80%
until the Seller Note has been paid in full and 60% thereafter.
(e) Each notice from the Company pursuant to this section 9.7 shall
make explicit reference to this section 9.7 and shall state that the right
of the Required Holders of the Notes then outstanding to require prepayment
thereof and of the Company to prepay such Notes must be exercised within 60
days of the receipt of such notice.
(f) For purposes of this section 9.7, beneficial ownership shall be
determined in the manner set forth in Rule 13d-3 of the Commission under
the Exchange Act.
9.8. Required Prepayment Without Premium of Senior Fixed Rate Notes on
-----------------------------------------------------------------
Account of Damage, Destruction or Taking and from Proceeds of Title Insurance.
- -----------------------------------------------------------------------------
Unless otherwise directed by the Required Holders of the Senior Fixed Rate
Notes, all (a) insurance proceeds on account of damage to or destruction of the
-
Collateral or any part thereof or awards or compensation on account of any
condemnation, taking or purchase in lieu thereof of the Collateral or any part
thereof and (b) proceeds of title insurance received on account of any loss
-
with respect to the Collateral or any part thereof, which, in the case of
clauses (a) and (b) above, are received at a time when no Event of Default
shall have occurred and be continuing and which are to be applied to the
prepayment of the Secured Obligations (as defined in the Security Documents)
pursuant to the terms of the Security Documents, including, without limitation,
section 2.6 of the Standish Mortgage and section 3(d) of the Security
Agreements, shall be applied (after payment of all related costs and expenses
incurred by the holders of the Secured Obligations) to the prepayment without
premium of an aggregate principal amount of the Senior Fixed Rate Notes equal
to the aggregate amount of such proceeds. Any partial prepayment of the Senior
Fixed Rate Notes pursuant to this section 9.8 shall be applied to the payment
of installments of principal of the Senior Fixed Rate Notes in inverse order of
maturity.
9.9. Allocation of Partial Prepayments of Notes. In the case of each
------------------------------------------
partial prepayment of the Senior Fixed Rate Notes or the Subordinated Notes
under this section 9, the principal amount of the class of Notes to be prepaid
shall be allocated among all of the Notes of such class at the time outstanding
(excluding any Notes at the time owned by the Company or any Affiliate of the
Company) in proportion, as nearly as practicable, to the respective unpaid
principal amounts thereof not theretofore called for prepayment, with
adjustments, to the extent practicable, to compensate for any prior prepayments
not made exactly in such proportion.
-31-
<PAGE>
9.10. Notice of Optional Prepayments of Notes. In the case of each
---------------------------------------
prepayment under this section 9 (other than prepayments under section 9.1, 9.3
or 9.7(a)), the Company shall give written notice thereof to each holder of any
class of Notes being prepaid not less than 30 (10 in the case of prepayments
under section 9.8) nor more than 60 days prior to the date fixed for such
prepayment. Each such notice shall set forth: (a) the date fixed for
-
prepayment; (b) the aggregate principal amount of each class of Notes to be
-
prepaid on such date; and (c) the aggregate principal amount of each class of
-
Notes held by such holder to be prepaid on such date and the amount of accrued
interest and, in the case of a prepayment pursuant to section 9.6, an
estimation of the premium, if any, to be paid to such holder on such date
(together with the calculation of such premium, which calculation shall be
satisfactory to each holder of the Notes to be prepaid pursuant to section
9.6).
9.11. Maturity; Accrued Interest; Surrender, etc. of Notes. In the
----------------------------------------------------
case of each prepayment of all or any part of any Note, the principal amount to
be prepaid shall mature and become due and payable on the date fixed for such
prepayment, together with interest on such principal amount accrued to such
date and the premium, if any, due thereon. Any Note prepaid in full shall be
surrendered to the Company at the Company's principal place of business
promptly following prepayment and cancelled and shall not be reissued, and no
Note shall be issued in lieu of any prepaid principal amount of any Note.
9.12. Purchase of Notes. The Company will not, and will not permit any
-----------------
Affiliate of the Company to, directly or indirectly, purchase or otherwise
acquire, or offer to purchase or otherwise acquire, any outstanding Notes of
any class except (a) by way of payment or prepayment in accordance with the
-
provisions of the Notes and this Agreement, (b) pursuant to any identical offer
-
made by the Company or such Affiliate pro rata and on the same terms to each
--- ----
holder of the Notes of such class at the time outstanding, or (c) pursuant to
-
section 2.2 of the Warrants in the event the holder of any Warrant applies any
portion of the principal of or interest on any Subordinated Note held by such
holder to the payment of all or a portion of the exercise price of such
Warrant. Any such offer shall provide each holder with sufficient information
to enable it to make an informed decision with respect to such offer, and shall
remain open for at least 30 days. If the holders of more than 50% of the
principal amount of the Notes of such class then outstanding accept such offer,
the Company shall promptly notify the remaining holders of such class of such
fact and the expiration date for the acceptance by holders of such Notes of
such offer shall be extended by the number of days necessary to give each such
remaining holder at least 10 days from its receipt of such notice to accept
such offer.
9.13. Payment on Non-Business Days. If any amount hereunder or under
----------------------------
the Notes shall become due on a day which is not a Business Day, such payment
shall be due on the next succeeding Business Day.
9.14. Application of Subordinated Notes in Satisfaction of Exercise
-------------------------------------------------------------
Price of Warrants. In the event that any holder of any Subordinated Notes
- -----------------
shall apply all or a
-32-
<PAGE>
portion of the principal amount of such Subordinated Notes in satisfaction (in
whole or in part) of the payment of the Exercise Price (as defined in the
Warrants), any partial application of the principal amount of any such Note
shall be applied to the payment of installments of principal due thereunder in
the inverse order of maturity.
10. Subordination of Subordinated Notes.
-----------------------------------
10.1. Certain Definitions. As used in this section 10, the following
-------------------
terms have the following respective meanings:
(a) "Bankruptcy Code" shall mean 11 U.S.C. (S) 101 et seq., as
---------- ---- -- ---
from time to time hereafter amended, and any successor or similar statute.
(b) "Permissible Securities" shall mean securities the payment of
----------- ----------
which is subordinated, at least to the extent provided in this section 10
with respect to the Subordinated Indebtedness, to the payment of all
Superior Indebtedness at the time outstanding and all securities issued in
exchange therefor.
(c) "Subordinated Indebtedness" shall mean the principal amount of
------------ ------------
the Indebtedness evidenced by the Subordinated Notes, together with any
interest or premium due thereon and, to the extent applicable solely to the
Subordinated Notes, any other amount (including any fee or expense) due
thereon or payable with respect thereto, including any such amounts payable
by any Subsidiary of the Company pursuant to any Note Guarantee or other
agreement.
(d) "Superior Indebtedness" shall mean the principal amount of any
-------- ------------
Indebtedness of the Company and its Subsidiaries for borrowed money
evidenced by the Senior Fixed Rate Notes or the Senior Revolving Credit
Notes, including amounts payable by any Subsidiary of the Company pursuant
to any Note guarantee or other agreement, (as such Senior Fixed Rate Notes
and Senior Revolving Credit Notes shall be amended from time to time,
provided, however, that (i) in no event may the Senior Fixed Rate Notes be
-------- -------
amended to authorize any increase in the aggregate principal amount of the
Senior Fixed Rate Notes, as such aggregate principal amount may have been
reduced, and (ii) in no event may the Senior Revolving Credit Notes be
amended to authorize any increase in the aggregate principal amount of the
Senior Revolving Credit Notes), and any renewal, extension, refinancing or
refunding thereof, now or hereafter outstanding, together with any interest
(including any interest accruing after the commencement of any action or
proceeding by or against the Company under the federal bankruptcy laws, as
now or hereafter constituted, or any other applicable domestic or foreign
federal or state bankruptcy, insolvency or other similar law, and any other
interest that would have accrued but for the commencement of such
proceeding, whether or not any such interest is allowed as a claim
enforceable against the Company or its Subsidiaries in such proceeding),
premium or any other
-33-
<PAGE>
amount (including any fee or expense) due thereon or payable with respect
thereto.
10.2. Subordinated Indebtedness Subordinated to Superior Indebtedness;
----------------------------------------------------------------
No Amendments; No Security.
- --------------------------
(a) The Company for itself and its successors and assigns and for
each of its Subsidiaries and their respective successors and assigns,
covenants and agrees, and each holder of any Subordinated Indebtedness, by
its acceptance thereof, shall be deemed to have covenanted and agreed,
notwithstanding anything to the contrary in this Agreement, the
Subordinated Notes, or any of the other Operative Documents, that the
payment of the Subordinated Indebtedness shall be subordinated to the
extent and in the manner set forth in this section 10, to the prior payment
in full in cash or cash equivalents of all Superior Indebtedness, and that
each holder of Superior Indebtedness, whether now outstanding or hereafter
created, incurred, assumed or guaranteed in accordance with the definition
of Superior Indebtedness, shall be deemed to have acquired Superior
Indebtedness in reliance upon the provisions contained in this section 10.
No present or future holder of Superior Indebtedness shall be prejudiced in
the right to enforce the subordination of the Subordinated Indebtedness
effected pursuant to this section 10 by any act or failure to act on the
part of the Company or any of its Subsidiaries or any Affiliate thereof.
(b) Neither this section 10 nor any of the terms of the
Subordinated Indebtedness relating to the timing or amount of any payment
(or prepayment) of the principal of or premium, if any, or interest on the
Subordinated Indebtedness, or any other amount (including any fee or
expense) due thereon, shall be amended without the prior written consent of
the holder or holders of 66 2/3% in aggregate principal amount of the
Superior Indebtedness at the time outstanding.
(c) Unless and until the Superior Indebtedness has been paid in
full in cash or cash equivalents, the Company shall not, and shall not
permit any of its Subsidiaries to, grant to the holders of the Subordinated
Indebtedness any Lien in or on any of the assets of the Company or any of
its Subsidiaries to secure the Subordinated Indebtedness, without the prior
written consent of the holder or holders of 66 2/3% in aggregate principal
amount of the Superior Indebtedness at the time outstanding.
10.3. Dissolution, Liquidation, Reorganization, etc. Upon any payment
----------------------------------------------
or distribution of the assets of the Company of any kind or character, whether
in cash, property or securities, to creditors upon any dissolution, winding-up,
total or partial liquidation, reorganization, composition, arrangement,
adjustment or readjustment of the Company or its securities (whether voluntary
or involuntary, or in bankruptcy, insolvency, reorganization, liquidation or
receivership proceedings, or upon a general assignment for
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<PAGE>
the benefit of creditors, or any other marshalling of the assets and liabilities
of the Company, or otherwise), then and in any such event:
(a) the holders of the Superior Indebtedness shall be entitled to
receive payment in full in cash or cash equivalents (or to have such
payment duly provided for in cash or cash equivalents in a manner
reasonably satisfactory to the holders of Superior Indebtedness) of all
amounts due or to become due on or in respect of all Superior Indebtedness,
before any payment or distribution, whether in cash, property or securities
(other than Permissible Securities), is made on account of or applied to
the Subordinated Indebtedness;
(b) the Subordinated Indebtedness shall forthwith become due and
payable, and any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities (other than
Permissible Securities), to which the holders of the Subordinated
Indebtedness would be entitled except for the provisions of this section
10, shall be paid or delivered by any debtor, custodian, liquidating
trustee, agent or other Person making such payment or distribution,
directly to the holders of the Superior Indebtedness, or their
representative or representatives, ratably according to the aggregate
amounts remaining unpaid on account of such Superior Indebtedness, for
application to the payment thereof, to the extent necessary to pay all such
Superior Indebtedness in full in cash or cash equivalents after giving
effect to any concurrent payment or distribution, or provision therefor, to
the holders of such Superior Indebtedness;
(c) each holder of the Subordinated Indebtedness at the time
outstanding hereby irrevocably authorizes and empowers each holder of the
Superior Indebtedness or such holder's representative to collect and
receive such holder's ratable share of all such payments and distributions
and to receipt therefor, and, if any holder of Subordinated Indebtedness
fails to file a claim at least seven (7) calendar days prior to the date
established by rule of law or order of court for such filing, to file and
prove (but not to vote) such claims therefor; and
(d) the holders of the Subordinated Indebtedness shall execute and
deliver to the holders of the Superior Indebtedness or their representative
or representatives all such further instruments confirming the above
authorization and all such powers of attorney, proofs of claim, assignments
of claim and other instruments, and shall take all such other action, as
may be reasonably requested by the holders of the Superior Indebtedness or
such representative or representatives, to enforce such claims and to carry
out the purposes of this section 10.
Upon any payment or distribution of assets of the Company referred to in
this section 10, the holders of the Subordinated Indebtedness shall be entitled
to rely upon any order or decree made by any court of competent jurisdiction in
which such bankruptcy,
-35-
<PAGE>
insolvency, reorganization, liquidation, receivership or other proceeding is
pending, or a certificate of the debtor, custodian, liquidating trustee, agent
or other Person making any such payment or distribution to such holders, for the
purpose of ascertaining the Persons entitled to participate therein, the holders
of the Superior Indebtedness, the then outstanding principal amount of the
Superior Indebtedness and any and all amounts payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent thereto or to
this section 10.
10.4. No Payments With Respect to Subordinated Indebtedness in Certain
----------------------------------------------------------------
Circumstances.
- -------------
(a) The Company will not, and will not permit any Subsidiary to,
directly or indirectly, make or agree to make, and neither the holder nor
any assignee or successor holder of any Subordinated Indebtedness will
accept or receive any payment or distribution (in cash, property or
securities (other than Permissible Securities) by set-off or otherwise),
direct or indirect, of or on account of all or any portion of any
Subordinated Indebtedness if, at the time of such payment or distribution
or immediately after giving effect thereto:
(i) a default (a "Payment Default") in the payment when due
of all or any portion of any Superior Indebtedness shall have
occurred, and such Payment Default shall not have been cured or
waived in writing by the requisite holder or holders of such
Superior Indebtedness; or
(ii) all of the following four conditions shall exist:
(A) an Event of Default, other than a Payment Default,
shall have occurred with respect to any Superior Indebtedness
(a "Covenant Default") which permits the holder or holders
thereof to accelerate the maturity thereof (whether immediately
or after notice or lapse of time or both);
(B) the Company and the holder or holders of
Subordinated Indebtedness shall have received written notice
(given as provided in section 24) (each a "Subordination
Notice") of such Covenant Default from any holder or holders of
not less than fifty-one percent in aggregate principal amount
of such Superior Indebtedness at the time outstanding, or their
representative or representatives (which notice shall state
that it is a "Subordination Notice", shall specify the Covenant
Default which forms the basis of such notice and shall make
explicit reference to the provisions of this section 10.4);
(C) such Covenant Default shall not have been cured or
waived in writing by the requisite holder or holders of the
Superior
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<PAGE>
Indebtedness with respect to which such Covenant Default shall
have occurred; and
(D) less than 180 days shall have elapsed after the date
of receipt by the Company and the holders of the Subordinated
Indebtedness of such Subordination Notice (the period during
which the restrictions imposed by this subdivision (ii) are in
effect being hereinafter referred to as a "Blockage Period");
provided, however, that, for the purpose of this subdivision (ii),
--------
(x) Blockage Periods shall not be in effect for more than an
-
aggregate of 180 days during any period of 360 consecutive days, (y)
-
Blockage Periods shall not be in effect
on more than five occasions, and (z) no facts or circumstances
-
known to the holders of Superior Indebtedness giving any
Subordination Notice and constituting a Covenant Default on the date
any Subordination Notice is given may be used as a basis for any
subsequent Subordination Notice (unless such Covenant Default is
cured or waived in writing for a period of not less than 180
consecutive days).
(b) The restrictions imposed by section 10.4(a) shall cease to
apply and the Company may resume payments in respect of the Subordinated
Indebtedness (including any payments which shall not have been made on
---------
account of the provisions of this section 10, but excluding any payments
---------
which shall have become due upon any acceleration of the maturity of the
Subordinated Indebtedness) or any judgment with respect thereto:
(i) in the case of a Payment Default, upon a cure or written
waiver thereof by the requisite holder or holders of the Superior
Indebtedness with respect to which such Payment Default shall have
occurred; or
(ii) in the case of a Covenant Default, upon the earlier to
occur of (A) the cure or written waiver of such Covenant Default by
-
the requisite holder or holders of the Superior Indebtedness with
respect to which such Covenant Default shall have occurred or (B)
-
the expiration of the Blockage Period of 180 days referred to in
section 10.4(a)(ii)(D) or the earlier termination of such Blockage
Period by the holder or holders of Superior Indebtedness which
delivered the Subordination Notice with respect to such Covenant
Default.
(c) In the event of either (i) the failure of the Company and its
-
Subsidiaries to pay any Superior Indebtedness upon the maturity thereof or
(ii) an acceleration of the maturity of the principal of any Superior
Indebtedness in accordance with the terms thereof (which acceleration has
not been rescinded or annulled), such Superior Indebtedness shall first be
paid in full in cash or cash
-37-
<PAGE>
equivalents (or provision for such payment in cash or cash equivalents
shall be made in a manner reasonably satisfactory to the holders of such
Superior Indebtedness) before any payment is made on account of or applied
on the Subordinated Indebtedness.
(d) Nothing in this section 10 shall affect or impair the right of
any holder of any Subordinated Notes to apply the principal amount of or
accrued interest on or other amount payable in respect of any Subordinated
Note to the payment of any amount due upon the exercise of any Warrants at
any time.
10.5. Payments and Distributions Received. If any payment or
-----------------------------------
distribution of any kind or character, whether in cash, property or securities
(other than Permissible Securities), shall be received by any holder of any of
the Subordinated Indebtedness in contravention of this section 10, such payment
or distribution shall be held in trust for the benefit of, and shall be paid
over or delivered and transferred to, the holders of the Superior Indebtedness,
or their representative or representatives, ratably according to the aggregate
amount remaining unpaid on account of such Superior Indebtedness, for
application to the payment thereof, to the extent necessary to pay all such
Superior Indebtedness in full in cash or cash equivalents after giving effect
to any concurrent payment or distribution, or provision therefor, to the
holders of such Superior Indebtedness. In the event of the failure of any
holder of any of the Subordinated Indebtedness to endorse or assign any such
payment or distribution, any holder of the Superior Indebtedness or such
holder's representative is hereby irrevocably authorized to endorse or assign
the same.
10.6. Subrogation. Subject to the payment in full of all Superior
-----------
Indebtedness in cash or cash equivalents, in case cash, property or securities
otherwise payable or deliverable to the holders of the Subordinated
Indebtedness shall have been applied pursuant to this section 10 to the payment
of Superior Indebtedness, then and in each such case, the holders of the
Subordinated Indebtedness shall be subrogated to the rights of each holder of
Superior Indebtedness to receive any further payment or distribution in respect
of or applicable to the Superior Indebtedness; and, for the purposes of such
subrogation, no payment or distribution to the holders of Superior Indebtedness
of any cash, property or securities to which any holder of Subordinated
Indebtedness would be entitled except for the provisions of this section 10
shall, and no payment over pursuant to the provisions of this section 10 to the
holders of Superior Indebtedness by the holders of the Subordinated
Indebtedness shall as between the Company, its creditors other than the holders
of Superior Indebtedness and the holders of Subordinated Indebtedness, be
deemed to be a payment by the Company to or on account of Superior
Indebtedness. The provisions of this section 10 are solely for the purpose of
defining the relative rights of the holders of Subordinated Indebtedness on the
one hand and the holders of Superior Indebtedness on the other hand, and no
Person is entitled to any third party beneficiary rights or other similar
rights on account of or under such provisions.
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<PAGE>
10.7. Notice. In the event that any Subordinated Indebtedness shall be
------
transferred and/or shall become due and payable before the expressed maturity
thereof as the result of the occurrence of a default, the Company will give
immediate written notice in writing of such happening to each holder of
Superior Indebtedness.
10.8. Subordination Not Affected, etc. The terms of this section 10,
-------------------------------
the subordination effected hereby and the rights created hereby of the holders
of the Superior Indebtedness shall not be affected by (a) any amendment or
-
modification of or supplement to any Superior Indebtedness (or any renewal,
extension, refinancing or refunding thereof in accordance with section 14.5) or
any agreement, document or instrument relating thereto, in each case to the
extent permitted under the definition of Superior Indebtedness, (b) any
-
exercise or non-exercise of any right, power or remedy under or in respect of
any Superior Indebtedness (or any security or collateral therefor) or pursuant
to any agreement, document or instrument relating thereto or (c) any waiver,
-
consent, release, indulgence, delay or other action, inaction or omission, in
respect of any Superior Indebtedness (or any security or collateral therefor or
guaranty thereof) or pursuant to any agreement, document or instrument relating
thereto, whether or not any holder of any Subordinated Indebtedness shall have
had notice or knowledge of any of the foregoing.
10.9. Obligations Unimpaired. The provisions of this section 10 are
----------------------
solely for the purpose of defining the relative rights of the holders of
Superior Indebtedness on the one hand and the holders of Subordinated
Indebtedness on the other hand, and, subject to the rights, if any, under this
section 10 of the holders of Superior Indebtedness, nothing in this section 10
shall (a) impair as between the Company and the holder of any Subordinated
-
Indebtedness the obligation of the Company, which is unconditional and
absolute, to pay to the holder thereof the principal and interest thereon in
accordance with the terms thereof or (b) except as otherwise provided in
-
section 10.14, prevent the holder of any Subordinated Indebtedness from
exercising all remedies otherwise permitted by applicable law under this
Agreement.
10.10. Permitted Payments.
------------------
(a) Nothing contained in this section 10 shall prevent the Company
from making any regularly scheduled payment of interest or principal due on
the Subordinated Indebtedness or any prepayment thereof permitted by
section 9 hereof, except (i) during the pendency of any dissolution,
-
winding-up, total or partial liquidation, reorganization, composition,
arrangement, adjustment or readjustment of the Company or its securities
(whether voluntary or involuntary, or in bankruptcy, insolvency,
reorganization, liquidation or receivership proceedings, or upon a general
assignment for the benefit of creditors, or any other marshalling of the
assets and liabilities of the Company, or otherwise), or (ii) under the
--
circumstances described in section 10.4.
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<PAGE>
(b) Nothing contained in this section 10 shall prevent the
application by the holder or holders of any Subordinated Indebtedness of
any money so received by them from the Company to the payment of or on
account of any regularly scheduled payment of interest or principal due on
the Subordinated Indebtedness or any prepayment thereof permitted by
section 9 hereof, if, at the time of such application, the Company or the
holder or holders of Subordinated Indebtedness shall not have received
notice prior to such payment that such payment was prohibited by the
provisions of this section 10.
(c) Nothing contained in this section 10.10 shall be deemed to
limit any right of any holder of Superior Indebtedness under this section
10 to recover from any holder of the Subordinated Indebtedness any payment
made in contravention of this section 10.
10.11. Holders of Subordinated Indebtedness Entitled to Assume Payments
----------------------------------------------------------------
Not Prohibited in Absence of Notice. No holder of Subordinated Indebtedness
- -----------------------------------
shall at any time be charged with knowledge of the existence of any facts which
would prohibit the making of any payment to it, unless and until such holder
shall have received written notice thereof (given as provided in section 24)
from the Company or from any holder of Superior Indebtedness or any agent or
representative thereof. Prior to the receipt of any such notice, each holder
of Subordinated Indebtedness shall be entitled to assume conclusively that no
such facts exist, without, however, limiting any right of any holder of
Superior Indebtedness under this section 10 to recover from any holder of the
Subordinated Indebtedness any payment made in contravention of this section 10.
Each payment on the Subordinated Indebtedness by the Company shall be deemed to
constitute a representation of the Company that such payment is permitted to be
paid by the Company under this section 10.
Each holder of Subordinated Indebtedness shall be entitled to rely on the
delivery to it of a written notice by a Person representing himself to be a
holder of Superior Indebtedness or to be the agent or representative of any
holder of Superior Indebtedness to establish that such notice has been given by
any such Person. In the event that such holder of Subordinated Indebtedness
determines in good faith that further evidence is required with respect to the
right of any such Person to participate in any payment or distribution pursuant
to this section 10, such holder of Subordinated Indebtedness may request such
Person to furnish evidence to the reasonable satisfaction of such holder of
Subordinated Indebtedness as to any fact pertinent to the rights of such Person
under this section 10.
10.12. References in Subordinated Notes to Terms of Subordination. The
----------------------------------------------------------
Company covenants to cause each Subordinated Note now or hereafter issued to
contain a provision in substantially the following form:
"Payments of principal, premium, if any, and interest on this Note
are subordinate, to the extent specified in the Securities
-40-
<PAGE>
Purchase Agreement pursuant to which this Note was issued, to
Superior Indebtedness (as defined in such Securities Purchase
Agreement)."
10.13. Reinstatement of Terms of Subordination. Notwithstanding
---------------------------------------
anything to the contrary contained herein, the provisions of this section 10
shall continue to be effective or be reinstated, as the case may be, if at any
time any amount received by any holder of Superior Indebtedness in respect of
any Superior Indebtedness is rescinded, annulled or must otherwise be restored
or returned by any holder of Superior Indebtedness, upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of the Company or any of
its Affiliates or any guarantor of all or any part of the Superior Indebtedness
or upon the appointment of an intervenor, receiver or conservator of, or
trustee or similar official for the Company or any such Affiliate or guarantor
or any substantial part of any of their respective properties or assets or
otherwise, all as though such payment had not been made.
10.14. Limitation on Right of Action. Notwithstanding anything to the
-----------------------------
contrary contained in this Agreement, the Subordinated Notes or any of the
other Operative Documents, the holders of the Subordinated Indebtedness agree
that, if any Superior Indebtedness is outstanding, the holders of the
Subordinated Indebtedness will not exercise any right or remedy available to
them on account of (a) any Default or Event of Default or (b) otherwise at any
- -
time at which payments may not be made in respect of the Subordinated
Indebtedness under this section 10, unless and until the first to occur of:
(i) (A) Superior Indebtedness constituting at least fifty-one percent in
- -
aggregate principal amount of all Superior Indebtedness at the time outstanding
either (x) shall have been accelerated prior to its stated maturity or (y)
- -
shall have matured or otherwise become due in accordance with its express terms
(including by way of demand) and (B) the holders of such Superior Indebtedness
-
shall have commenced enforcement action in connection therewith;
(ii) a proceeding under the Bankruptcy Code or any similar state statute
--
or law (including laws providing for the appointment of a receiver) shall have
been commenced by or against the Company by Persons other than the holders of
the Subordinated Indebtedness;
(iii) an Event of Default shall have occurred and shall have continued
---
uncured and unwaived for a period of 180 days after the holders of Subordinated
Indebtedness shall have given written notice to the Company and the holders of
Superior Indebtedness of the occurrence of such Event of Default and of the
intent of the holders of Subordinated Indebtedness to pursue their remedies in
respect of such Event of Default at the expiration of such 180 day period,
provided that in no event shall the holders of Subordinated Indebtedness seek
- --------
to attach or otherwise obtain any lien on any of the assets of the Company or
any of its Subsidiaries
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<PAGE>
or to foreclose upon or sell any such assets unless and until the Superior
Indebtedness has been paid in full in cash or cash equivalents.
11. Registration, etc.
------------------
11.1. Certain Definitions. As used in this section 11, the following
-------------------
terms have the following respective meanings:
(a) "Holder" and "Holders" shall mean with respect to Purchased
------ -------
Common Shares or issued Warrant Shares, the registered owner of such
securities, and with respect to issuable Warrant Shares, the registered
owner of the Warrant, upon exercise of which such Warrant Shares are so
issuable.
(b) "register", "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by filing a registration statement in compliance with
the Securities Act to permit the sale and disposition of the Registrable
Shares and any amendment filed or required to be filed to permit any such
disposition;
(c) "qualification" or "compliance" refer to the qualification or
------------- ----------
compliance of all Registrable Shares included in any registration pursuant
to this section 11 under all applicable blue sky or other state securities
laws;
(d) "Registrable Shares" shall mean any Class A Shares into which
----------- ------
the Purchased Common Shares and the Warrant Shares are convertible or have
been converted and any Warrant Shares which are Class A Shares, except
that, as to any particular Registrable Shares, such Class A Shares, once
issued, will cease to be Registrable Shares when (i) a registration
-
statement covering such Class A Shares has been declared effective and such
Class A Shares have been disposed of pursuant to an effective registration
statement or (ii) such Class A Shares are sold to the public in accordance
--
with Rule 144 (or any similar provision then in force) under the Securities
Act; and
(e) "Registration Expenses" shall mean all fees, expenses and
------------ --------
disbursements related to any registration, qualification or compliance
pursuant to this section 11, including, without limitation, all
registration, filing, rating and listing fees, blue sky fees and expenses,
printing expenses, fees and disbursements of counsel (including, without
limitation, the fees, expenses and disbursements of one counsel for the
Holders of the Registrable Shares), and expenses of any special audits
incident to or required by any registration, qualification or compliance,
except that Registration Expenses shall not include any underwriters'
discounts or commissions attributable to any Registrable Shares registered
and sold pursuant to any such registration.
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<PAGE>
11.2. Registration on Request.
-----------------------
(a) In case the Company shall receive from one or more Holders of
any Registrable Shares a written request or requests that the Company
effect any registration, qualification and/or compliance of any Registrable
Shares held by (or issuable to) such Holder or Holders, and specifying the
intended method of offering, sale and distribution, the Company will:
(i) promptly give written notice of the proposed
registration, qualification and/or compliance to each other Holder
of Registrable Shares; and
(ii) as soon as practicable, effect such registration,
qualification and/or compliance (including, without limitation, the
execution of an undertaking for post-effective amendments,
appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with exemptive
regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so requested and
as would permit or facilitate the sale and distribution of such
amount of Registrable Shares as is specified in a written request or
requests, made within 30 days after receipt of such written notice
from the Company, by any Holder or Holders of any Registrable
Shares.
(b) The obligations of the Company under this section 11.2 are
subject to the following qualifications:
(i) the Company shall not be obligated to cause any
registration statement related to a registration effected pursuant
to this section 11.2 to be declared effective prior to the
expiration of 90 days after the date upon which the Company's
initial public offering of Class A Shares shall have been
consummated;
(ii) except as provided in section 11.2(b)(v), the Company
shall be obligated to effect only two (2) registrations pursuant to
this section 11.2 at the request of Holders of Registrable Shares
and, in each case, only if it shall have been timely requested by
the Holder or Holders of at least 25% in interest of the Registrable
Shares then outstanding or issuable.
(iii) the Company shall not include in any registration,
qualification or compliance requested pursuant to this section 11.2
any other securities (including, without limitation, those to be
issued by the Company) without the prior written consent of the
Holder or Holders of a majority in interest of the Registrable
Shares with respect to which a timely request(s) for registration,
qualification and/or compliance has been made;
-43-
<PAGE>
(iv) the Company shall pay all Registration Expenses related
to any registration, qualification and compliance effected pursuant
to this section 11.2; and
(v) if, in connection with any registration of Registrable
Shares pursuant to this section 11.2, the Holders of Registrable
Shares requesting registration are unable for any reason to include
in such registration all of the Registrable Shares for which
registration has been requested, then the Holder or Holders of the
Registrable Shares shall be entitled to an additional registration
of Registrable Shares pursuant to this section 11.2 upon the request
of Holders of Registrable Securities of at least 25% in interest of
the Registrable Shares then outstanding or issuable.
11.3. Incidental Registration.
-----------------------
(a) If the Company at any time or from time to time shall determine
to effect the registration, qualification and/or compliance of any of its
securities (whether in connection with an offering by the Company or
others) (otherwise than pursuant to a registration on a form inappropriate
for an underwritten public offering or relating solely to securities to be
issued in a merger, acquisition of the stock or assets of another entity or
in a similar transaction), then, in each such case (including the Company's
initial public offering), the Company will:
(i) promptly give written notice of the proposed
registration, qualification and/or compliance (which shall include a
list of the jurisdictions in which the Company intends to register
or qualify such securities under the applicable blue sky or other
state securities laws) to each Holder of any Registrable Shares; and
(ii) include among the securities which it then registers or
qualifies all Registrable Shares specified by any Holder thereof in
a written request or requests, made within 30 days after receipt of
such written notice from the Company.
(b) The obligations of the Company under this section 11.3 are
subject to the following qualifications:
(i) the Company shall pay all Registration Expenses related
to any registration, qualification or compliance effected pursuant
to this section 11.3;
(ii) if, in connection with any underwritten offering pursuant
to this section 11.3, the managing underwriter shall impose a
limitation on the number or kind of securities which may be included
in any such registration because, in its reasonable judgment, such
limitation is
-44-
<PAGE>
necessary to effect an orderly public distribution, then the Company
shall be obligated to include in such registration statement only
such limited portion of the Registrable Shares (which may be none)
as is determined in good faith by such managing underwriter,
provided that, if any securities are being offered for the account
--------
of Persons other than the Company and the Holders of the Registrable
Shares, the reduction in the number of Registrable Shares included
in such registration shall not represent a greater percentage of the
amount of Registrable Shares initially requested to be registered
and sold in such registration than the lowest such percentage
reduction imposed upon any other Person.
11.4. Permitted Registration. If and to the extent that any Holder or
----------------------
Holders of any Registrable Shares shall have, at the time of delivery of the
written request referred to in section 11.3, no present intention of selling or
distributing such securities, the Company shall be obligated to effect such
registration, qualification and/or compliance with respect to such securities
of such Holder or Holders only if and to the extent, in each case, that such
registration, qualification and/or compliance are at the time permitted by the
applicable statutes or rules and regulations thereunder or the practices of the
governmental authority concerned.
11.5. Registration Procedures. In the case of each registration,
-----------------------
qualification and/or compliance contemplated by this section 11, the Company
will keep the Holder or Holders of Registrable Shares advised in writing as to
the initiation of proceedings for such registration, qualification and
compliance and as to the completion thereof, and will advise each such Holder,
upon request, of the progress of such proceedings. In addition, the Company
will follow procedures customarily observed by issuers in registered public
offerings, and accord to the Holder or Holders of Registrable Shares all rights
(including, without limitation, the right to perform appropriate "due
diligence") customarily accorded to selling stockholders in secondary
distributions and to managing underwriters if the transaction in question is an
underwritten public offering. At the expense of the Company or of the party or
parties bearing the expenses of such registration, qualification and
compliance, the Company will (a) keep such registration, qualification and
-
compliance current and effective by such action as may be necessary or
appropriate, including, without limitation, the filing of post-effective
amendments and supplements to any registration statement or prospectus, for
such period as is necessary to permit the sale and distribution of the
Registrable Shares pursuant thereto, provided that the Company shall not be
--------
obligated to keep any such registration current and effective for more than
nine months following the effective date thereof unless such registration was
effected by the filing of a Form S-2 or S-3 under the Securities Act, (b) take
-
all necessary action under any applicable blue sky or other state securities
law to permit such sale and/or distribution, all as requested by such Holders,
(c) comply with applicable requirements of all regulatory entities, including,
-
without limitation, the National Association of Securities Dealers, Inc., (d)
-
furnish each Holder of Registrable Shares included therein such number of
registration statements, prospectuses,
supplements, amendments, offering circulars and other documents incident
thereto as such Holder from time to time may reasonably
-45-
<PAGE>
request, (e) list all Registrable Shares on each securities exchange on which
-
shares of the same class are then listed, and (f) furnish (or cause to be
-
furnished) to each Holder of Registrable Shares, all undertakings, agreements,
certificates, opinions, financial statements and "comfort letters" of the sort
customarily provided to selling stockholders in secondary distributions and to
managing underwriters if the transaction in question is an underwritten public
offering. In addition, in connection with any such registration, qualification
or compliance, the Holders of Registrable Shares included therein shall enter
into such agreements as are customarily entered into by selling shareholders in
secondary distributions.
11.6. Indemnification. Without limiting the generality of section 22,
---------------
the Company will indemnify, defend and hold harmless each Holder of Registrable
Shares included in any registration, qualification and/or compliance
contemplated by this section 11 and each underwriter of such securities, and
each Person, if any, who controls each such Holder and underwriter within the
meaning of the Securities Act, and their respective directors, officers,
employees, agents, advisors and Affiliates (each, an "Indemnified Person"), to
the fullest extent enforceable under applicable law against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, supplement, amendment,
offering circular or other document related to any registration, qualification
or compliance or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or any violation (or alleged violation) of the Securities Act
or other securities laws in connection with any such registration,
qualification or compliance, and will reimburse each such Indemnified Person
for any legal or any other expenses reasonably incurred in connection with
investigating and/or defending (and/or preparing for any investigation or
defense of) any such claim, loss, damage, liability, action or violation;
provided that the Company will not be liable in any such case to any such
- --------
Indemnified Person if, but only to the extent that, any such claim, loss,
damage, liability, action, violation or expense is finally determined to arise
out of or result from any untrue statement in or omission from written
information furnished to the Company by an instrument duly executed by such
Indemnified Person and stated to be specifically for use therein. Each Holder
of Registrable Shares will, if securities held by such Holder are included in a
registration effected pursuant to this section 11, indemnify, defend and hold
harmless the Company, each of its directors and officers who signs the related
registration statement, and each Person, if any, who controls the Company
within the meaning of the Securities Act, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, supplement, amendment, offering
circular or other document or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and such
directors, officers or Persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending (and/or preparing for any
investigation or defense of) any such claim, loss, damage, liability or
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<PAGE>
action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) was
made in (or omitted from) such registration statement, prospectus, supplement,
amendment, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein;
provided that the liability of any such Holder under this section 11.6 shall be
- --------
limited to the net sales proceeds actually received by such Holder as a result
of the sale by it of securities in such registration.
11.7. Restrictions on Other Agreements. The Company will not grant
--------------------------------
any right relating to the registration of its securities if the exercise
thereof interferes with or is inconsistent with or will delay (or could
reasonably be expected to interfere with or be inconsistent with or delay) the
exercise and enjoyment of any of the rights granted under this section 11,
without the prior written consent of the Holders of at least 66-2/3% of the
Registrable Shares then outstanding or issuable.
12. The Revolving Credit Facility.
-----------------------------
12.1. Certain Definitions. As used in this section 12, the following
-------------------
terms have the following respective meanings:
"Expiration Date" shall have the meaning specified in section 12.2.
---------- ----
"Facility Fee" shall have the meaning specified in section 12.5.
-------- ---
"Percentage" of any holder of Senior Revolving Credit Notes, shall mean
----------
the percentage specified on that portion of Schedule I attached hereto as is
----------
applicable to such holder.
"Revolving Credit Loan" and "Revolving Credit Loans" shall have the
--------- ------ ---- --------- ------ -----
respective meanings specified in section 12.2.
"Total Revolving Commitment" shall have the meaning specified in section
----- --------- ----------
12.2.
12.2. Revolving Commitment.
--------------------
(a) Subject to the terms and conditions hereof, you and the Other
Purchasers hereby establish for the benefit of the Company a revolving
credit facility pursuant to which the Company may borrow (and repay and
reborrow) an aggregate principal amount at any one time outstanding not in
excess of $1,500,000 (such commitment as reduced from time to time in
accordance with the terms hereof, the "Total Revolving Commitment"). The
revolving credit facility established hereunder shall expire on July 29,
1999 (the "Expiration Date"). At any time or from time to time on or after
the Closing and prior to the Expiration Date, subject to the limitations
set forth in section 12.2(b), the
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<PAGE>
Company may borrow (and repay and reborrow) from each Holder of Senior
Revolving Credit Notes an aggregate principal amount not in excess of such
Holder's Percentage of the Total Revolving Commitment. Each such borrowing
(a "Revolving Credit Loan" and, collectively, the "Revolving Credit Loans")
shall (i) bear interest, payable monthly in arrears, at a per annum rate
-
equal to 1.50% above the Prime Rate (as defined in the Senior Revolving
Credit Notes) as in effect from time to time and (ii) be made pro rata from
-- --- ----
the holders of the Senior Revolving Credit Notes in accordance with their
respective Percentages of the Total Revolving Commitment.
(b) The Revolving Credit Loans shall be made in such amount (in an
integral multiple of $50,000 and a minimum of $100,000 or such lesser
amount as may be equal to the then unused portion of the Total Revolving
Commitment) and on such date as the Company shall specify in an Officers'
Certificate substantially in the form of Exhibit 12.2(b) attached hereto
---------------
delivered to the holders of the Senior Revolving Credit Notes in accordance
with the provisions of section 24 not less than three Business Days nor
more than ten Business Days prior to the date so specified, provided that
--------
(i) no holder of any Senior Revolving Credit Notes shall be obligated to
-
make more than two Revolving Credit Loans during any calendar month and
(ii) during each period of 12 consecutive calendar months commencing with
--
the Closing Date, there shall be a period of at least 60 consecutive days
during each day of which period there shall be no Revolving Credit Loans
outstanding and each such 60-day period shall be separated by an interval
of not less than 90 days.
(c) The Revolving Credit Loans shall be made by transfer of
immediately available funds to an account of the Company in accordance with
the written instructions of the Company set forth in the Officers'
Certificate referred to in section 12.2(b).
12.3. Prepayments of the Senior Revolving Credit Notes. In addition to
------------------------------------------------
paying the entire outstanding principal amount and the interest due on the
Senior Revolving Credit Notes on the Expiration Date, at any time or from time
to time after the Closing and prior to the Expiration Date, the Company may, at
its option, upon notice as set forth in section 12.6, prepay without premium
all or any part (in an integral multiple of $50,000 and a minimum of $100,000
or such lesser amount as shall then be outstanding) of the Senior Revolving
Credit Notes; provided that the Company may not make more than two such
--------
prepayments during any calendar month. Any prepayment in connection with a
reduction or termination of the Total Revolving Commitment pursuant to section
12.4 shall be made together with accrued interest on the amount prepaid to the
date of such prepayment. If at any time the aggregate outstanding principal
amount of the Revolving Credit Loans exceeds the Total Revolving Commitment,
the Company will immediately prepay the Senior Revolving Credit Notes, without
premium, in an amount equal to such excess, together with accrued interest
thereon.
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<PAGE>
12.4. Permanent Reduction or Termination of Total Revolving Commitment.
----------------------------------------------------------------
At any time or from time to time after the Closing and prior to the Expiration
Date, the Company may, at its option, upon notice as set forth in section 12.6,
permanently reduce (in an integral multiple of $50,000 and a minimum of
$100,000) or permanently terminate the Total Revolving Commitment, upon the
concurrent payment of an amount equal to the Facility Fee (as hereinafter
defined) on the reduced or terminated portion of the Total Revolving Commitment
accrued to the date of such reduction or termination; provided that the Company
--------
may not make more than one such reduction during any calendar month.
12.5. Facility Fee. The Company shall pay to the holders of the Senior
------------
Revolving Credit Notes a facility fee (the "Facility Fee") for the period
commencing on the Closing Date to and including the Expiration Date, or the
earlier date of the termination of the Total Revolving Commitment, equal to 1/2
of 1% per annum (computed on the basis of a 360-day year of twelve 30-day
months) of the average daily unused portion of the Total Revolving Commitment.
The portion of the Facility Fee payable to each holder of Senior Revolving
Credit Notes shall be an amount equal to such holder's Percentage of the
Facility Fee. The Facility Fee shall be payable quarterly in arrears on the last
day of each January, April, July and October of each year, commencing October
31, 1994 and, as set forth in section 12.4, upon any permanent reduction or
permanent termination of the Total Revolving Commitment. On the date of each
payment of the Facility Fee, the Company shall furnish to each holder of Senior
Revolving Credit Notes an Officers' Certificate setting forth in reasonable
detail the computation of the amount thereof and of the portion thereof payable
to such holder.
12.6. Notice of Prepayments, Reductions or Terminations. In the case
-------------------------------------------------
of each prepayment of the Senior Revolving Credit Notes under section 12.3 and
each permanent reduction or permanent termination of the Total Revolving
Commitment under section 12.4, the Company shall give notice thereof to each
holder of the Senior Revolving Credit Notes not less than three Business Days
nor more than ten Business Days prior to the date fixed for such prepayment,
reduction or termination. Each such notice shall set forth: (a) the date
-
fixed for prepayment, reduction or termination, as applicable; (b) in the case
-
of any prepayment, (i) the aggregate principal amount of the Revolving Credit
-
Loans to be prepaid on such date and (ii) the aggregate principal amount of the
--
Revolving Credit Loans owing to such holder to be prepaid on such date; (c) in
-
the case of any such reduction of the Total Revolving Commitment, the amount of
the Total Revolving Commitment and such holder's Percentage thereof (in each
case expressed in dollars) after giving effect to such reduction and (d) in the
-
case of any reduction or termination of the Total Revolving Commitment, (i) the
-
aggregate amount of the Facility Fee and accrued interest due and payable in
connection therewith and (ii) the amount of the Facility Fee and accrued
--
interest to be paid to such holder in connection therewith.
12.7. Pro Rata Treatment. Each payment and prepayment of the principal
------------------
of the Senior Revolving Credit Notes and each permanent reduction of the Total
Revolving
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<PAGE>
Commitment shall be made pro rata among the holders of the Senior Revolving
--- ----
Credit Notes based upon their respective Percentages.
12.8. Permanent Termination of the Total Revolving Commitment Upon the
----------------------------------------------------------------
Occurrence of an Event of Default or a Change of Control.
- --------------------------------------------------------
(a) In addition to the rights of the holders of the Senior
Revolving Credit Notes set forth in section 16, upon the occurrence of an
Event of Default of the character described in subdivisions (a), (b), (c),
(d), (h), (i), (j), (k) or (l) of section 16.1 and at the option of the
holder or holders of 25% or more in aggregate principal amount of all
Senior Revolving Credit Notes at the time outstanding (excluding any Senior
Revolving Credit Notes at the time owned by the Company or any Affiliate of
the Company), exercised by written notice to the Company, the Total
Revolving Commitment may be permanently terminated whereupon all Revolving
Credit Loans, and interest accrued thereon, and the accrued but unpaid
Facility Fee shall become immediately due and payable. Upon the occurrence
of an Event of Default of the character described in subdivisions (e), (f)
or (g) of section 16.1, the Total Revolving Commitment shall forthwith
terminate without notice of any kind, which is hereby expressly waived by
the Company, whereupon all Revolving Credit Loans, and interest accrued
thereon, and the accrued but unpaid Facility Fee shall become immediately
due and payable.
(b) Upon the occurrence of a Change of Control and at the option of
the Required Holders of all Senior Revolving Credit Notes at the time
outstanding (excluding any Senior Revolving Credit Notes at the time owned
by the Company or any Affiliate of the Company), exercised by written
notice to the Company, the Total Revolving Commitment may be permanently
terminated whereupon all Revolving Credit Loans, and interest accrued
thereon, and the accrued but unpaid Facility Fee shall become immediately
due and payable, provided that the Senior Fixed Rate Notes and the
Subordinated Notes are also being prepaid in full at such time.
12.9. Books and Records. The holders of the Senior Revolving Credit
-----------------
Notes are hereby irrevocably authorized by the Company to maintain records
evidencing the dates and the amounts of the Revolving Credit Loans and of each
payment and prepayment made by the Company with respect thereto (whether in
respect of the principal thereof and/or the interest or fees accrued thereon)
and the applicable rate or rates and amounts of interest and Facility Fees
accrued thereon and of all other related transactions. In the absence of
manifest error, such records shall constitute final, binding and conclusive
evidence of the same. No failure on the part of any holder of the Senior
Revolving Credit Notes to maintain any such records shall in any way affect any
Revolving Credit Loan made by such holder or the rights or obligations of such
holder or of the Company with respect thereto. Each holder of the Senior
Revolving Credit Notes shall, upon request (but not more frequently than once
during any period of 30 consecutive days),
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<PAGE>
furnish to the Company a statement of the amounts and dates of each Revolving
Credit Loan made by such holder, the amount of and date on which each payment
and prepayment was made in respect thereof and the amount of all interest and
Facility Fees accrued thereon. Such statement shall be deemed final, binding and
conclusive upon the Company unless the Company notifies such holder in writing
of its objection to any portion of such statement within 30 days of the date on
which such statement was furnished to the Company.
13. Board Visitation Rights; Preemptive Rights.
------------------------------------------
(a) You and each other holder of Securities affiliated with or advised
by Massachusetts Mutual Life Insurance Company, shall have the right to appoint
one representative to represent all of such holders who shall: (i) receive
-
notice of all meetings (both regular and special) of the Boards of Directors of
the Company and its Subsidiaries and each committee of any such board (such
notice to be delivered or mailed as specified in section 24 at the same time as
notice is given to the members of any such board and/or committee); (ii) be
--
entitled to attend (or, in the case of telephone meetings, monitor) all such
meetings; (iii) receive all notices, information and reports which are
---
furnished to the members of any such board and/or committee at the same time
and in the same manner as the same is furnished to such members; (iv) be
--
entitled to participate in all discussions conducted at such meetings; and (v)
-
receive as soon as available (but in any event not later than 30 days after
such meeting) copies of the minutes of all such meetings. If the Company
and/or any of its Subsidiaries proposes to take any such action by written
consent in lieu of a meeting of its Board of Directors or of any committee
thereof, the Company will give written notice thereof to such representative,
which notice shall describe in reasonable detail the nature and substance of
such proposed action. The Company will furnish such representative with a copy
of each such written consent not later than five days after receipt by the
Company of the written consent for insertion in the minute books of the
Company. The Company will, and will cause each of its Subsidiaries to, comply
with all provisions of its by-laws relating to meetings of its board of
directors, including, without limitation, those relating to notice and to the
time and date of meetings and actions by written consent. Such representative
shall have the right (but no obligation) to consult with and advise the
management of the Company and its Subsidiaries at any time or from time to
time, by telephone or in person, on such matters relating to the operation of
the Company and its Subsidiaries as such representative shall deem appropriate.
Such representative shall not constitute a member of any such board and/or
committee and shall not be entitled to vote on any matters presented at
meetings of any such board and/or committee or to consent to any matter as to
which the consent of any such board and/or committee shall have been requested.
The Board of Directors of the Company shall meet not less frequently than once
during each fiscal quarter. The Company will pay the reasonable out-of-pocket
expenses of such representative incurred in connection with attending such
meetings and/or exercising any rights hereunder.
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<PAGE>
(b)(i) Except as otherwise provided in section 13(b)(v), if at any
time the Company proposes to issue any Equity Securities (as hereinafter
defined), then, as a condition precedent thereto, the Company shall afford each
of the Institutional Investors (as hereinafter defined) the preemptive rights
established in this section 13(b).
(ii) The Company shall give written notice to each Institutional
Investor (a "Notice of Issue") not less than 45 nor more than 60 days prior
to any proposed issuance by it of any Equity Securities. Each such Notice
of Issue shall:
(x) specify (A) the number and class of Equity Securities
-
which the Company proposes to issue (and all rights, preferences and
privileges of such Equity Securities) and (B) the time within which,
-
the price per share and all other terms and conditions upon which
the Company proposes to issue such Equity Securities;
(y) make explicit reference to this section 13(b) and state
that the right of each Institutional Investor to purchase Equity
Securities under this section 13(b) shall expire unless exercised
within 30 days after receipt of such Notice of Issue; and
(z) contain an irrevocable offer by the Company to such
Institutional Investor to subscribe for the Equity Securities to be
issued to the extent provided in section 13(b)(iii).
(iii) Each Institutional Investor who owns (or has the right to
acquire upon exercise of rights, warrants, options or convertible
securities) any Equity Securities of a class of Equity Securities specified
in the Notice of Issue shall have the right to purchase from the Company
(at the price per share and upon the other terms and conditions specified
in the Notice of Issue) such number of the Equity Securities of such class
as will, after giving effect to the issuance of all of the Equity
Securities of such class specified in the Notice of Issue (and assuming
that each other Institutional Investor who owns or has the right to acquire
any Equity Securities of such class exercises its rights in connection with
such issuance under this section 13(b) in full), permit such Institutional
Investor to maintain (to the satisfaction of such Institutional Investor)
the same relative ownership interest in the Company (on a fully-diluted
basis) by virtue of the ownership of or right to acquire ownership of
Equity Securities of the applicable class as such Institutional Investor
owned or had the right to acquire prior to the consummation of the issuance
specified in the Notice of Sale.
(iv) Each Institutional Investor having any rights under section
13(b)(iii) with respect to the issuance specified in the Notice of Issue
must notify the Company, within 30 days after receipt of the Notice of
Issue, if such Institutional Investor desires to exercise its rights under
this section 13(b). The failure of any Institutional Investor to provide
such notice within such 30-day period shall, for
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<PAGE>
the purposes of this section 3(b), be deemed to constitute a waiver by such
Institutional Investor of such rights with respect to the issuance
specified in the Notice of Issue. The Company will not consummate any
issuance of Equity Securities unless each Institutional Investor electing
to purchase Equity Securities in accordance with the provisions of this
section 13(b) is permitted to purchase such Equity Securities. No
Institutional Investor shall be obligated to purchase any Equity Securities
pursuant to this section 13(b). Any and all Equity Securities purchased by
any Institutional Investor pursuant to this section 13(b) shall be
purchased concurrently with or prior to the issuance of Equity Securities
by the Company.
(v) Notwithstanding anything to the contrary contained in this
section, no Institutional Investor shall have any rights pursuant to this
section 13(b) with respect to an issuance by the Company of (i) any Equity
-
Securities upon the exercise of any of the Warrants or upon the conversion
of any Class B Series 1 Common Shares or Class B Series 2 Common Shares
into any other series or class of Common Shares, (ii) Common Shares to all
--
of the holders of Common Shares as a stock dividend or as a result of any
subdivision or combination of the outstanding Common Shares, (iii) shares
---
of Preferred Stock to all of the holders of Preferred Stock as a stock
dividend or as a result of any subdivision or combination of the
outstanding shares of Preferred Stock, (iv) any stock options to purchase
--
Class A Shares granted by the Company to any of its employees pursuant to
employee benefit plans approved by the Board of Directors of the Company,
provided that the aggregate number of Class A Shares covered by all such
--------
stock options shall not exceed 5% of the Common Shares issued and
outstanding on a fully-diluted basis on the Closing Date, and (v) the
-
issuance of Class A Shares upon exercise of such employee stock options,
provided that the aggregate number of Class A Shares so issued shall not
--------
exceed of the Common Shares issued and outstanding on a fully-diluted
basis on the Closing Date.
(vi) As used in this section 13(b), the following terms have the
following respective meanings:
(x) "Equity Securities" shall mean any shares of capital
------ ----------
stock (and any securities convertible into or exercisable or
exchangeable for shares of capital stock) of the Company, including,
without limitation, any Preferred Shares, any Common Shares and any
securities convertible into or exercisable or exchangeable for such
securities.
(y) "Institutional Investors" shall mean Massachusetts
------------- ---------
Mutual Life Insurance Company, MassMutual Corporate Investors, and
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<PAGE>
MassMutual Participation Investors, and each other holder from time
to time of any of the Purchased Preferred Shares, Purchased Common
Shares, Warrants or Warrant Shares, and their respective successors
and assigns.
14. Covenants of the Company. From and after the date of this Agreement, and
------------------------
thereafter so long as any of the Notes shall remain outstanding the Company will
duly perform and observe, each and all of the covenants and agreements
hereinafter set forth:
14.1 Books of Record and Account; Reserves. The Company will, and will
-------------------------------------
cause each of its Subsidiaries to:
(a) at all times keep proper books of record and account in which
full, true and correct entries shall be made of its transactions in
accordance with generally accepted accounting principles; and
(b) set aside on its books from its earnings for each fiscal year
all such proper reserves, including reserves for depreciation, depletion,
obsolescence and amortization of its properties during such fiscal year, as
shall be required in accordance with generally accepted accounting
principles in connection with its business.
14.2. Payment of Taxes; Corporate Existence; Maintenance of
-----------------------------------------------------
Properties; Compliance with Laws; Lines of Business; Proprietary Rights. The
- -----------------------------------------------------------------------
Company will, and will cause each of its Subsidiaries to:
(a) pay and discharge promptly as they become due and payable all
taxes, assessments and other governmental charges or levies imposed upon it
or its income or upon any of its property, real, personal or mixed, or upon
any part thereof, as well as all claims of any kind (including claims for
labor, materials and supplies) which, if unpaid, might by law become a Lien
upon its property; provided that neither the Company nor any of its
--------
Subsidiaries shall be required to pay any such tax, assessment, charge,
levy or claim if (i) the amount, applicability or validity thereof shall at
-
the time be contested in good faith by appropriate proceedings or other
appropriate actions promptly initiated and diligently conducted, (ii) the
--
Company or such Subsidiary, as the case may be, shall have set aside on its
books such reserves, if any, with respect thereto as are required by
generally accepted accounting principles and deemed adequate by the Company
and its independent accountants and (iii) enforcement and foreclosure of
---
any Lien securing the same is at all times effectively stayed;
(b) do or cause to be done all things necessary to preserve and keep
in full force and effect its corporate existence, rights and franchises,
provided that
--------
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<PAGE>
nothing in this subdivision (b) shall prevent (i) the abandonment or
-
termination of the corporate existence, rights and franchises of any
Subsidiary of the Company, or the withdrawal by the Company or any of its
Subsidiaries of its qualification as a foreign corporation in any
jurisdiction, if, in the reasonable judgment of the Company, such
abandonment, termination or withdrawal is in the best interests of the
Company and is not disadvantageous in any material respect to the holders
of the Notes, or (ii) the consummation of a transaction specifically
--
permitted by sections 14.12, 14.13, 14.14 or 14.15;
(c) maintain and keep its properties in good repair, working order
and condition, and from time to time make all needful and proper repairs,
renewals and replacements, as in the reasonable judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times, provided that, subject
--------
to the provisions of section 14.12, 14.13, 14.14 or 14.15, nothing in this
subdivision (c) shall prevent the Company or any of its Subsidiaries from
selling, abandoning or otherwise disposing of any property (including any
lease of property) if in the reasonable judgment of the Company the same is
no longer used or materially useful in the business of the Company or such
Subsidiary;
(d) comply in all material respects with all applicable laws,
statutes, rules, regulations and orders of, and all applicable restrictions
imposed by, all governmental authorities in respect of the conduct of its
business and the ownership of its property (including, without limitation,
those relating to hazardous wastes or materials, environmental, safety and
other similar standards or controls) and all other obligations which it
incurs pursuant to any contract or agreement, whether oral or written,
express or implied, as such obligations become due; provided that neither
--------
the Company nor any of its Subsidiaries shall be required by reason of this
section 14.2(d) to comply therewith at any time while the Company or such
Subsidiary shall be contesting its obligation to do so in good faith by
appropriate proceedings or other appropriate actions promptly initiated and
diligently conducted, and if it shall have set aside on its books such
reserves, if any, with respect thereto as are required by generally
accepted accounting principles;
(e) engage primarily in the business, as now conducted after giving
effect to the Acquisition, of manufacturing, distributing and selling
electromechanical circuit protection devices, thermoprotectors, sensors and
electro/ceramic current limiters, heaters and resonators for the
automotive, appliance and lighting industries, substantially in the manner
described in the Disclosure Document; and
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<PAGE>
(f) possess and maintain all Proprietary Rights necessary to the
conduct of its business and own all right, title and interest in and to, or
have a valid license for, all Proprietary Rights used by it in the conduct
of its business and not take any action, or fail to take any action, which
would result in the invalidity, abuse, misuse or unenforceability of such
Proprietary Rights or which would infringe upon any Proprietary Rights of
another Person.
14.3. Insurance. In addition to complying with the requirements of the
---------
Security Documents relating to insurance matters, the Company will, and will
cause each of its Subsidiaries to, maintain with financially sound and reputable
insurers, insurance with respect to the properties and business of the Company
and its Subsidiaries against loss or damage of the kinds customarily insured
against by Persons of established reputation engaged in the same or a similar
business and similarly situated, in such amounts and by such methods as shall be
customary for such Persons and reasonably deemed adequate by the Company, except
that the Company or any of its Subsidiaries may effect workers' compensation or
similar insurance in respect of operations in any jurisdiction either through an
insurance fund operated by such jurisdiction or by causing to be maintained a
system or systems of self-insurance which is in accord with applicable laws and
good business practice.
14.4. Limitation on Discount or Sale of Receivables. The Company will
---------------------------------------------
not, and will not permit any Subsidiary of the Company to, directly or
indirectly, discount or sell, transfer, assign or otherwise dispose of with
recourse or sell, transfer, assign or otherwise dispose of for less than the
face value thereof (except to the Company or a Wholly-Owned Subsidiary of the
Company) any of its accounts receivable, except that the Company or any
Subsidiary of the Company may settle doubtful or contested accounts or sell
receivables without recourse in the ordinary course of business.
14.5. Limitation on Funded Debt and Current Debt. The Company will not,
------------------------------------------
and will not permit any Subsidiary of the Company to be liable, or create,
assume, incur, guarantee, or in any manner become liable, contingently or
otherwise, in respect of any Funded Debt or Current Debt other than:
(a) in the case of the Company:
(i) Funded Debt evidenced by the Notes and the Seller Note;
and
(ii) additional unsecured Funded Debt and/or unsecured Current
Debt not otherwise permitted under this section 14.5, provided that,
--------
both at the time of and immediately after giving effect to the
incurrence thereof and the retirement of any Indebtedness which is
concurrently being retired:
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<PAGE>
(A) no Default or Event of Default shall have occurred
and be continuing; and
(B) Consolidated Total Debt does not exceed 50% of the
sum of (1) Consolidated Capitalization and (2) Consolidated
- -
Current Debt; and
(C) the ratio of Consolidated Adjusted Net Income for the
four most recently completed fiscal quarters to Pro Forma Fixed
Charges is at least 2.0:1.0; and
(b) in the case of any Subsidiary of the Company:
(i) Funded Debt evidenced by the Note Guarantees; and
(ii) Funded Debt and/or Current Debt owing to the Company or a
Wholly-Owned Subsidiary of the Company, provided that such loan was
made by the Company or such other Subsidiary of the Company in
compliance with section 14.11;
For the purposes of this section 14.5, if at any time any Person shall
become a Subsidiary of the Company, such Subsidiary shall be deemed to have
become liable at such time in respect of all Funded Debt and/or Current Debt
which such Subsidiary shall have outstanding at such time. The renewal,
extension, refinancing or refunding of any Funded Debt and/or Current Debt
permitted by this section 14.5 shall constitute the issuance of additional
Funded Debt and/or Current Debt, as the case may be, which is, in turn, subject
to the limitation of the applicable provisions of this section 14.5.
The Company will not, and will not permit any Subsidiary of the Company to,
become obligated under any Guarantee (other than the Note Guarantees) unless as
of the date such Guarantee is entered into or otherwise created, assumed or
incurred, (x) the maximum amount which the Company or such Subsidiary may become
-
obligated to pay thereunder is then known and determined and (y) to the extent
-
such Guarantee constitutes Funded Debt or Current Debt, such Guarantee may then
be entered into or otherwise created, assumed or incurred in compliance with
this section 14.5.
14.6. Limitation on Restricted Payments; Prepayments on Seller Note.
-------------------------------------------------------------
(a) The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, make or commit to make any
Restricted Payment, unless:
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<PAGE>
(i) both at the time of and immediately after giving effect to
the proposed Restricted Payment: (A) no Default or Event of Default
-
shall have occurred and be continuing and (B) Consolidated Net Worth
-
shall exceed 50% of Consolidated Capitalization; and
(ii) on the date of declaration, in the case of any proposed
Restricted Payment consisting of a dividend, or on the date of
payment or distribution or of commitment therefor, whichever comes
first, in the case of any other proposed Restricted Payment (each
such date, as the case may be, being herein called the "Computation
Date"), and immediately after giving effect thereto, the aggregate
amount involved in all Restricted Payments declared, in the case of
dividends, and paid or distributed or committed for, in the case of
all other Restricted Payments, during the 12-month period to and
including the Computation Date does not exceed 50% of Consolidated
Net Income for the most recently completed fiscal year of the
Company, provided that nothing contained in this section 14.6(a)
shall prohibit the Company from paying dividends on the Preferred
Shares on the dates and in the amounts required by clause (b) of the
Designation of Preferred Shares or from redeeming Preferred Shares
at the times and in the number of Preferred Shares required by
clauses (d)(ii), (d)(iii) or (d)(iv) of the Designation of Preferred
Shares, but all amounts involved in such dividends and redemptions
shall be taken into account in subsequent computations of the
aggregate amount involved in all Restricted Payments.
(b) For the purposes of this section 14.6, the amount involved in
any Restricted Payment made or committed for in property (other than cash)
shall be the greater of (i) the fair market value of such property
-
(determined reasonably and in good faith by the Board of Directors of the
Company or by an independent appraiser properly qualified to appraise such
property, as evidenced by a certified resolution of such Board of Directors
or a written report of such appraiser promptly delivered to the holder or
holders of the Notes) and (ii) the net depreciated book value thereof on
--
the books of the Company or the applicable Subsidiary of the Company
(determined in accordance with generally accepted accounting principles) on
the date such Restricted Payment is made or committed for.
(c) The Company will not declare any dividend on any of its shares
which is payable more than 60 days after the date of the declaration
thereof.
(d) The Company will not permit any of its Subsidiaries to purchase
or otherwise acquire or own, or to make any payment in respect of, any
shares of the Company, or warrants, rights or options to acquire any such
shares, provided that
--------
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<PAGE>
nothing contained in this section 14.6(d) shall prohibit the Company from
redeeming Preferred Shares at the times and in the number of Preferred
Shares required by clauses (d)(ii), (d)(iii) or (d)(iv) of the Designation
of Preferred Shares.
(e) The Company will not, and will not permit any of its
Subsidiaries to (i) be or become bound by or subject to (or permit any of
-
its assets to be or become bound by or subject to) any charter or bylaw
provision or any other agreement, document or instrument (including,
without limitation, as a result of any amendment, modification or waiver of
any term of any agreement, document or instrument evidencing, securing or
relating to any Funded Debt and/or Current Debt of the Company or any of
its Subsidiaries) or (ii) engage in any transaction or arrangement, if the
--
effect thereof is to (or could reasonably be expected to):
(A) limit the amount of, or impose any restriction on the
declaration, payment or setting aside of funds for the making
of, any dividend or other distribution in respect of capital
stock by any Subsidiary of the Company which is payable to the
Company or to another Subsidiary of the Company;
(B) limit the amount of, or impose any restriction on the
payment of, or setting aside of funds for the making of any
payments in respect of any Indebtedness or other obligation
which is owed by any Subsidiary of the Company to the Company;
or
(C) limit the amount of, or impose any restriction on the
making of, any Investment by any Subsidiary of the Company in or
to the Company or another Subsidiary of the Company.
(f) The Company shall not, and shall not permit any
Subsidiary to, make any payment or prepayment in respect of the Seller Note
if such payment or prepayment is prohibited by the terms of the Seller Note
Subordination Agreement.
14.7. Current Ratio. The Company will at all times keep and maintain
-------------
Consolidated Current Assets in an amount at least equal to 150% of Consolidated
Current Liabilities.
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<PAGE>
14.8. Limitation on Rental Obligations on Long-Term Leases. The Company
----------------------------------------------------
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, become or be liable as lessee, sublessee or guarantor with respect
to any Long-Term Lease if, immediately after giving effect thereto, Rental
Obligations on Long-Term Leases of the Company and its Subsidiaries (on a
consolidated basis) during the current or any future period of twelve
consecutive months would exceed 3.5% of Consolidated Capitalization as at the
last day of the immediately preceding fiscal quarter.
14.9. Limitation on Liens.
-------------------
(a) The Company will not, and will not permit any Subsidiary of the
Company to, create, assume, incur or suffer to exist any Lien in respect of
any property of any character (including any interest in property leased as
lessee under any Capital Lease) of the Company or any Subsidiary of the
Company (whether owned on the date hereof or hereafter acquired) or give
its consent to the subordination of any right or claim of the Company or
any Subsidiary of the Company to any right or claim of any other Person;
provided that there shall be excluded from the operation of this
--------
section 14.9:
(i) Liens securing Indebtedness of any Subsidiary owing to the
Company or to a Wholly-Owned Subsidiary of the Company;
(ii) Liens (other than the Lien created by Section 4068 of
ERISA) for taxes or assessments or other governmental charges or
levies, to the extent that nonpayment thereof shall be permitted by
the proviso in section 14.2(a); pledges or deposits to secure
obligations under workers' compensation laws or similar legislation,
including Liens or judgments thereunder which are not at the time
dischargeable; pledges or deposits to secure performance in
connection with bids, tenders, contracts (other than contracts for
the payment of money) or leases made in the ordinary course of
business to which the Company or a Subsidiary is a party as lessee
(to the extent otherwise permitted by the terms of this Agreement);
deposits to secure public or statutory obligations of the Company or
a Subsidiary; materialmen's, mechanics', carriers', workers',
repairmen's or other like Liens arising in the ordinary course of
business (to the extent that such Liens are not required to be
discharged under section 14.2(a)), or deposits to obtain the release
of such Liens; deposits to secure or in lieu of surety, appeal or
customs bonds to which the Company or a Subsidiary is a party; Liens
created by or resulting from any litigation or legal proceeding
which is at the time being contested in good faith by appropriate
proceedings or other appropriate actions promptly initiated and
diligently conducted (to the extent that such Liens are not required
to be discharged under section
-60-
<PAGE>
14.2(a)); landlord's Liens (imposed by law) under leases to which
the Company or a Subsidiary is a party (to the extent otherwise
permitted by the terms of this Agreement); building or environmental
laws, zoning restrictions, easements, licenses, restrictions on the
use of real property or minor defects or irregularities in title
thereto which (individually and in the aggregate) do not, in the
reasonable good faith judgment of the Board of Directors of the
Company, materially impair the use of such property in the operation
of the business of the Company or a Subsidiary or the value of such
property for the purpose of such business; and other miscellaneous
Liens, charges and encumbrances which are incurred in the ordinary
course of business and which are incidental to the conduct of the
business of the Company and its Subsidiaries and the ownership of
its and their property, are not incurred in connection with the
borrowing of money or the obtaining of advances or credit and do not
in the aggregate materially detract from the value of the property
of the Company or its Subsidiaries or materially impair the use
thereof in the operation of its or their business;
(iii) any Lien existing on the date hereof and referred to on
Exhibit 5.9 attached hereto;
-----------
(iv) the extension, renewal or replacement of any Lien
permitted by clause (iii) of this section 14.9(a) which (A) is
-
confined to the same property subject thereto immediately prior to
such extension, renewal or replacement, (B) does not secure Funded
-
Debt or Current Debt in an aggregate amount greater than the amount
so secured immediately prior to such extension, renewal or
replacement and (C) only secures Funded Debt and/or Current Debt
-
permitted under section 14.5; and
(v) any Lien arising under any of the Security Documents.
(b) The Company will not permit any shares of capital stock or
securities of any of its Subsidiaries to be subject to any Lien, other than
those arising under the Security Documents.
(c) The Company will not, and will not permit any other Person to,
sign or file in any jurisdiction a financing statement or similar
instrument under the Uniform Commercial Code which names the Company or any
Subsidiary of the Company as debtor, except, in any such case, a financing
statement filed or to be filed to perfect or protect a Lien which the
Company or such Subsidiary is entitled to create, assume or incur, or
permit to exist under the foregoing provisions of this section 14.9 and
other than any financing statement filed as a precautionary notice filing
with respect to a lease.
-61-
<PAGE>
(d) If the Company shall create, assume or permit to exist any Lien
of any kind upon any of its property or assets, or the property or assets
of any of its Subsidiaries, whether now owned or hereafter acquired, other
than those permitted by the provisions of this section 14.9, it will make
or cause to be made effective provision whereby the Senior Notes will be
secured equally and ratably with any and all other Indebtedness thereby
secured so long as such other Indebtedness shall be so secured, but in no
event shall any such provision of security for the Senior Notes cure or be
deemed to be a waiver of any violation of or default under the foregoing
provisions of this section 14.9.
14.10. Limitation on Transactions with Affiliates. The Company will not,
------------------------------------------
and will not permit any Subsidiary of the Company to, engage in any transaction
with an Affiliate of the Company or of such Subsidiary (other than the Company
or a Wholly-Owned Subsidiary of the Company) on terms less favorable to the
Company or such Subsidiary in any material respect than would be obtainable at
the time in comparable transactions of the Company or such Subsidiary with a
Person not such an Affiliate, provided that nothing contained in this section
--------
14.10 shall prevent (a) the Company from paying principals of Hammond, Kennedy
-
who serve on the Board of Directors of the Company a fee of $15,000 per
principal per fiscal year, not to exceed $60,000 in the aggregate in any fiscal
year, or (b) the Company from paying management fees to Hammond, Kennedy up to
-
an aggregate amount in any fiscal year of the Company not to exceed $180,000,
provided that (i) no such management fees may be paid during the continuance of
- -------- -
any Event of Default arising under clauses (a), (b), (e), (f) or (g) of section
16.1, and (ii) no such management fees may be paid during the 180 day period
--
following the occurrence of any Event of Default arising under any other clause
of section 16.1 unless such Event of Default is cured or waived prior to the
expiration of such 180 day period, provided, further that any management fees
-------- -------
not so paid because of the operation of clause (i) or (ii) of this section 14.10
may be accrued during such period of nonpayment and may be paid at such time as
payment is not prohibited by either clause (i) or (ii) of this section 14.10
unless the payment of such accrued fees would result in the occurrence of a
Default or Event of Default.
14.11. Limitation on Investments. The Company will not, and will not
-------------------------
permit any of its Subsidiaries to, directly or indirectly, make or commit to
make any Investments other than Permitted Investments.
14.12. Limitation on Issuance of Shares of Subsidiaries; Disposition of
----------------------------------------------------------------
Shares and Indebtedness of Subsidiaries.
- ---------------------------------------
(a) The Company will not permit any Subsidiary of the Company to
issue, sell or otherwise dispose of any shares of such Subsidiary or any
securities convertible into or exercisable or exchangeable for or carrying
rights to subscribe
-62-
<PAGE>
for shares of such Subsidiary, except for the purpose of qualifying
directors or except to the Company or to a Wholly-Owned Subsidiary of the
Company which is a party to a Note Guarantee and all other applicable
Security Documents and all of whose properties and assets are subject to
valid and enforceable first priority perfected Liens in favor of the
holders of the Senior Notes. The Company will not, in any event, permit any
Subsidiary of the Company to have outstanding any Preferred Stock, other
than Preferred Stock owned by the Company or by such a Wholly-Owned
Subsidiary.
(b) The Company will not sell, transfer or otherwise dispose of any
shares of capital stock of any Subsidiary of the Company (except for the
purpose of qualifying directors) or any securities convertible into or
exercisable or exchangeable for or carrying rights to subscribe for such
shares of capital stock or any Indebtedness of any Subsidiary of the
Company, or permit any Subsidiary of the Company to sell, transfer or
otherwise dispose of (except to the Company or to such a Wholly-Owned
Subsidiary or for the purpose of qualifying directors) any shares of
capital stock, securities or any Indebtedness of any other Subsidiary of
the Company unless such disposition shall be made in compliance with
section 14.15, if applicable, and unless each of the following conditions
shall be complied with:
(i) simultaneously with such disposition, all such shares,
securities and all Indebtedness of such Subsidiary at the time owned
by the Company and by every other Subsidiary of the Company shall be
disposed of as an entirety;
(ii) the Board of Directors of the Company shall have
reasonably determined in good faith, as evidenced by a written
resolution thereof promptly delivered to the holders of the Notes,
that the retention of such shares, securities and Indebtedness is no
longer in the best interests of the Company and the disposition
thereof is not disadvantageous in any material respect to the
holders of the Notes and that such shares, securities and
Indebtedness are being disposed of for fair and adequate cash
consideration and on fair and adequate terms;
(iii) following such disposition, the Subsidiary being disposed
of shall not have any continuing investment in the Company or any
other Subsidiary not being simultaneously disposed of; and
(iv) both at the time of and immediately after giving effect to
such disposition, no Default or Event of Default shall have occurred
and be continuing.
-63-
<PAGE>
14.13. Limitation on Subsidiary's Consolidation, Merger or Disposition of
------------------------------------------------------------------
Property.
- --------
(a) The Company will not permit any Subsidiary of the Company to
consolidate with or merge into any other Person other than the Company or a
Wholly-Owned Subsidiary of the Company which is a party to a Note Guarantee
and all other applicable Security Documents and all of whose properties and
assets are subject to valid and enforceable first priority perfected Liens
in favor of the holders of the Senior Notes.
(b) The Company will not permit any Subsidiary to sell, lease or
otherwise dispose of its properties as an entirety or substantially as an
entirety, in one transaction or a series of transactions (except to the
Company or to a Wholly-Owned Subsidiary which is a party to a Note
Guarantee and all other applicable Security Documents and all of whose
properties and assets are subject to valid and enforceable first priority
perfected Liens in favor of the holders of the Senior Notes), unless (i)
-
both at the time of and immediately after giving effect to such disposition
no Default or Event of Default shall have occurred and be continuing, (ii)
--
such disposition shall be made in compliance with section 14.15, if
applicable, and (iii) each of the following conditions shall be complied
---
with:
(A) the Board of Directors of the Company shall have
reasonably determined in good faith, as evidenced by a written
resolution thereof promptly delivered to the holder or holders
of the Notes, that the retention of such properties is no longer
in the best interests of the Company and the disposition thereof
is not disadvantageous in any material respect to the holders of
the Notes and that such properties are disposed of for fair and
adequate cash consideration and on fair and adequate terms; and
(B) if such properties shall include any shares, securities
or any Indebtedness of any other Subsidiary or of the Company,
the disposition thereof shall have been made in compliance with
section 14.12.
14.14. Limitation on Company's Consolidation or Merger. The Company will
-----------------------------------------------
not consolidate with or merge into any other Person, or permit any other Person
to consolidate with or merge into it, except that a Wholly-Owned Subsidiary of
the Company may be merged into the Company, provided that:
--------
(a) the Company is the surviving corporation from such merger, is
(both at the time of and immediately after giving effect to such
transaction)
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<PAGE>
Solvent and organized under the laws of and conducts substantially all of
its business in the United States of America or a state thereof or the
District of Columbia (except to the extent the Company's operations are
conducted in the Dominican Republic prior to giving effect to such merger);
(b) the Company shall expressly reaffirm the due and punctual
performance and observance of all of the terms, covenants, agreements and
conditions of this Agreement and each of the other Operative Documents to
which it is a party, including, without limitation, all of the Security
Documents to which such Wholly-Owned Subsidiary was a party;
(c) both at the time of and immediately after giving effect to such
transaction, (i) no Default or Event of Default shall have occurred and be
-
continuing and (ii) the Company shall be permitted to become liable in
--
respect of at least $1 additional Funded Debt under section 14.5(a)(ii);
and
(d) the holders of the Securities at the time outstanding shall have
received, from counsel satisfactory to the Required Holders of each class
of Securities at the time outstanding, an opinion, satisfactory in
substance and form to such holders, to the effect that, after giving effect
to the consummation of such merger, this Agreement and each of the other
Operative Documents are valid and binding obligations of the Company and
each of its Subsidiaries, as applicable, enforceable against them in
accordance with their respective terms, and to such other effects and
covering such other matters as any such holder may reasonably request.
14.15. Additional Limitation on Disposition of Property.
------------------------------------------------
(a) The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, sell, lease or otherwise dispose
of any of its respective properties (including, without limitation, shares
of capital stock, securities or Indebtedness of its Subsidiaries) unless:
(i) such properties are sold for cash consideration in an
amount equal to the fair market value thereof (determined reasonably
and in good faith by the Board of Directors of the Company or by an
independent appraiser properly qualified to appraise such property,
as evidenced by a certified resolution of such Board of Directors or
a written report of such appraiser promptly delivered to the holder
or holders of the Notes); and
(ii) on the date of such disposition and after giving effect
thereto:
-65-
<PAGE>
(A) no Default or Event of Default shall have occurred and
be continuing; and
(B) the aggregate fair market value of all properties
disposed of by the Company and its Subsidiaries since the
beginning of the then current fiscal year of the Company is less
than 15% of Consolidated Total Assets as at the end of the
immediately preceding fiscal year of the Company.
(b) A disposition of property shall be disregarded for purposes of
this section 14.15 if:
(i) made in the ordinary course of business and on arm's-
length terms, including, without limitation, the replacement of
obsolete property and equipment; or
(ii) made by any Subsidiary to the Company or to a Wholly-Owned
Subsidiary of the Company which is a party to a Note Guarantee and
all other applicable Security Documents and all of whose properties
and assets are subject to valid and enforceable first priority
perfected Liens in favor of the holders of the Senior Notes.
(c) Upon the written request (and at the expense) of the Company,
the holders of the Senior Notes will release from the Liens created by the
Security Documents properties disposed of in accordance with the foregoing
section 14.15.
(d) Notwithstanding anything to the contrary set forth in this
section 14.15, the Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, sell, lease or otherwise dispose
of (a) the Premises (as defined in the Standish Mortgage) (or any portion
-
thereof or right with respect thereto) or (b) the leasehold interest
-
subject to the Lien of the Dominican Republic Security Instruments (or any
portion thereof or right with respect thereto).
14.16. ERISA Compliance.
----------------
(a) The Company will make, and will cause each ERISA Affiliate to
make, all payments or contributions to Employee Benefit Plans and
Multiemployer Plans required to be made by the Company and/or any ERISA
Affiliate under the terms thereof and in accordance with the funding
requirements applicable to such plans under ERISA and the Code and
applicable collective bargaining agreements. The Company will cause all
Employee Benefit Plans to be maintained in material
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<PAGE>
compliance with ERISA and the Code and, if applicable, to maintain the
qualified status of each Employee Benefit Plan under the Code. The Company
will not engage in any "prohibited transaction" described in section 406 of
ERISA or section 4975 of the Code for which an exemption is not available.
The Company will not permit (i) any Termination Event, (ii) any partial or
- --
complete withdrawal from any Multiemployer Plan or (iii) any insolvency,
---
reorganization or termination of a Multiemployer Plan to occur where 30
days after the Company shall have acquired knowledge thereof, the liability
of the Company or any ERISA Affiliate relating thereto has resulted in, or
could reasonably be expected to result in, a Material Adverse Change.
(b) The Company will promptly notify each holder of any of the Notes
of any Termination Event or of any partial or complete withdrawal from any
Multiemployer Plan or upon learning of any insolvency, reorganization
status or termination of a Multiemployer Plan if, in any such case, it has
resulted in, or could reasonably be expected to result in, a Material
Adverse Change.
14.17. Limitation on Leasebacks. The Company will not, and will not permit
------------------------
any Subsidiary of the Company to, directly or indirectly, sell or otherwise
dispose of (except to the Company or to a Wholly-Owned Subsidiary of the Company
which is a party to a Note Guarantee and all other applicable Security Documents
and all of whose properties and assets are subject to valid and enforceable
first priority perfected Liens in favor of the holders of the Senior Notes) any
of its property if, as part of the same transaction or series of related
transactions, the Company or any Subsidiary of the Company shall then or
thereafter rent or lease as lessee, or similarly acquire the right to possession
or use of, such property (or a major portion thereof), or other property which
it intends to use for substantially the same purpose or purposes, under any
lease, agreement or other arrangement which obligates the Company or any
Subsidiary of the Company to pay rent as lessee or make any other payments for
such possession or use.
14.18. Modification of Certain Documents, Agreements and Instruments.
-------------------------------------------------------------
The Company will not and will not permit any Subsidiary to (a) amend, modify or
waive, or permit the amendment, modification or waiver of, any term, condition
or provision of (i) any of the agreements referred to in section 4.3 (other
-
than the Seller Note) in a manner which would be adverse to the interests of
any holder of any Note, or (ii) the Seller Note, or (iii) its charter or
-- ---
by-laws in a manner which would be adverse to the interests of any holder of
any Security, or (b) file any resolution of the Board of Directors with the
-
Secretary of State of the jurisdiction of its incorporation in a manner which
would be adverse to the interests of any holder of any Security, provided
--------
that the Company may file resolutions to establish the terms of new series of
Preferred Stock if the Company has obtained any requisite approval of the
holders of the Preferred Shares required under the Designation of Preferred
Shares, or (c) change its fiscal year.
-
-67-
<PAGE>
14.19. Limitation on Tax Consolidation. The Company will not and will not
-------------------------------
permit any Subsidiary to become a party to a consolidated federal income tax
return with any Person other than the Company and its Subsidiaries.
14.20. Further Assurances.
------------------
(a) From time to time hereafter, the Company will execute and
deliver, or will cause to be executed and delivered, such additional
agreements, documents and instruments and will take all such other actions
as (i) any holder or holders of the Senior Notes may reasonably request for
-
the purpose of implementing or effectuating the provisions of the Security
Documents and the other Operative Documents or for more fully perfecting or
renewing the rights of such holders with respect to the Collateral pursuant
thereto or (ii) any holder of the Subordinated Notes may reasonably request
--
for the purpose of implementing or effectuating the provisions of the
Operative Documents (other than the Security Documents). Upon the exercise
by any holder or holders of the Notes of any power, right, privilege or
remedy pursuant to any of the Operative Documents which requires any
consent, approval or authorization of, or declaration or filing with any
other Person, including, without limitation, any governmental authority,
the Company will execute and deliver, or will cause the execution and
delivery of, all such agreements, documents and instruments that any holder
or holders of the Notes may reasonably request in connection therewith. The
Company, on behalf of itself and on behalf of each of its Subsidiaries,
hereby irrevocably appoints each holder of any Notes as its attorney-in-
fact (such appointment being coupled with an interest and irrevocable) and
authorizes any such Person in the name of the Company or any of its
Subsidiaries or in the name of such holder, upon any failure of the Company
to take the action described above in this section 14.20, to execute and to
file and record, if necessary, from time to time any agreement, document or
instrument and to take any other action which any such Person may
reasonably deem necessary or appropriate for the purpose of implementing or
effectuating the provisions of any of the Operative Documents.
(b) Without limiting the generality of the foregoing, in the event
that the Company or any of its Subsidiaries shall at any time or from time
to time (i) organize or acquire any Subsidiary or (ii) acquire, own or
- --
lease any additional real property (if such real property or leasehold
interest shall have a fair market value of $250,000 or more, determined
reasonably and in good faith by the Board of Directors of the Company or by
an independent appraiser properly qualified to appraise such property, as
evidenced by a certified resolution of such Board of Directors or a written
report of such appraiser promptly delivered to the holder or holders of the
Notes), then in each such case the Company will notify each holder of the
Notes and will promptly execute and deliver, or cause to be executed
-68-
<PAGE>
and delivered, to the holder or holders of the Notes such additional
Security Documents, including, without limitation, a Note Guarantee,
Security Agreement and one or more Mortgages from each such new Subsidiary,
as well as such other agreements, documents and instruments (including,
without limitation, certificates evidencing shares of such new Subsidiary
(with stock powers executed in blank)) as any such holder may reasonably
request. All such agreements, documents and instruments shall be
satisfactory in form and substance the holder or holders of the Notes.
15. Definitions. Note: Bracketed items are cross-references to the section
-----------
or sections of this Agreement in which the specified definitions are used; they
appear for purpose of convenience only and do not affect the meaning of such
definitions.
15.1. Definitions of Capitalized Terms. The terms defined in this
--------------------------------
section 15.1, whenever used in this Agreement, shall, unless the context
otherwise requires, have the following respective meanings:
"Acquired Assets" shall have the meaning specified in section 4.3.
-------- ------
"Acquired Business" shall have the meaning specified in section 4.3.
-------- --------
"Acquisition", "Acquisition Agreement" and "Acquisition Documents" shall
----------- ----------- --------- ----------- ---------
have the respective meanings specified in section 4.3.
"Adjusted Net Income" of any Person shall mean, for any period, the Net
-------- --- ------
Income of such Person for such period after restoring thereto amounts deducted
for (a) Interest Charges, and (b) taxes in respect of income and profits, in
- -
each case determined in accordance with generally accepted accounting
principles.
"Affiliate" of any Person shall mean any other Person which, directly or
---------
indirectly, controls or is controlled by or is under common control with such
first-mentioned Person, or any individual, in the case of a Person who is an
individual, who has a relationship by blood, marriage or adoption to such first-
mentioned Person not more remote than first cousin, and, without limiting the
generality of the foregoing, shall include (a) any Person beneficially owning or
-
holding 10% or more of any class of Voting Stock of such first-mentioned Person,
(b) any Person of which such first-mentioned Person owns or holds 10% or more of
-
any class of Voting Stock or (c) any director, officer or executive employee of
such first-mentioned Person (other than any director designated by you or the
Other Purchasers); provided that, in the absence of actual control, the term
--------
Affiliate shall in no event include any financial institution which would
otherwise be an Affiliate by virtue of its ownership of a class of Voting Stock
of the Company and provided, further, that in no event shall you or any other
-------- -------
institutional holder of Securities be
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<PAGE>
deemed to be an Affiliate of the Company. For the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlled by"
------- ---------- --
and "under common control with"), as used with respect to any Person, shall mean
----- ------ ------- ----
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of Voting Stock or by contract or otherwise; provided that the fact
--------
that a Person may be a member of the Board of Directors (or other governing
body) or an officer or employee of such Person shall not by itself be a
presumption of control, and provided, further, that in no event shall the fact
-------- -------
that a Person is a holder of Indebtedness of such Person be considered to enable
such Person to direct or cause the direction of the management and policies of
such Person.
"Assumed Liabilities" shall have the meaning specified in section 4.3.
-------------------
"Bankruptcy Code" shall have the meaning specified in section 10.1.
---------- ----
"Blockage Period" shall have the meaning specified in section 10.4.
-------- ------
"Business Day" shall mean any day other than a Saturday, Sunday or other
-------- ---
day which shall be in Boston, Massachusetts, or New York, New York, a legal
holiday or a day on which banking institutions therein are authorized by law to
close.
"Buy-Sell Agreement" shall have the meaning specified in section 4.3.
-------- ---------
"Capital Lease" shall mean any lease or similar arrangement which is of
------- -----
such a nature that payment obligations of the lessee or obligor thereunder are
required to be capitalized and shown as liabilities upon a balance sheet of such
lessee or obligor prepared in accordance with generally accepted accounting
principles or for which the amount of the asset and liability thereunder as if
so capitalized should be disclosed in a note to such balance sheet.
"Capitalization" of any Person shall mean, at any date, the sum, as at such
--------------
date, of (a) the Funded Debt of such Person and (b) the Net Worth of such
- -
Person.
"Change of Control" shall have the meaning specified in section 9.7.
------ -- -------
"Class A Common Shares, "Class B Series 1 Common Shares", and "Class B
----- - ------ ------ ---------------- ------ ------ -----
Series 2 Common Shares" shall have the respective meanings specified in section
- ------ - ------ ------
5.5.
"Closing" shall have the meaning specified in section 3.
-------
"Closing Date" shall have the meaning specified in section 3.
------------
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<PAGE>
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
----
to time.
"Collateral" shall have the meaning specified in section 1.
----------
"Commission" shall mean the Securities and Exchange Commission or any other
----------
federal agency from time to time administering the Securities Act and/or the
Exchange Act.
"Common Shares" shall mean the Class A Common Shares, the Class B Series 1
------ ------
Common Shares, and the Class B Series 2 Common Shares of the Company as
constituted on the Closing Date and any stock into which such Common Shares
shall have been changed or any stock resulting from any reclassification of such
Common Shares.
"Company" shall mean Control Devices, Inc., an Indiana corporation, and any
-------
successor corporation.
"compliance" shall have the meaning specified in section 11.1.
----------
"Computation Date" shall have the meaning specified in section 14.6.
----------- ----
"Consolidated Adjusted Net Income", "Consolidated Capitalization",
------------ -------- --- ------ ------------ --------------
"Consolidated Current Assets", "Consolidated Current Debt", "Consolidated
- ------------- ------- ------ ------------ ------- ---- ------------
Current Liabilities", "Consolidated Net Income", "Consolidated Net Worth",
- ------- ----------- ------------ --- ------ ------------ --- -----
"Consolidated Total Assets" and "Consolidated Total Debt" shall mean the
- ------------- ----- ------ ------------ ----- ----
Adjusted Net Income, Capitalization, Current Assets, Current Debt, Current
Liabilities, Net Income, Net Worth, Total Assets and Total Debt, as the case may
be, of the Company and its Subsidiaries (whether or not ordinarily consolidated
in consolidated financial statements of the Company and Subsidiaries), all
consolidated in accordance with generally accepted accounting principles, and
after giving appropriate effect to outside minority interests, if any, in
Subsidiaries, provided that (a) in determining Consolidated Adjusted Net Income
-------- -
and Consolidated Net Income there shall be excluded (i) the Net Income of any
-
Person (other than a Subsidiary of the Company) in which the Company or any
Subsidiary of the Company has an ownership interest, except to the extent that
any such Net Income has been actually received by the Company or such Subsidiary
in the form of dividends or similar distributions, (ii) any undistributed Net
--
Income of a Subsidiary of the Company which for any reason is unavailable for
distribution to the Company or any other Subsidiary of the Company, (iii) the
---
Net Income of any Person accrued prior to the date it becomes a Subsidiary of
the Company or is merged into or consolidated with the Company or a Subsidiary
of the Company, (iv) in the case of a successor to the Company by consolidation,
--
merger or transfer of assets, the Net Income of such successor accrued prior to
such consolidation, merger or transfer, and
-71-
<PAGE>
(v) any deferred or other credit representing the excess of the equity in any
-
Subsidiary of the Company at the date of acquisition thereof over the cost of
the investment in such Subsidiary, and (b) in determining Consolidated Net Worth
-
no amount shall be included therein on account of (i) any excess cost of
-
acquisition of shares of any Subsidiary of the Company over the book value of
the assets of such Subsidiary attributable to such shares on the books of such
Subsidiary at the date of acquisition of such shares or (ii) any excess of the
--
book value of the assets of such Subsidiary attributable to such assets at the
date of such acquisition over the cost of acquisition of such assets, other than
any such excess attributable to the Acquisition.
"Covenant Default" shall have the meaning specified in section 10.4.
-------- -------
"Current Assets" of any Person shall mean, at any date, all assets of such
------- ------
Person which would, in accordance with generally accepted accounting principles,
be classified as current assets at such date.
"Current Debt" of any Person shall mean, at any date, (a) all Indebtedness
------- ---- -
for borrowed money or in respect of Capital Leases or the deferred purchase
price of property, whether or not interest bearing, of such Person at such date
which would, in accordance with generally accepted accounting principles, be
classified as short-term Indebtedness at such date, but specifically excluding
the current maturities of such Person's Funded Debt and (b) all Guarantees by
-
such Person at such date of Current Debt of others.
"Current Liabilities" of any Person shall mean, at any date, all
------- -----------
Indebtedness of such Person which would, in accordance with generally accepted
accounting principles, be classified as current liabilities at such date.
"Default" shall mean any condition or event which constitutes or, after
-------
notice or lapse of time or both, would constitute an Event of Default.
"Designation of Preferred Shares" shall mean Section F of Article III of
----------- -- --------- ------
the Restated Articles of Incorporation of the Company as in effect on the
Closing Date.
"Disclosure Document" shall have the meaning specified in section 5.4.
---------- --------
"Dominican Republic Security Instrument" and "Dominican Republic Security
--------- -------- ------------------- --------- -------- --------
Instruments"shall have the respective meanings specified in section 1.
- -----------
"DOTC" shall have the meaning specified in section 4.3.
----
-72-
<PAGE>
"Employee Benefit Plan" shall mean an "employee benefit plan" as defined in
-------- ------- ----
section 3(3) of ERISA maintained for employees of the Company or any ERISA
Affiliate, or in which any such employees participate, other than a
Multiemployer Plan.
"Employee Transfer Agreement" shall have the meaning specified in section
---------------------------
4.3.
"Environmental Agreement" shall have the meaning specified in section 4.3.
-----------------------
"Equity Securities" shall have the meaning specified in section 13(b).
------ ----------
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and the regulations and rulings thereunder.
"ERISA Affiliate" shall mean each trade or business (whether or not
----- ---------
incorporated) that, together with the Company, would be treated as a single
employer under section 4001(b) of ERISA, or that is a member of a group of which
the Company is a member and that is a controlled group within the meaning of
section 4971(e)(2)(B) of the Code.
"Event of Default" shall have the meaning specified in section 16.1.
----- -- -------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
-------- ---
or any successor federal statute, and the rules and regulations of the
Commission promulgated thereunder, all as the same shall be in effect from time
to time.
"Expiration Date" shall have the meaning specified in section 12.2.
---------- ----
"Exporter License" shall have the meaning specified in section 4.8.
-------- -------
"Facility Fee" shall have the meaning specified in section 12.5.
-------- ---
"Fixed Charges" of any Person shall mean, for any period, the sum (without
----- -------
duplication of amounts) of all Rental Obligations (other than Rental Obligations
on Capital Leases) and all Interest Charges paid, payable or guaranteed during
such period by such Person, determined in accordance with generally accepted
accounting principles.
"Funded Debt" of any Person shall mean, at any date, (a) all Indebtedness
------ ---- -
for borrowed money or in respect of Capital Leases or the deferred purchase
price of property, whether or not interest-bearing, of such Person which would,
in accordance with generally accepted accounting principles, be classified as
long-term Indebtedness at such date, but in any event including all such
Indebtedness, whether secured or unsecured, of such Person which matures (or
which, pursuant to the terms of a revolving credit agreement or otherwise, is
directly or indirectly renewable or extendible at the option of
-73-
<PAGE>
such Person for a period ending) more than one year after the date of the
creation thereof, notwithstanding the fact that payments in respect thereof
(whether installment, serial maturity or sinking fund payments or otherwise) are
required to be made by such Person not more than one year after the date as of
which the amount of Funded Debt is being determined, other than any amount
thereof which is at the time included in Current Debt of such Person and (b) all
-
Guarantees by such Person at such date of Funded Debt of others.
"Guarantee" of any Person shall mean, at any date, any obligation of such
---------
Person at such date guaranteeing, directly or indirectly, any Indebtedness,
liability or other obligation of any other Person in any manner, but in any
event including all endorsements (other than for collection or deposit in the
ordinary course of business), all discounts with recourse and all obligations
incurred through an agreement, contingent or otherwise, (a) to purchase the
-
obligations of any other Person or any security therefor or to advance or supply
funds for the payment or purchase of such obligations, or (b) to purchase, sell
-
or lease (as lessee or lessor) property, products, materials or supplies or to
purchase or sell transportation or services, primarily for the purpose of
enabling the obligor to make payment of such obligations or to assure the owner
of such obligations against loss, regardless of the delivery or non-delivery of
the property, products, materials or supplies or the furnishing or nonfurnishing
of the transportation or services, or (c) to provide funds for the payment of,
-
or obligating such Person to make, any loan, advance, capital contribution or
other investment in the obligor for the purpose of assuring a minimum equity,
asset base, working capital or other balance sheet condition for any date or to
provide funds for the payment of any obligation, dividend or stock liquidation
payment, or otherwise to supply funds to or in any manner invest in the obligor.
The amount of any Guarantee shall be equal to the amount of all Indebtedness,
liabilities and other obligations directly or indirectly guaranteed thereby.
"GTE Connecticut" shall have the meaning specified in section 4.3.
---------------
"GTE Control" shall have the meaning specified in section 4.3.
-----------
"Hammond, Kennedy" shall have the meaning specified in section 9.7.
----------------
"Holder" or "Holders" shall have the meanings specified in section 11.1.
------ -------
"Indebtedness" of any Person shall mean, at any date, all indebtedness,
------------
liabilities and other obligations of such Person at such date (other than items
of shareholders' equity) which would, in accordance with generally accepted
accounting principles, be classified as liabilities of such Person, but in any
event including (without duplication):
(a) all Guarantees of such Person;
-74-
<PAGE>
(b) all indebtedness, liabilities and other obligations secured by
any mortgage, lien, pledge, charge, security interest or other encumbrance
in respect of property owned by such Person, whether or not such Person has
assumed or become liable for the payment of such obligations;
(c) all indebtedness, liabilities and other obligations of such
Person arising under any conditional sale or other title retention
agreement, whether or not the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession or
sale of such property;
(d) the amount of the obligation required to be recorded by the
lessee in respect of any Capital Lease under which such Person is lessee;
and
(e) all indebtedness, liabilities and other obligations arising in
connection with letters of credit, bankers acceptances or other credit
enhancement facilities.
"Indemnified Costs" and "Indemnitee" shall have the respective meanings
----------- ----- ----------
specified in section 22.
"Indemnified Person" shall have the meaning specified in section 11.6.
----------- ------
"Institutional Investors" shall have the meaning specified in section
------------- ---------
13(b).
"Interest Charges" of any Person shall mean, for any period, the aggregate
-------- -------
amount of all interest paid, payable or guaranteed during such period by such
Person in respect of Funded Debt and Current Debt, including, without
limitation, Rental Obligations on Capital Leases, determined in accordance with
generally accepted accounting principles.
"Investment" shall mean any investment made by stock purchase, capital
----------
contribution, loan, advance, acquisition of Indebtedness, Guarantee or
otherwise.
"Leasehold Mortgage" and "Leasehold Mortgages" shall have the meanings
--------- -------- --------- ---------
specified in section 1(d).
"Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, lien (statutory or otherwise), preference, priority, security
interest, chattel mortgage or other charge or encumbrance of any kind, or any
other type of preferential arrangement, including, without limitation, the lien
or retained security title of a conditional vendor and any easement, right of
way or other encumbrance on title to real property and any lease having
substantially the same effect as any of the foregoing.
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<PAGE>
"Long-Term Lease" shall mean any lease of property (whether real, personal
--------- -----
or mixed), other than a Capital Lease, having an original term (including terms
of renewal or extension at the option of the lessor or the lessee (or
sublessee)), exceeding three years.
"Make Whole Amount" shall mean, at any date, with respect to any prepayment
---- ----- ------
or payment (whether on account of acceleration or otherwise) of any Senior Fixed
Rate Notes or Subordinated Notes, if the Treasury Rate plus 150 basis points at
such date is lower than (a) 10% per annum, in the case of any prepayment or
-
payment of the Senior Fixed Rate Notes, or (b) 11% per annum, in the case of any
-
prepayment or payment of the Subordinated Notes, the excess of (x) the present
-
value of the principal and interest payments on and in respect of the Notes
being prepaid or paid, as the case may be, that would otherwise become due and
payable (without giving effect to such prepayment or payment) (including the
final payment on the maturity date of the Notes), discounted at a rate which is
equal to the Treasury Rate plus 150 basis points over (y) the principal amount
-
of the Notes being prepaid or paid, as the case may be, at par. If the Treasury
Rate plus 150 basis points at the date of such prepayment or payment is equal to
or higher than (i) 10% per annum, in the case of any prepayment or payment of
-
the Senior Fixed Rate Notes or (ii) 11% per annum, in the case of any
--
prepayment or payment of the Subordinated Notes, the Make Whole Amount as
applied to such class of Notes is zero.
"Material Adverse Change" shall mean a material adverse change in or effect
-------- ------- ------
upon any of (a) the condition (financial or otherwise), business, performance,
-
operations, properties, profits or prospects of the Company or any of its
Subsidiaries or the Company and its Subsidiaries taken as one enterprise, (b)
-
the legality, validity or enforceability of this Agreement, the Securities or
any of the other Operative Documents including, without limitation, the
validity, enforceability, perfection and priority of any Liens created by the
Security Documents; (c) the rights and remedies of any holder of Securities with
-
respect thereto, or (d) the ability of the Company or any of its Subsidiaries to
-
perform its obligations under any of the Operative Documents and/or to comply
with any of the terms thereof applicable to it.
"Mortgage" and "Mortgages" shall have the meanings specified in section
-------- ---------
1(d).
"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 on or after
January 1, 1980, made or accrued an obligation to make contributions.
"Multiple Employer Plan" shall mean each plan which is subject to Title IV
-------- -------- ----
of ERISA to which the Company or any ERISA Affiliate and more than one employer
other
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<PAGE>
than the Company or any ERISA Affiliate is making or accruing an obligation to
make contributions, has within any of the preceding five plan fiscal years made
or accrued an obligation to make contributions or, in the event that any such
plan has been terminated, to which the Company or any ERISA Affiliate made or
accrued an obligation to make contributions during any of the five plan fiscal
years preceding the date of termination of such plan.
"Net Income" of any Person shall mean for any period the net income (or net
--- ------
deficit), excluding all extraordinary, unusual, nonrecurring and/or nonoperating
items, of such Person for such period, determined in accordance with generally
accepted accounting principles.
"Net Worth" of any Person shall mean, at any date, the sum of (a) the
--- ----- -
capital stock (excluding treasury stock and capital stock subscribed and
unissued) and (b) surplus (including retained earnings, additional paid-in
-
capital and the balance of the current profit and loss account not transferred
to surplus) of such Person at such date, determined in accordance with generally
accepted accounting principles.
"Note Guarantees" shall have the meaning specified in section 1.
---- ----------
"Notes" shall have the meaning specified in section 1.
-----
"Notice of Issue" shall have the meaning specified in section 13(b).
------ -- -----
"Officers' Certificate" shall mean a certificate signed on behalf of the
--------- -----------
Company by its President or one of its Vice Presidents and its Treasurer or one
of its Assistant Treasurers.
"Operational License" shall have the meaning specified in section 4.8.
-------------------
"Operative Documents" shall mean this Agreement, the Other Securities
--------- ---------
Purchase Agreements, the Securities, the Security Documents, the Seller Note
Subordination Agreement, the Acquisition Documents, the Buy-Sell Agreement and
each of the other agreements, documents and instruments executed in connection
herewith and therewith, each as it may from time to time be amended, modified or
supplemented.
"Original Directors" shall have the meaning specified in section 9.7.
------------------
"Other Securities Purchase Agreements" and "Other Purchasers" shall have
----- ---------- -------- ---------- ----- ----------
the respective meanings specified in section 1.
"Payment Default" shall have the meaning specified in section 10.4.
------- -------
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<PAGE>
"PBGC" shall mean the Pension Benefit Guaranty Corporation, and shall also
----
mean any successor thereto.
"Pension Plan" shall mean a plan (other than a Multiemployer Plan) subject
------- ----
to Title IV of ERISA or an individual account plan which is subject to the
funding standards of Section 302 of ERISA with respect to which the Company or
any ERISA Affiliate has an obligation to contribute.
"Percentage" shall have the meaning specified in section 12.1.
----------
"Permissible Securities" shall have the meaning specified in section 10.1.
----------- ----------
"Permitted Investment" shall mean any of the following Investments:
--------- ----------
(a) Investments by the Company or by any Subsidiary of the Company
in any Wholly-Owned Subsidiary of the Company (or in any Person which
simultaneously therewith becomes a Wholly-Owned Subsidiary of the Company)
made by stock purchase, capital contribution, loan or advance, provided
--------
that (i) both at the time of and immediately after giving effect to any
-
such Investment, no Default or Event of Default shall have occurred and be
continuing and (ii) all such Investments are made only in Solvent entities
--
(A) which are organized under the laws of and conduct substantially all of
-
their respective businesses in the United States of America or a state
thereof or the District of Columbia or Canada or any province thereof; (B)
-
whose lines of business are not materially different from those in which
the Company and its Subsidiaries are now engaged; (C) which are parties to
-
Note Guarantees and all other applicable Security Documents; and (D) all
-
of whose properties and assets are subject to valid and enforceable first
priority perfected Liens in favor of the holders of the Senior Notes;
(b) Investments by any Subsidiary of the Company in the Company;
(c) readily marketable obligations (having a maturity not in excess
of 12 months from the date of acquisition thereof) of, or fully and
unconditionally guaranteed (as to both principal and interest) by, the
United States of America or an agency thereof;
(d) negotiable certificates of deposit (having a maturity not in
excess of 12 months from the date of acquisition thereof) evidencing
direct obligations of any federally insured commercial bank or trust
company organized and operating in the United States of America having
capital and surplus and undivided profits of at least $100,000,000 and
having the highest or second highest rating available
-78-
<PAGE>
from Moody's Investors Service, Inc., Standard & Poor's Corporation or
Fitch Investors Service;
(e) shares of so-called "money market funds" registered under the
Investment Company Act of 1940, as amended, organized and operating in the
United States of America, having total net assets of $500,000,000 or more
and investing primarily in securities of the character described in the
preceding clauses (d) and (e) of this definition;
(f) accounts receivable arising from transactions in the ordinary
course of business; contingent liabilities represented by endorsements of
negotiable instruments for collection or deposit in the ordinary course of
business; advances, deposits, down payments and prepayments on account of
firm purchase orders made in the ordinary course of business;
(g) Investments made after the date hereof not otherwise permitted
by the preceding clauses (a) through (f) of this definition, provided that
--------
(i) all such Investments are made only in Solvent entities (A) which are
- -
organized under the laws of and conduct substantially all of their
respective businesses in the United States of America or a state thereof
or the District of Columbia or Canada or any province thereof and (B)
-
whose lines of business are not materially different from those in which
the Company and its Subsidiaries are now engaged and (ii) both at the time
--
of and immediately after giving effect to any such Investment, (A) no
-
Default or Event of Default shall have occurred and be continuing and (B)
-
the aggregate amount involved in all Investments outstanding at any given
time under this clause (g) shall not exceed 15% of Consolidated Total
Assets as at the end of the immediately preceding fiscal year of the
Company; and
(h) Investments made after the date hereof not otherwise permitted
by the preceding clauses (a) through (g) of this definition, provided that
--------
both at the time of and immediately after giving effect to any such
Investment, (i) no Default or Event of Default shall have occurred and be
-
continuing and (ii) the aggregate amount involved in all Investments
--
outstanding at any given time under this clause (h) shall not exceed
$250,000.
"Person" shall mean an individual, a corporation, an association, a joint-
------
stock company, a business trust or other similar organization, a partnership, a
joint venture, a trust, an unincorporated organization or a government or any
agency, instrumentality or political subdivision thereof.
"Preferred Shares" shall have the meaning specified in section 1(a)(iv).
--------- ------
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<PAGE>
"Preferred Stock" as applied to shares of any Person, shall mean shares of
---------------
such Person which shall be entitled to preference or priority over any other
shares of such Person in respect of either the payment of dividends or the
distribution of assets upon liquidation, and shall include, in any event with
respect to the Company, the Preferred Shares.
"Pro Forma Fixed Charges" shall mean the maximum aggregate amount of Fixed
--- ----- ----- -------
Charges of the Company and its Subsidiaries during the 12-month period
commencing on the date as of which Pro Forma Fixed Charges are to be determined
(or, if the aggregate amount of such Fixed Charges shall be greater during any
other 12-month period commencing after such date, then during such other 12-
month period). For purposes of this definition, Fixed Charges which are payable
at a floating or variable rate shall be determined on the basis of the rate in
effect on the date as of which Pro Forma Fixed Charges are to be determined.
"Proprietary Rights" shall mean any patents, registered and common law
----------- ------
trademarks, service marks, trade names, copyrights, licenses and other similar
rights (including, without limitation, know-how, trade secrets and other
confidential information) and applications for each of the foregoing, if any.
"Purchased Common Shares" shall have the meaning specified in section
-----------------------
1(a)(v).
"Purchased Preferred Shares" shall have the meaning specified in section
--------------------------
1(a)(iv).
"qualification" shall have the meaning specified in section 11.1.
-------------
"register", "registered", "Registrable Shares", "registration" and
-------- ---------- ----------- ------ ------------
"Registration Expenses" shall have the respective meanings specified in section
- ------------- --------
11.1.
"Rental Obligations" of any Person shall mean, for any period, all rents
------ -----------
and other amounts (including as such, all payments which such Person is
obligated to make to the lessor on termination of any lease and/or on surrender
of the leased property other than payments for which such Person is contingently
liable on account of early termination or breach of such lease) paid, payable or
guaranteed during such period by such Person, as lessee or sublessee under any
lease, including, without limitation, any amount required to be paid by such
Person (whether or not designated as rents or additional rents) on account of
maintenance, repairs, insurance, taxes, utilities and similar charges. Whenever
it is necessary to determine the amount of Rental Obligations for any period, to
the extent that such Rental Obligations are not definitely determinable by the
terms of the lease, the Rental Obligations not so definitely determinable shall
be estimated in good faith and in such reasonable manner as the Board of
Directors of the Company may determine (as
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<PAGE>
evidenced by a certified resolution of such Board of Directors promptly
delivered to the holder or holders of the Notes).
"Required Holders" as applied to describe the requisite holder or holders
-------- -------
of any class of the Securities, shall mean, at any date, the holder or holders
of 66-2/3% or more in interest of such class of Securities at the time
outstanding (excluding all Securities at the time owned by the Company or any
Affiliate of the Company).
"Required Percentage" shall have the meaning specified in section 9.7.
-------- ----------
"Restricted Payment" as applied to any Person shall mean:
---------- -------
(a) any dividend or other distribution, direct or indirect, on account
of any shares of capital stock of such Person now or hereafter outstanding
(including, without limitation, Preferred Stock) or any securities
convertible into or exercisable or exchangeable for such shares of capital
stock or any rights, options or warrants to acquire any such shares of
capital stock, except (i) any such dividend or distribution payable to the
-
Company and/or any Wholly-Owned Subsidiary of the Company (which is a party
to a Note Guarantee and all other appropriate Security Documents and all of
whose properties and assets are subject to valid and enforceable first
priority perfected Liens in favor of the holders of the Senior Notes) and
(ii) a dividend payable to all of the holders of Common Shares of the
--
Company then outstanding solely in Common Shares of the Company or in
rights, options or warrants to acquire any Common Shares of the Company;
and
(b) any redemption, retirement, purchase or other acquisition, direct
or indirect, of any shares of capital stock of such Person now or hereafter
outstanding (including, without limitation, Preferred Stock) or any
securities convertible into or exercisable or exchangeable for such shares
of capital stock or any rights, options or warrants to acquire any such
shares of capital stock, except to the extent that the consideration
therefor consists solely of Common Shares of the Company or warrants,
rights or options to acquire any Common Shares of the Company; and
provided that, notwithstanding the foregoing, the term "Restricted Payment"
- -------- ---------- -------
shall not include any dividend or other distribution paid on, or any redemption,
retirement, purchase or other acquisition of, any Purchased Preferred Shares,
Purchased Common Shares, Warrants and/or Warrant Shares.
"Revolving Credit Loan" and "Revolving Credit Loans" shall have the
--------- ------ ---- --------- ------ -----
respective meanings specified in section 12.2.
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"Security" and "Securities" shall have the respective meanings specified in
-------- ----------
section 1.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
---------- ---
successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Security Agreement" and "Security Agreements" shall have the respective
-------- --------- -------- ----------
meanings specified in section 1.
"Security Document" and "Security Documents" shall have the respective
-------- -------- -------- ---------
meanings specified in section 1.
"Sellers" shall have the meaning specified in section 4.3.
-------
"Seller Note" shall have the meaning specified in section 4.3.
------ ----
"Seller Note Subordination Agreement" shall have the meaning specified in
------ ---- ------------- ---------
section 4.3.
"Senior Fixed Rate Notes" shall have the meaning specified in section 1.
------ ----- ---- -----
"Senior Notes" shall have the meaning specified in section 1.
------ -----
"Senior Revolving Credit Notes" shall have the meaning specified in section
------ --------- ------ -----
1.
"Solvent" as applied to any Person at any date shall mean that on and as of
-------
such date (a) the fair value of the property of such Person is greater than the
-
total amount of liabilities, including, without limitation, contingent
liabilities, of such Person, (b) the present fair salable value of the assets of
-
such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person does not intend to, and does not believe that it will,
-
incur debts or liabilities beyond such Person's ability to pay as such debts and
liabilities mature and (d) such Person is not engaged in business or a
-
transaction, and is not about to engage in business or a transaction, for which
such Person's property would constitute an unreasonably small capital. The
amount of contingent liabilities on and as of any date shall be computed as the
amount that, in the light of all the facts and circumstances existing on and as
of such date, represents the amount that can reasonably be expected to become an
actual or matured liability. For purposes of this definition, "Person" shall
------
mean, where so required by the context in which the term "Solvent" appears, such
Person and its Subsidiaries taken as a whole.
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<PAGE>
"Standish Mortgage" shall have the meaning specified in section 4.5.
-------- --------
"Subordinated Indebtedness" shall have the meaning specified in section
------------ ------------
10.1.
"Subordinated Notes" shall have the meaning specified in section 1.
------------ -----
"Subordination Notice" shall have the meaning specified in section 10.4.
------------- ------
"Subsidiary" of any Person at any date shall mean (a) any other Person a
---------- -
majority (by number of votes) of the Voting Stock of which is owned by such
first-mentioned Person and/or by one or more other Subsidiaries of such first-
mentioned Person; (b) any other Person of which such first-mentioned Person or
-
any of its other Subsidiaries is a general partner; and (c) any other Person
-
with respect to which such first-mentioned Person and/or any one or more other
Subsidiaries of such first-mentioned Person (i) is entitled to more than 50% of
-
such Person's profits or losses or more than 50% of such Person's assets on
liquidation or (ii) holds an equity interest in such Person of more than 50%.
--
As used herein, unless the context clearly required otherwise, the term
"Subsidiary" refers to a Subsidiary of the Company.
"Superior Indebtedness" shall have the meaning specified in section 10.1.
-------- ------------
"Termination Event" shall mean (a) a "reportable event" as such term is
----------- ----- -
described in section 4043 of ERISA (other than a "reportable event" not subject
to the provision for 30-day notice to the PBGC), with respect to any Pension
Plan; (b) the withdrawal of the Company, any Subsidiary or Affiliate or ERISA
-
Affiliate from a Multiple Employer Plan during a plan year in which it was a
"substantial employer," as such term is defined in section 4001(a)(2) of ERISA,
or the incurrence of liability by the Company, any Subsidiary or Affiliate or
ERISA Affiliate under section 4064 of ERISA upon the termination of a Multiple
Employer Plan; (c) the submission to a governmental authority of a request for a
-
waiver of minimum funding standards required by ERISA or the Code, with respect
to any Pension Plan; (d) the disclosure to affected parties of a notice of
-
intent to terminate a Pension Plan under section 4041 of ERISA other than in a
"standard termination" within the meaning of section 4041 of ERISA; (e) the
-
institution of proceedings to terminate a Pension Plan by the PBGC under section
4042 of ERISA; or (f) any other event or condition that would reasonably
-
constitute grounds under section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan.
"Total Assets" of any Person shall mean, at any date, the net book value as
----- ------
shown on the books of such Person in accordance with generally accepted
accounting principles of all its property, whether real, personal or mixed.
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<PAGE>
"Total Debt" of any Person shall mean, at any date, all Funded Debt and
----- ----
Current Debt of such Person at such date, determined in accordance with
generally accepted accounting principles.
"Total Revolving Commitment" shall have the meaning specified in section
----- --------- ----------
12.2.
"Treasury Rate" at any time with respect to any Notes being prepaid or paid
-------- ----
(whether on account of acceleration or otherwise), as the case may be, shall
mean and shall be determined by reference to the display designated as "page 5"
on the Telerate Service as of 10:00 A.M., Boston time, on the second Business
Day prior to the date fixed for such prepayment or payment (or, if such display
is no longer available, any publicly available source of similar market data),
and shall be the yield on actively traded United States Treasury securities
adjusted to a maturity equal to the then remaining Weighted Average Life to
Maturity of the Notes then being prepaid or paid (whether on account of
acceleration or otherwise) (the "Remaining Life"). If the Remaining Life is not
--------- ----
equal to the maturity of a United States Treasury security for which a yield is
given, the Treasury Rate shall be obtained by linear interpolation (calculated
to the nearest one-twelfth of a year) from the weekly average yields of the two
closest United States Treasury securities for which such yields are given,
except that if the Remaining Life is less than one year, the average yield on
actively traded United States Treasury securities adjusted to a constant
maturity of one year shall be used. The Treasury Rate shall be computed to the
fifth decimal place (one-thousandth of a percentage point) and then rounded to
the fourth decimal place (one-hundredth of a percentage point).
"Voting Stock", when used with reference to any Person, shall mean shares
------ -----
(however designated) of such Person having ordinary voting power for the
election of a majority of the members of the board of directors (or other
governing body) of such Person, other than shares having such power only by
reason of the happening of a contingency.
"Warrant Shares" shall have the meaning specified in the Warrants.
------- ------
"Warrants" shall have the meaning specified in section 1.
--------
"Weighted Average Life to Maturity" of any Indebtedness or obligation shall
-------- ------- ---- -- --------
mean, at any date, the number of years obtained by dividing the then Remaining
Dollar-years of such Indebtedness or obligation by the then outstanding
principal amount of such Indebtedness or obligation. For purposes of this
definition, the "Remaining Dollar-years" of any Indebtedness or obligation shall
--------- ------------
mean, at any date, the total of the products obtained by multiplying (a) the
-
amount of each then remaining installment, sinking fund, serial maturity or
other required payment, including payment at final
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<PAGE>
maturity, in respect thereof, by (b) the number of years (calculated to the
-
nearest one-twelfth) which will elapse between such date and the making of such
payment.
"Wholly-Owned Subsidiary" shall mean any Subsidiary all of the outstanding
------ ----- ----------
shares of which, other than directors' qualifying shares, shall at the time be
owned by the Company and/or by one or more other Wholly-Owned Subsidiaries and
the accounts of which are consolidated with those of the Company in accordance
with generally accepted accounting principles.
"Withdrawal Liability" shall have the meaning given such term under Part 1
---------- ---------
of Subtitle E of Title IV of ERISA.
15.2. Other Definitions. The terms defined in this section 15.2,
-----------------
whenever used in this Agreement, shall, unless the context otherwise requires,
have the respective meanings hereinafter specified.
"this Agreement" (and similar references to any of the other Operative
---- ---------
Documents) shall mean, and the words "herein" (and "therein"), "hereof" (and
------ ------- ------
"thereof"), "hereunder" (and "thereunder") and words of similar import shall
- -------- --------- ----------
refer to, such instruments as they may from time to time be amended, modified or
supplemented.
a "class" of Securities shall refer to the Senior Fixed Rate Notes, the
-----
Senior Revolving Credit Notes, the Subordinated Notes, the Purchased Preferred
Shares, the Purchased Common Shares, the Warrants or the Warrant Shares, as the
case may be, each of which is a separate class, provided that for purposes of
--------
section 13(b) of this Agreement "class" shall refer to any class of equity
-----
securities of the Company, and, provided, further, that for these purposes all
-------- -------
Common Shares shall be deemed to consist of a single class and all shares of
Preferred Stock shall be deemed to consist of a single class.
"corporation" shall include an association, joint stock company, business
-----------
trust or other similar organization.
"premium" when used in conjunction with references to principal of and
-------
interest on the Notes, shall mean any amount due upon any payment or prepayment
of any of the Notes, other than principal and interest and shall include the
Make Whole Amount.
"shares" of any Person shall include any and all shares of capital stock of
------
such Person of any class or other shares, interests, participations or other
equivalents (however designated) in the capital of such Person.
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<PAGE>
15.3. Accounting Terms and Principles; Laws.
-------------------------------------
(a) All accounting terms used herein which are not expressly
defined in this Agreement shall have the respective meanings given to them
in accordance with generally accepted accounting principles as in effect
in the United States from time to time; all computations made pursuant to
this Agreement shall be made in accordance with generally accepted
accounting principles as in effect in the United States from time to time
and all financial statements shall be prepared in accordance with
generally accepted accounting principles as in effect in the United States
from time to time.
(b) All references herein to laws, statutes, rules, regulations
and/or to other governmental restrictions, standards and/or requirements
shall, unless the context clearly requires otherwise, be deemed to refer
to those promulgated, issued and/or enforced by any domestic or foreign
federal, state or local government, governmental agency, authority, court,
instrumentality or regulatory body, including, without limitation, those
of the United States of America or any state thereof or the District of
Columbia.
16. Remedies.
--------
16.1. Events of Default Defined; Acceleration of Maturity. If any one
---------------------------------------------------
or more of the following events ("Events of Default") shall occur (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body), that is to say:
(a) if default shall be made in the due and punctual payment of all
or any part of the principal of, or premium (if any) on, any Note when and
as the same shall become due and payable, whether at the stated maturity
thereof, by notice of or demand for prepayment, or otherwise;
(b) if default shall be made in the due and punctual payment of any
interest on any Note when and as such interest shall become due and
payable and such default shall have continued for a period of three days
or if default shall be made in the due and punctual payment of the
Facility Fee when and as such Facility Fee shall become due and payable
and such default shall have continued for a period of three days;
(c) if default shall be made in the performance or observance of
any covenant, agreement or condition contained in (i) sections 7(h), 8,
-
9.12, 14.2(b) (insofar as such section relates to maintaining the
corporate existence of the
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<PAGE>
Company), 14.5 to 14.17, inclusive, 14.19 or 16.5, (ii) sections 3(a),
--
3(b), 3(c) or 3(d) of the Security Agreements or (iii) sections 2.1, 2.2,
---
2.4, 2.5, 2.6, 2.13, 2.16 or 3.1(a) of the Standish Mortgage;
(d) if default shall be made in the performance or observance of
any other of the covenants, agreements or conditions contained in this
Agreement or any of the other Operative Documents and such default shall
have continued for a period of 30 days after the earlier to occur of (i)
-
the Company's obtaining actual knowledge of such default or (ii) the
--
Company's receipt of written notice of such default;
(e) if the Company or any Subsidiary of the Company shall make a
general assignment for the benefit of creditors, or shall not pay its
debts as they become due, or shall admit in writing its inability to pay
its debts as they become due, or shall file a voluntary petition in
bankruptcy, or shall be adjudicated bankrupt or insolvent, or shall file
any petition or answer seeking for itself any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief
under any present or future statute, law or regulation, or shall file any
answer admitting or not contesting the material allegations of a petition
filed against it in any such proceeding, or shall seek or consent to or
acquiesce in the appointment of any trustee, custodian, receiver,
liquidator or fiscal agent for it or for all or any substantial part of
its properties, or the Company or any Subsidiary of the Company or its
directors or majority stockholders shall take any action looking to its
dissolution or liquidation;
(f) if, within 60 days after the commencement of an action against
the Company or any Subsidiary of the Company seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or
similar relief under any present or future statute, law or regulation,
such action shall not have been dismissed or all orders or proceedings
thereunder affecting the operations or the business of the Company or such
Subsidiary stayed, or if the stay of any such order or proceeding shall
thereafter be set aside, or if, within 60 days after the appointment
without the consent or acquiescence of the Company or such Subsidiary of
any trustee, custodian, receiver, liquidator or fiscal agent for the
Company or any Subsidiary of the Company or for all or any substantial
part of their respective properties, such appointment shall not have been
vacated;
(g) if, under the provisions of any law for the relief or aid of
debtors, any court or governmental agency of competent jurisdiction shall
assume custody or control of the Company or of any Subsidiary of the
Company or of all or any substantial part of their respective properties
and such custody or control shall not
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<PAGE>
be terminated or stayed within 60 days from the date of assumption of such
custody or control;
(h) if the Company or any Subsidiary of the Company shall fail to
(i) make any payment due on any Indebtedness (other than the Notes or the
-
Seller Note) or other obligation (including any in respect of any lease or
any shares of capital stock upon the exercise by any Person of any put or
call option or other similar right of redemption or repurchase with regard
to such capital stock in accordance with the terms of such option or
right), if the aggregate amount of the payment not so made (and of any
other amount then due and not paid on other Indebtedness or on another
obligation as to which the Company or any Subsidiary is in default)
exceeds $250,000 or (ii) perform, observe or discharge any covenant,
--
condition or obligation in any agreement, document or instrument
evidencing, securing or relating to such Indebtedness or other obligation,
if the effect of any such failure of the character described in this
clause (ii) is to cause, or permit any other Person to cause, any payment
in respect thereof in an aggregate amount of $250,000 or more to become
due and payable, or if any such Indebtedness or other obligation shall
become due and payable by its terms and shall not be paid or extended;
(i) if any default shall occur under the Seller Note (as such
Seller Note may be amended from time to time) and such default shall
continue uncured and unwaived beyond any applicable grace or cure period
specified in the Seller Note (as such Seller Note may be amended from time
to time);
(j) if a final judgment for the payment of money which, together
with all other outstanding final judgments for the payment of money
against the Company and/or any of its Subsidiaries, exceeds an aggregate
of $250,000 shall be rendered by a court of record against the Company or
any Subsidiary, and the Company or such Subsidiary shall not discharge the
same or provide for its discharge in accordance with its terms, or procure
a stay of execution thereof within 60 days from the date of entry thereof
and within such period of 60 days, or such longer period during which
execution of such judgment shall have been stayed, move to vacate such
judgment or appeal therefrom and cause the execution thereof to be stayed
pending determination of such motion or during such appeal;
(k) if any representation or warranty made by or on behalf of the
Company or any Subsidiary of the Company in this Agreement or in any of
the other Operative Documents or in any agreement, document or instrument
delivered under or pursuant to any provision hereof or thereof shall prove
to have been false or incorrect in any material respect on the date as of
which made;
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<PAGE>
(l) if a default of the character specified in subdivisions (d),
(f), (g), (h), (i) or (j) shall occur and, prior to the expiration of any
applicable grace period, a related judgment against the Company or any
applicable Subsidiary unsatisfied, unsecured by bond and unstayed pending
appeal shall have become effective, the result or effect of which judgment
is to render the Company or such Subsidiary unable to cure such default
within such grace period, or any other event shall have occurred which has
that result or effect or the Company or such Subsidiary shall admit its
inability to cure such default within such grace period; or
(m) if, at any time, this Agreement or any of the other Operative
Documents shall for any reason (other than the scheduled termination
thereof in accordance with its terms) expire, fail to be in full force and
effect or be disaffirmed, repudiated, cancelled, terminated or declared to
be unenforceable, null and void by any Person other than a holder of a
Security;
then, in the case of an Event of Default of the character described in
subdivisions (a), (b), (c), (d), (h), (i), (j), (k), (l) or (m) of this section
16.1 and at the option of the holder or holders of 25% or more in aggregate
principal amount of the Notes of any class at the time outstanding (excluding
any Notes at the time owned by the Company or any Affiliate of the Company),
exercised by written notice to the Company, the principal of all Notes of such
class shall forthwith become due and payable, together with interest accrued
thereon, without presentment, demand, protest or other notice of any kind, all
of which are hereby expressly waived, and the Company shall forthwith upon any
such acceleration pay to the holder or holders of all the Notes of such class
then outstanding (i) the entire principal of and interest accrued on the Notes
-
of such class, and (ii) in addition, to the extent permitted by applicable law,
--
an amount equal to the Make-Whole Amount, in the case of the acceleration of the
Senior Fixed Rate Notes and/or the Subordinated Notes, as liquidated damages and
not as a penalty; provided that, in the case of an Event of Default of the
--------
character described in subdivisions (a) or (b) of this section 16.1 and
irrespective of whether all of the Notes of any class have been declared due and
payable by the holder or holders of 25% or more in aggregate principal amount of
the Notes of such class at the time outstanding, any holder of Notes of such
class who or which has not consented to any waiver with respect to such Event of
Default may, at the option of such holder, by written notice to the Company,
declare all Notes then held by such holder to be, and such Notes shall thereupon
become, forthwith due and payable, together with interest accrued thereon,
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived, and the Company shall forthwith upon any such
acceleration pay to such holder (i) the entire principal of and interest accrued
-
on such Notes, and (ii) in addition, to the extent permitted by applicable law,
--
an amount equal to the Make-Whole Amount, in the case of the acceleration of the
Senior Fixed Rate Notes and/or the Subordinated Notes, as liquidated damages and
not as
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<PAGE>
a penalty; provided, further, that, in the case of an Event of Default of the
-------- -------
character described in subdivisions (e), (f) or (g) of this section 16.1, the
principal of all Notes shall forthwith become due and payable, together with
interest accrued thereon (including any interest accruing after the commencement
of any action or proceeding by or against the Company under the federal
bankruptcy laws, as now or hereafter constituted, or any other applicable
domestic or foreign federal or state bankruptcy, insolvency or other similar
law, and any other interest that would have accrued but for the commencement of
such proceeding, whether or not any such interest is allowed as a claim
enforceable against the Company in such proceeding), without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived, and the Company shall forthwith upon any such acceleration pay to the
holder or holders of all the Notes then outstanding (i) the entire principal of
-
and interest accrued on the Notes, and (ii) in addition, to the extent permitted
--
by applicable law, an amount equal to the Make-Whole Amount, in the case of the
acceleration of the Senior Fixed Rate Notes and/or the Subordinated Notes, as
liquidated damages and not as a penalty.
Notwithstanding the foregoing provisions, at any time after the occurrence
of any Event of Default and of notice thereof, if any, by any holder or holders
of Notes of any class and before any judgment, decree or order for payment of
the money due has been obtained by or on behalf of any holder or holders of the
Notes of such class, the Required Holders of the Notes of such class by written
notice to the Company, may rescind and annul such Event of Default and/or notice
of such Event of Default and the consequences thereof with respect to all of the
Notes of such class (including any Notes of such class which were accelerated
pursuant to the first proviso in the preceding paragraph by any holder or
holders on account of an Event of Default of the character described in
subdivision (a) or (b) of this section 16.1) if:
(1) the Company has paid a sum sufficient to pay
(A) all overdue installments of interest on all Notes of such
class at the rate specified in such Notes;
(B) the principal of (and premium, if any, on) any Notes of such
class which have become due otherwise than by such Event of Default or
notice thereof and interest thereon at the rate specified in such
Notes; and
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate specified in such Notes; and
(2) all Defaults and Events of Default, other than the non-payment of
the principal of Notes of such class which have become due solely by such
acceleration, have been cured or waived as provided in section 19.
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<PAGE>
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
16.2. Suits for Enforcement, etc. In case any one or more of the
---------------------------
Events of Default specified in section 16.1 shall have occurred, the holder of
any Security may proceed to protect and enforce its rights either by suit in
equity or by action at law, or both, whether for the specific performance of any
covenant or agreement applicable to such Security in this Agreement or any of
the other Operative Documents or in aid of the exercise of any power granted
herein or therein, or such holder may proceed to enforce any legal or equitable
right of the holder of such Security, including, without limitation, in the case
of any Note, the payment of such Note. The Company stipulates that the remedies
at law of the holder or holders of the Securities in the event of any default or
threatened default by the Company in the performance of or compliance with any
covenant or agreement in this Agreement or any of the other Operative Documents
are not and will not be adequate and that, to the fullest extent permitted by
law, such terms may be specifically enforced by a decree for the specific
performance thereof, whether by an injunction against a violation thereof or
otherwise.
16.3. Remedies Cumulative. No remedy conferred in this Agreement or in
-------------------
any of the other Operative Documents upon the holder of any Security is
intended to be exclusive of any other remedy, and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or thereunder or now or hereafter existing at law or in equity or by
statute or otherwise.
16.4. Remedies Not Waived. No course of dealing between the Company
-------------------
and any of its Subsidiaries, on the one hand, and any holder of any Security,
on the other hand, and no delay by any such holder in exercising any rights
hereunder or under any of the other Operative Documents shall operate as a
waiver of any rights of any such holder.
16.5. Notice of Action of Claimed Defaults. If the holder or holders
------------------------------------
of any Notes of any class shall accelerate the maturity thereof as provided
in section 16.1, or if the holder of any Security or other obligation or
security of the Company or any Subsidiary of the Company shall give any notice
of a claimed default, Default or Event of Default or shall take any other
action with respect to a claimed default, Default or Event of Default, forthwith
(but in any event not later than five days) after obtaining knowledge thereof
the Company will give each holder of any outstanding Securities written notice
specifying such action and the nature and status of the claimed default, Default
or Event of Default.
16.6. Application of Payments. In case any one or more of the Events of
-----------------------
Default specified in section 16.1 shall have occurred, all amounts to be
applied to the prepayment or payment of any Notes of any class (including,
without limitation, the
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<PAGE>
prepayment or payment of any Senior Notes with proceeds of the Collateral),
shall be applied, after the payment of all related costs and expenses incurred
by the holders of the Notes (including, without limitation, compensation to any
and all trustees, liquidators, receivers or similar officials and reasonable
fees, expenses and disbursements of counsel) in such order of priority as is
determined by the Required Holders of each class of Notes entitled to such
amounts.
17. Registration, Transfer and Exchange of Securities.
-------------------------------------------------
(a) Securities issued hereunder shall be issued in registered form.
The Company shall keep at its principal executive office (which is now
located at the address set forth at the beginning of this Agreement) or at
such other address (including that of the Company's transfer agent) as the
Company shall notify the holders of the Securities in writing, a register
in which, subject to such reasonable regulations as it may prescribe, but
at its expense (other than transfer taxes, if any), the Company shall
provide for the registration and transfer of the Securities. The Company
shall not at any time close such register so as to result in preventing or
delaying the conversion, exercise, exchange or transfer of any Securities.
(b) Whenever any Security or Securities shall be surrendered by the
holder thereof at the principal executive office of the Company for
transfer or exchange, the Company at its expense will execute and deliver
in exchange therefor a new Security or Securities as may be requested by
such holder, in the same aggregate unpaid principal amount or the same
aggregate number of shares, as applicable, as that of the Security or
Securities so surrendered, provided that any transfer tax relating to such
--------
transaction shall be paid by the holder requesting the exchange. Each such
new Note shall be in registered form, shall be dated as of the date to
which interest has been paid on the unpaid principal amount of the Note or
Notes so surrendered (or dated the date of the surrendered Note or Notes if
no interest has been paid thereon), and shall be in such principal amount
or amounts and registered in such name or names as such holder may
designate in writing. No reference need be made in any such new Note to any
prepayments of principal previously due and paid upon the Note or Notes
surrendered for exchange.
(c) The Company may treat the Person in whose name any Security is
registered as the owner of such Security for the purpose of receiving any
payment due or divided or other distribution declared on such Security,
whether or not such Security be overdue, and for all other purposes, and
the Company shall not be affected by any notice to the contrary.
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<PAGE>
18. Replacement of Securities. Upon receipt by the Company of evidence
-------------------------
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
any Security and (in case of loss, theft or destruction) of indemnity reasonably
satisfactory to it, and (in the case of mutilation) upon surrender and
cancellation of such Security, the Company at its expense will execute and
deliver in lieu of such Security a new Security of like tenor, except that no
reference need be made in any such new Note to any prepayments of principal
previously due and paid upon the Note in lieu of which such new Note is executed
and delivered. Any such new Note shall be dated as of the date to which interest
has been paid on the unpaid principal amount of the Note in lieu of which such
new Note is executed and delivered (or dated the date of the Note in lieu of
which such new Note is executed and delivered if no interest has been paid
thereon). The term "outstanding" when used in this Agreement with reference to
the Securities as of any particular time shall not include any Security in lieu
of which a new Security has been executed and delivered by the Company in
accordance with provisions of this section 18. Your agreement to indemnify
and/or affidavit and that of any other institutional holder shall constitute
indemnity and/or evidence of loss, theft, destruction or mutilation satisfactory
to the Company for the purpose of this section 18.
19. Amendment and Waiver.
--------------------
(a) Any term, covenant, agreement or condition of this Agreement and,
unless explicitly provided otherwise therein, of any of the other Operative
Documents may, with the consent of the Company, be amended, or compliance
therewith may be waived (either generally or in a particular instance and
either retroactively or prospectively), by one or more substantially
concurrent written instruments signed by the Required Holders of each class
of Securities entitled to the benefits of such term, covenant, agreement or
condition, provided that:
--------
(i) without the consent of the holders of all of the Notes of each
class affected thereby and at the time outstanding, no such amendment
or waiver shall:
(x) change the amount of the principal of any of the Notes of
such class or change the amounts or dates of payment of any
payment or prepayment of principal or any payment of any fee due
upon any of the Notes of such class or reduce the rate or change
the time of payment of interest on any of the Notes of such class,
or, except as provided in section 10 in the case of the
Subordinated Notes, subordinate the obligation of the Company to
pay the principal of, premium, if any, and interest on the Notes
of such class to any other obligation, or modify any of the
provisions of this Agreement or of the Notes of such class with
respect to the
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<PAGE>
payment or prepayment thereof (including the amount
of any premium payable on any prepayment), or modify any of the
provisions of section 16; or
(y) change the percentage of holders of Notes of such class
required to approve any such amendment, effectuate any such waiver
or accelerate payment of the Notes of such class;
(ii) without the consent of the holders of all of the Purchased
Preferred Shares, the Purchased Common Shares, Warrants and Warrant
Shares at the time outstanding, no such amendment or waiver shall change
the percentage of holders of Purchased Preferred Shares, Purchased Common
Shares, Warrants and Warrant Shares required to approve any such
amendment or effect any such waiver;
(iii) no such amendment or waiver shall extend to or affect any
obligation not expressly amended or waived or impair any right consequent
thereon.
(b) The Company will not, directly or indirectly, solicit, request or
negotiate for or with respect to any proposed amendment or waiver of any of the
provisions of this Agreement or any of the other Operative Documents unless each
holder of the Securities (irrespective of the amount of Securities then owned by
it) shall be informed thereof by the Company and, if such holder is entitled to
the benefit of any such provision proposed to be amended or waived, shall be
afforded the opportunity of considering the same and shall be supplied by the
Company with sufficient information to enable it to make an informed decision
with respect thereto. Executed or true and correct copies of any amendment or
waiver effected pursuant to this section 19 shall be delivered by the Company to
each holder of Securities forthwith (but in any event not later than five days)
following the effective date thereof. The Company will not, directly or
indirectly, pay or cause to be paid any remuneration, whether by way of
supplemental or additional interest, fee or otherwise, to any holder of the
Securities as consideration for or as an inducement to, or as payment for
services rendered in connection with, the review or analysis or the entering
into by any holder thereof of any amendment or waiver of any of the terms and
provisions of this Agreement or any of the other Operative Documents applicable
to any Securities unless such remuneration is concurrently paid, on the same
terms, ratably to all of the holders of the class of Securities as to which such
amendment or waiver is applicable.
(c) No notation of any amendment or waiver need be made on any
Security at the time outstanding unless requested in writing by the
Company, but
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<PAGE>
any Security executed and delivered thereafter may, at the option of the
Company, bear a notation referring to any such amendment or waiver then in
effect.
(d) In determining whether the requisite holders of Securities have
given any authorization, consent or waiver under this section 19, any
Securities owned by the Company or any of its Affiliates shall be
disregarded and deemed not to be outstanding.
20. Method of Payment of Securities. Irrespective of any provision hereof or
-------------------------------
of the other Operative Documents to the contrary, so long as you or any other
institutional holder shall hold any Security, the Company will make all payments
on such Security to you or such other institutional holder by the method and at
the address for such purpose specified in Schedule I attached hereto or by such
----------
other method or at such other address as you or such other institutional holder
may designate in writing, without requiring any presentation or surrender of
such Security, except that if any Security shall be paid, prepaid and/or
repurchased in full, such Security shall be surrendered to the Company promptly
following such payment, prepayment or repurchase and cancelled.
21. Liabilities to Subsequent Holders. Neither this Agreement nor any of the
---------------------------------
other Operative Documents nor any disposition of any of the Securities shall be
deemed to create any liability or obligation on your part to enforce any
provision hereof or of any of the other Operative Documents for the benefit or
on behalf of any other Person who may be the holder of any Securities.
22. Expenses; Indemnity.
-------------------
(a) Whether or not the transactions contemplated by any of the
Operative Documents shall be consummated, the Company will pay or cause to
be paid (or reimbursed, as the case may be) and will defend, indemnify and
hold you and each other holder of any of the Securities and each director,
officer, employee, agent, advisor and Affiliate of any such holder (each,
an "Indemnitee") harmless (on an after tax basis) in respect of all costs,
losses, expenses (including, without limitation, the reasonable fees,
expenses and disbursements of counsel and damages (collectively,
"Indemnified Costs") incurred by or asserted against any Indemnitee in
connection with the negotiation, execution, delivery, performance and/or
enforcement of this Agreement or any of the other Operative Documents
and/or the consummation of the transactions contemplated hereby and
thereby or which may otherwise be related in any way to this Agreement or
any other Operative Documents or such transactions or such Indemnitee's
relationship to the Company or any of its Subsidiaries or Affiliates or
any of their respective properties or assets. Without limiting the
generality of the foregoing, the Company will pay or cause or be paid and
will defend, indemnify and hold each
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<PAGE>
Indemnitee harmless from and against any and all Indemnified Costs which
are incurred by or asserted against any Indemnitee in connection with or
which are in any way related to:
(i) the negotiation, execution and delivery of this
Agreement and each of the other Operative Documents and/or any
proposed amendments hereof or thereof or waivers hereunder or
thereunder (whether or not effected), including, without limitation,
so-called workouts and/or restructurings and including the furnishing
of opinions referred to herein or therein and any other opinions
which any Indemnitee may reasonably request;
(ii) any broker's or finder's fees or commissions or
financial advisory fees, including, without limitation, any such
amount owing to Robert Smaha and Decision Development Group;
(iii) delivering to each holder of any of the Securities (or
to its custodian), insured to its satisfaction, any Security and of
such holder's delivering any Securities, insured to its satisfaction,
for any transfer, substitution or exchange thereof;
(iv) any suit, claim, action or other proceeding or
investigation involving the Company or any of its Subsidiaries or any
of their respective properties or assets or in any way relating to or
arising out of or in connection with this Agreement or any of the
other Operative Documents and/or any of the transactions contemplated
hereby or thereby, whether or not such Indemnitee is a party thereto
(including, without limitation, any bankruptcy or similar proceeding
and any proceeding or investigation relating to environmental
matters);
(v) any and all requirements of any environmental laws (as the
same may be amended, modified or supplemented from time to time),
including the failure to obtain, maintain, renew or comply with any
permit, license, approval or other authorization with respect to any
activities, operations or businesses conducted on or in relation to
any properties owned, leased, occupied or operated by the Company or
any of its Subsidiaries, and further including any and all
Indemnified Costs (including any loss of value of the Mortgaged
Property (as defined in the Standish Mortgage)) which are incurred by
or asserted against any Indemnitee in connection with or are in any
way related to any environmental investigation, assessment, site
monitoring, containment, cleanup, remediation, removal, restoration,
reporting and sampling, whether
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<PAGE>
or not consented to, or requested or approved by, any Indemnitee, and
whether or not such Indemnified Cost is attributable to any event or
condition originating from the Mortgaged Property or any other
property previously or hereafter owned, leased, occupied or operated
by the Company or any of its Subsidiaries
(vi) the preservation, exercise or enforcement of any of the
rights or remedies of any such Indemnitee under this Agreement or any
of the other Operative Documents, including, without limitation, all
costs of collection;
(vii) the performance of and compliance with the terms and
conditions of this Agreement and each of the other Operative
Documents by the Company and/or its Subsidiaries, including, without
limitation, insurance premiums, recording fees, filing fees, fees and
expenses of engineers and other consultants, and other costs related
to any of the Security Documents and/or the Collateral;
(viii) obtaining "private placement numbers" for the
Securities from Standard & Poor's Corporation; and
(ix) the cost of any appraisal, insurance, survey, site
assessment, environmental audit, opinion or certificate required by
this Agreement or any of the other Operative Documents.
(b) The covenants contained in this section 22 shall survive the date
upon which none of the Securities shall be outstanding and the termination
of this Agreement and each of the other Operative Documents.
(c) Notwithstanding the foregoing, the Company shall not have any
obligation to an Indemnitee under this section 22 with respect to any
Indemnified Cost which is finally determined by a court of competent
jurisdiction to have arisen as a result of the willful misconduct or bad
faith of such Indemnitee.
23. Taxes. The Company will pay all taxes and fees (including interest and
-----
penalties), including, without limitation, all recording and filing fees,
mortgage taxes, issuance and documentary stamp and similar taxes, which may be
payable in respect of the execution and delivery of this Agreement and each of
the other Operative Documents, including the execution and delivery (but not the
transfer) of any Security or in respect of any amendment of or waiver under or
with respect to this Agreement or any of the other Operative Documents, and will
defend, indemnify and hold harmless you and all subsequent holders of any
Security against any loss or liability resulting from nonpayment
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<PAGE>
or delay in payment of any such tax. The obligations of the Company under this
section 23 shall survive the date upon which none of the Securities shall be
outstanding and the termination of this Agreement and each of the other
Operative Documents.
24. Communications.
--------------
(a) All communications provided for herein and, unless explicitly
provided otherwise therein, in any of the other Operative Documents shall
be delivered, mailed or sent by facsimile transmission addressed as
follows:
(i) If to the Company or any Subsidiary, at:
Control Devices, Inc.
Route 35
Standish, Maine 04084
Attention: Bruce D. Atkinson, President
Telecopy No.: (207) 642-0248
with a copy (which shall not constitute notice) to:
Sommer & Barnard PC
4000 Bank One Tower
111 Monument Circle
Indianapolis, Indiana 46204
Attention: Julianne S. Lis-Milam, Esq.
Telecopy No.: (317) 236-9802; and
Hammond, Kennedy, Whitney & Company, Inc.
8900 Keystone Crossing
Suite 1048
Indianapolis, Indiana 46240
Attention: Glenn Scolnik
Telecopy No.: (317) 574-7515
or at such other address and/or telecopy number as may be furnished in
writing by the Company to you and to each other holder of any
Security; and
(ii) If to you, at your address set forth in Schedule I attached
----------
hereto, and if to any other holder of any Security, at the address of
such holder as it appears on the applicable register maintained
pursuant to
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<PAGE>
section 17, and in each such case with a copy (which shall not
constitute notice) to:
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, Massachusetts 02109
Attention: Frank B. Porter, Jr., Esq.
Telecopy No.: (617) 248-4000
or at such other address and/or telecopy number as may be furnished in
writing by you or by any other holder to the Company.
(b) Any communication provided for herein shall become effective only
upon and at the time of receipt by the Person to whom it is given, unless
such communication (i) is mailed by certified mail (return receipt
-
requested), in which case it shall become effective on (x) the fifth
-
Business Day following the mailing thereof, or (y) the day of its
-
acknowledged receipt, if a Business Day, or the next succeeding Business
Day, whichever of (x) or (y) is earlier, or (ii) is sent by facsimile
--
transmission, in which case it shall become effective upon receipt of
confirmation of receipt of transmission from the Person to whom the
transmission was sent, provided that the original of such communication is
--------
sent on the day of such facsimile transmission to such Person by a courier
guaranteeing overnight delivery.
25. Survival of Agreements, Representations and Warranties, etc. All
------------------------------------------------------------
agreements, representations and warranties contained herein or made in writing
by or on behalf of the Company in connection with the transactions contemplated
by the Operative Documents shall be deemed to have been relied upon by you and
shall survive the execution and delivery of this Agreement and each of the other
Operative Documents, the issue, sale and delivery of the Securities and payment
therefor and any disposition of the Securities by you, whether or not any
investigation at any time is made by you or on your behalf. All statements
contained in any report, memorandum, data or certificate delivered to you by or
on behalf of the Company in connection with the transactions contemplated by the
Operative Documents shall constitute representations and warranties by the
Company under this Agreement and shall be subject to the terms of this section
25.
26. Successors and Assigns; Rights of Other Holders. This Agreement and,
-----------------------------------------------
unless explicitly provided otherwise therein, each of the other Operative
Documents shall bind and inure to the benefit of and be enforceable by the
Company and you, successors to the Company and your successors and assigns, and,
in addition, shall inure to the benefit of and be enforceable by each holder
from time to time of any Securities who, upon
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<PAGE>
acceptance thereof, shall, without further action, be entitled to enforce the
applicable provisions and enjoy the applicable benefits hereof and thereof,
provided that you shall not be required to make any purchase hereunder except
- --------
from the currently existing Control Devices, Inc. The Company may not assign any
of its rights or obligations hereunder or under any of the other Operative
Documents without the written consent of the Required Holders of each class of
Securities then outstanding.
27. Purchase for Investment; ERISA.
------------------------------
(a) You represent and warrant (i) that you have been furnished with
-
all information that you have requested for the purpose of evaluating your
proposed acquisition of the Securities to be issued to you pursuant hereto
and (ii) that you will acquire such Securities for your own account for
--
investment and not for distribution in any manner that would violate
applicable securities laws, but without prejudice to your rights to dispose
of such Securities or a portion thereof to a transferee or transferees, in
accordance with such laws if at some future time you deem it advisable to do
so. The acquisition of such Securities by you at the Closing shall
constitute your confirmation of the foregoing representations and
warranties. You understand that such Securities are being sold to you in a
transaction which is exempt from the registration requirements of the
Securities Act, and that, in making the representations and warranties
contained in sections 5.14 and 5.16, the Company is relying, to the extent
applicable, upon your representations and warranties contained herein.
(b) You further represent and warrant that (i) if you are an insurance
company, you are not acquiring the Securities to be issued to you pursuant
hereto with the assets allocated to any "separate account" maintained by you
in which any "employee benefit plan" (or its related trust) has any
interest, or (ii) if you are not an insurance company, you are not acquiring
the Securities to be issued to you pursuant hereto with assets that
constitute "plan assets". As used in this section 27, the terms "separate
account" and "employee benefit plan" shall have the respective meanings
assigned to them in ERISA and the term "plan assets" shall have the meaning
specified in Department of Labor Regulation section 2510.3-101.
28. Certain Regulatory Matters. The Company will take, or will cause to be
--------------------------
taken, such action as any holder of Securities may reasonably request from time
to time to facilitate any sale or disposition by any such holder of any
Securities without registration under the Securities Act and/or any applicable
securities laws within the limitation of the exemptions provided by any rule or
regulation thereunder, including, without limitation, Rule 144A under the
Securities Act. The Company will cooperate with each such holder in supplying
such information as may be necessary for such holder to complete and file
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<PAGE>
any information reporting forms presently or hereafter required by any
regulatory authority, including, without limitation, the Commission, as a
condition to the transfer of any Securities or to the availability of an
exemption from the Securities Act and/or any applicable securities law for the
sale or other disposition of any Securities.
29. Governing Law; Jurisdiction; Waiver of Jury Trial. This Agreement
-------------------------------------------------
and, unless explicitly provided otherwise therein, each of the other Operative
Documents, including the validity hereof and thereof and the rights and
obligations of the parties hereunder and thereunder, and all amendments and
supplements hereof and thereof and all waivers and consents hereunder and
thereunder, shall be construed in accordance with and governed by the domestic
substantive laws of The Commonwealth of Massachusetts without giving effect to
any choice of law or conflicts of law provision or rule that would cause the
application of the domestic substantive laws of any other jurisdiction. The
Company, to the extent that it may lawfully do so, hereby consents to service of
process, and to be sued, in The Commonwealth of Massachusetts and consents to
the jurisdiction of the courts of The Commonwealth of Massachusetts and the
United States District Court for the District of Massachusetts, as well as to
the jurisdiction of all courts to which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of any of
its obligations hereunder or thereunder or with respect to the transactions
contemplated hereby or thereby, and expressly waives any and all objections it
may have as to venue in any such courts. The Company further agrees that a
summons and complaint commencing an action or proceeding in any of such courts
shall be properly served and shall confer personal jurisdiction if served
personally or by certified mail to it at its address set forth in section 24 or
as otherwise provided under the laws of The Commonwealth of Massachusetts.
Notwithstanding the foregoing, the Company agrees that nothing contained in this
section 29 shall preclude the institution of any such suit, action or other
proceeding in any jurisdiction other than The Commonwealth of Massachusetts.
THE COMPANY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY SUIT, ACTION
OR OTHER PROCEEDING INSTITUTED BY OR AGAINST THE COMPANY IN RESPECT OF ITS
OBLIGATIONS HEREUNDER OR THEREUNDER OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY.
30. Miscellaneous. The headings in this Agreement and in each of the other
-------------
Operative Documents are for purposes of reference only and shall not limit or
otherwise affect the meaning hereof or thereof. This Agreement (together with
the other Operative Documents) embodies the entire agreement and understanding
between you and the Company and supersedes all prior agreements and
understandings relating to the subject matter hereof. Each covenant contained
herein and in each of the other Operative Documents shall be construed (absent
an express provision to the contrary) as being independent of each other
covenant contained herein and therein, so that compliance with any one covenant
shall not (absent such an express contrary provision) be deemed to
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<PAGE>
excuse compliance with any other covenant. If any provision in this Agreement or
in any of the other Operative Documents refers to any action taken or to be
taken by any Person, or which such Person is prohibited from taking, such
provision shall be applicable, whether such action is taken directly or
indirectly by such Person, whether or not expressly specified in such provision.
In case any provision in this Agreement or any of the other Operative Documents
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby. This Agreement and, unless explicitly provided otherwise
therein, each of the other Operative Documents, may be executed in any number of
counterparts and by the parties hereto or thereto, as the case may be, on
separate counterparts but all such counterparts shall together constitute but
one and the same instrument.
[The remainder of this page is intentionally left blank.]
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<PAGE>
If you are in agreement with the foregoing, please sign the form of agreement
on the accompanying counterparts of this letter, whereupon this letter shall
become a binding agreement under seal between you and the Company. Please then
return one of such counterparts to the Company.
Very truly yours,
CONTROL DEVICES, INC.
By: /s/ GLENN SCOLNIK
-----------------------------
Glenn Scolnik,
Vice President
The foregoing Agreement is hereby
agreed to as of the date thereof.
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By: /s/ RICHARD C. MORRISON
---------------------------------
Richard C. Morrison,
Vice President
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<PAGE>
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterparts of this letter, whereupon this letter
shall become a binding agreement under seal between you and the Company. Please
then return one of such counterparts to the Company.
Very truly yours,
CONTROL DEVICES, INC.
By: /s/ GLENN SCOLNIK
-----------------------------
Glenn Scolnik,
Vice President
The foregoing Agreement is hereby
agreed to as of the date thereof.
MASSMUTUAL CORPORATE INVESTORS
By: /s/ BRUCE E. GAUDETTE
-------------------------------
Bruce E. Gaudette,
Vice President
The foregoing is executed on behalf of MassMutual Corporate Investors, organized
under a Declaration of Trust, dated September 13, 1985, as amended from time to
time. The obligations of such Trust are not personally binding upon, nor shall
resort be had to the property of, any of the Trustees, shareholders, officers,
employees or agents of such Trust, but the Trust's property only shall be bound.
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<PAGE>
If you are in agreement with the foregoing, please sign the form of agreement
on the accompanying counterparts of this letter, whereupon this letter shall
become a binding agreement under seal between you and the Company. Please then
return one of such counterparts to the Company.
Very truly yours,
CONTROL DEVICES, INC.
By: /s/ GLENN SCOLNIK
-----------------------------
Glenn Scolnik,
Vice President
The foregoing Agreement is hereby
agreed to as of the date thereof.
MASSMUTUAL PARTICIPATION INVESTORS
By: /s/ BRUCE E. GAUDETTE
-------------------------------
Bruce E. Gaudette,
Vice President
The foregoing is executed on behalf of MassMutual Participation Investors,
organized under a Declaration of Trust, dated April 7, 1988, as amended from
time to time. The obligations of such Trust are not personally binding upon,
nor shall resort be had to the property of, any of the Trustees, shareholders,
officers, employees or agents of such Trust, but the Trust's property only shall
be bound.
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<PAGE>
EXHIBIT 4.5
The registrant has certain other long term debt which does not exceed 10% of the
total assets of the registrant. Pursuant to SK-601(b)(4)(iii), the registrant
agrees to provide copies of all agreements with respect to such indebtedness to
the Securities and Exchange Commission upon request.
<PAGE>
EXHIBIT 10.1
ENVIRONMENTAL AGREEMENT
-----------------------
This Environmental Agreement (as such agreement may be amended from time to
time, the "Agreement") is entered into as of July 6, 1994 by and among CONTROL
DEVICES, INC., an Indiana corporation ("Buyer"), GTE PRODUCTS OF CONNECTICUT
CORPORATION, a Connecticut corporation ("GTE Connecticut"), GTE CORPORATION, a
New York corporation ("GTE"), GTE CONTROL DEVICES INCORPORATED, a Delaware
corporation ("CDI") and DOMINICAN OVERSEAS TRADING COMPANY, a Delaware
corporation ("DOTC" and, together with CDI, "Sellers").
WHEREAS, GTE Connecticut, Sellers, and Buyer have entered into an Asset
Purchase Agreement dated as of the date hereof (as such agreement may be amended
from time to time, the "Asset Purchase Agreement") pursuant to which Buyer is to
acquire the Business as therein defined;
WHEREAS, Sellers own or lease certain real properties in connection with
the operation of the Business; and
WHEREAS, Sellers use, store and produce certain materials regulated by law
in connection with the operation of the Business.
NOW, THEREFORE, in consideration of the mutual promises contained herein
and intending to be legally bound, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For all purposes of this Agreement and the Exhibits and Schedules delivered
pursuant to this Agreement, and except as otherwise expressly provided herein,
capitalized terms used herein but not defined herein shall have the meaning
assigned to them in the Asset Purchase Agreement. In addition, the following
terms shall have the following meanings:
"Acquired Facilities" means those facilities owned or leased by CDI and
which are listed on Schedule 1.1 hereto.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. (S)(S) 9601-9657, as amended by the Superfund
Amendments and Reauthorization act of 1986, Pub. L. No. 100 Stat. 1613 (October
17, 1986).
"Contamination" means the presence of Regulated Materials in the ambient
air, surface water, groundwater, land, vegetation,
<PAGE>
soil or subsurface strata in such a manner and quantity that (i) would require
any reporting or remediation under Environmental Requirements or (ii) exceeds
any applicable legal maximum standard for such Regulated Material under
Environmental Requirements except to the extent any such exceedance is
attributable to the presence of such Regulated Material in concentrations less
than or equal to background conditions.
"Environmental Liabilities" means all Losses either (i) resulting from any
claim or demand under any Environmental Requirement, by any person or
Governmental Entity, or (ii) arising or resulting from, relating to or as a
consequence of noncompliance with any Environmental Requirements, any
Contamination or the release or threatened release of a Regulated Material into
the environment.
"Environmental Permit" means any license, permit, franchise, certificate of
authority, or order, or any extension, modification, amendment or waiver of the
foregoing, required to be issued by any Government Entity, in connection with
any Environmental Requirement.
"Environmental Requirements" means all applicable foreign, federal, state,
interstate and local government or agency laws, statutes, ordinances, rules,
notices, regulations, Orders, Approvals and requirements of common law relating
to protection of the environment including CERCLA, the Hazardous Material
Transportation Act (49 U.S.C. (S) 1801 et seq.), the Clean Water Act (33 U.S.C.
-- ---
(S) 7401 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. (S)
-- ---
6901 et seq.) ("RCRA"), the Clean Air Act (42 U.S.C. (S) 1251 et seq.), the
-- --- -- ---
Toxic Substances Control Act (15 U.S.C. (S) 2601 et seq.), and the Federal
-- ---
Insecticide, Fungicide and Rodenticide Act (7 U.S.C. (S) 136 et seq.).
-- ---
"EPA" means the United States Environmental Protection Agency.
"Existing Environmental Requirements" means those applicable provisions of
any Environmental Requirements (including any interim final regulations) that
are both in effect and required to be met on or prior to the Closing Date.
"Indemnified Party" means any party entitled to be paid, indemnified,
defended or held harmless pursuant to Article II hereof.
"Indemnifying Party" means any party obligated to pay, indemnify, defend or
hold harmless pursuant to Article II hereof.
"Insurance Policies" means the insurance policies listed on Schedule 2.11.
2
<PAGE>
"Maine DEP" means the Maine Department of Environmental Protection.
"Net Tax Benefit" has the meaning set forth in Section 2.7.
"Off-Site Environmental Liabilities" has the meaning set forth in Section
2.2(a)(iii).
"Regulated Material" means:
(i) any substance that is defined or listed in, or otherwise
classified pursuant to, any applicable Environmental Requirements as a
"hazardous material," "hazardous waste" or "toxic substance," "hazardous
substance," or any other formulation intended to define, list or classify
substances by reason of deleterious properties such as ignitibility,
corrosivity, reactivity, radioactivity, carcinogenicity or toxicity; or
(ii) any pollutant or contaminant, or petroleum or petroleum-derived
products, substances or wastes, as defined pursuant to any applicable
Environmental Requirements.
"Standish Facility" means the facility owned by CDI located in Standish,
Maine.
"Tax Reimbursement Amount" has the meaning set forth in Section 2.7.
ARTICLE II
ALLOCATION OF ENVIRONMENTAL LIABILITIES
2.1 Acknowledgement.
----------------
Sellers and Buyer acknowledge and agree that the consideration provided for
in the Asset Purchase Agreement for the Purchased Assets is sufficient and takes
into account the allocation of Environmental Liabilities set forth herein. It
is the intent of the parties that this Agreement shall be the only allocation of
Environmental Liabilities among them.
2.2 Indemnification Obligations of GTE, GTE Connecticut and Sellers.
---------------------------------------------------------------
Effective as of the Closing, GTE, GTE Connecticut, Sellers and their
successors and assigns shall retain and jointly and severally shall indemnify
and hold harmless Buyer and its directors, officers, employees, Affiliates,
agents and assigns, from and against:
(a) any and all Environmental Liabilities:
3
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(i) arising out of or relating to the use, ownership, or operation of
any Acquired Facility except as to the remediation addressed by Section
2.2(a)(iv), to the extent that any such Environmental Liability arises out of or
relates to on-site Contamination existing prior to the Closing Date;
(ii) arising under Existing Environmental Requirements for Sellers' or
any Predecessor's shipping of, or arranging for the treatment, storage or
disposal of, materials at or to any facility other than an Acquired Facility
prior to the Closing Date;
(iii) arising out of or relating to Contamination existing in the area
beyond the boundaries of any Acquired Facility ("Off-Site Environmental
Liabilities"), to the extent any such Off-Site Environmental Liabilities (x)
arise from on-site Contamination set forth in Schedule 2.2 known to exist prior
to the Closing Date, (y) exceed the amount of $50,000 in the aggregate, and (z)
do not arise from any failure by Buyer to satisfy its obligations under Section
4.3; and
(iv) arising out of or relating to any remediation required by the Maine
DEP or the EPA with respect to any on-site Contamination set forth in Schedule
2.2 known to exist prior to the date hereof, which remediation is to be
performed pursuant to Section 2.4(b) below;
(v) arising out of or relating to failure of the acute or chronic
toxicity testing requirements set forth in the NPDES permit for the wastewater
treatment facilities at the Standish Facility on account of the presence in the
Standish Facility's non-contact cooling water of zinc added to the domestic
water supply by the Portland Water District, until such time as GTE, GTE
Connecticut and Sellers purchase, install and convey, subject only to Permitted
Exceptions, the equipment described in the letter dated June 14, 1994 from Eric
Thompson of EOS Research to Jim Jones of the Maine DEP, and take any other
action necessary to implement the treatment system described in that letter,
including preparation of a permit modification, if required, and toxicity test
results on the discharge from the Standish Facility are in compliance with the
NPDES Permit; provided that nothing set forth in this Section 2.2(a)(v) shall
impose upon GTE, GTE Connecticut or Sellers any obligations to operate or
maintain the affected wastewater treatment facilities after the Closing Date,
which obligations and any Environmental Liabilities relating thereto, including
the obligation to comply with the NPDES permit (except to the extent assumed by
Seller with respect to the zinc added by the Portland Water District under this
Section 2.2(a)(v)), shall be assumed by Buyer on and after the Closing Date and
4
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shall be covered by Buyer's obligations pursuant to Section 2.3(a);
(b) any Losses incurred by Buyer arising out of or relating to any material
breach or inaccuracy in any of the representations, warranties and agreements of
Sellers set forth in this Agreement; and
(c) any Environmental Liabilities incurred by Buyer and any other Losses
incurred by Buyer on account of the negligence of GTE, GTE Connecticut or any
Seller, arising out of or relating to GTE's, GTE Connecticut's or any Seller's
use of the easement(s) described in Section 4.2 below except to the extent that
the activity giving rise to such Environmental Liability or other Loss was
required by the Maine DEP and was performed in accordance with such
requirements.
2.3 Indemnification Obligations of Buyer.
------------------------------------
Effective as of the Closing, Buyer, its successors and assigns agree to
assume and indemnify and hold harmless GTE, GTE Connecticut, Sellers and their
respective directors, officers, employees, Affiliates, agents and assigns from
and against:
(a) any and all Environmental Liabilities (i) arising out of or relating to
the use, ownership, or operation of any Acquired Facility to the extent such
Environmental Liability arises out of occurrences or conditions which (x) arise
on or after the Closing Date except to the extent that such Environmental
Liability is retained by GTE Connecticut or Sellers pursuant to Section 2.2 or
(y) initially becomes subject to an Environmental Requirement giving rise to
such Environmental Liability on or after the Closing Date and (ii) arising under
Environmental Requirements for Buyer's shipping of, or arranging for the
treatment, storage or disposal of, materials at or to any facility other than an
Acquired Facility but only to the extent such Environmental Liability relates to
Buyer's shipping of or arranging for the treatment storage or disposal of
materials at such facility on or after the Closing Date;
(b) the first $50,000 of Environmental Liabilities incurred by GTE, GTE
Connecticut or Sellers described in Section 2.2(a)(iii); and
(c) subsequent to the expiration pursuant to Section 2.9 of the obligations
of GTE, GTE Connecticut and Sellers' set forth in Sections 2.2(a)(i), (iii) and
(iv), any and all Environmental Liabilities described in Sections 2.2(a)(i),
(iii) and (iv), as each of said subsections expires.
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2.4 Allocation of Certain Responsibilities.
--------------------------------------
(a) Buyer for itself and its successors and assigns hereby agrees to
perform or otherwise discharge or cause to be discharged any and all
Environmental Liabilities which it assumes pursuant to Section 2.3.
(b) GTE, GTE Connecticut and Sellers, for themselves and their successors
and assigns, hereby agree to perform or otherwise discharge or cause to be
discharged any and all Environmental Liabilities which they retain pursuant to
Section 2.2, including performing or causing to be performed, at the expense of
GTE, GTE Connecticut or Sellers, the remediation required by the Maine DEP or
the EPA with respect to Contamination identified on Schedule 2.2 and the
installation and testing of the equipment and implementation of the treatment
system as described in Section 2.2(a)(v).
(c) With respect to Environmental Requirements pertaining to the post-
closure care of the closed surface impoundment at the Standish Facility pursuant
to the post-closure license for such facility, the parties hereby agree to
allocate the obligations to perform such Environmental Requirements
substantially in accordance with Schedule 2.4.
2.5 Releases.
--------
Buyer hereby releases GTE, GTE Connecticut, Sellers and their Affiliates
from any and all Environmental Liabilities which it assumes pursuant to Section
2.3(a) and (c). GTE, GTE Connecticut and Sellers hereby release Buyer from any
and all Environmental Liabilities which they retain pursuant to Section 2.2
hereof.
2.6 Procedures.
----------
(a) Notices.
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(i) Any party seeking indemnification of any Environmental Liability or
potential Environmental Liability arising from a claim asserted by any
third party shall give written notice to the party from whom
indemnification is sought. Written notice to the Indemnifying Party of the
existence of such a claim shall be given by the Indemnified Party within 30
days after its receipt of a written claim or assertion of liability from
the third party.
(ii) Buyer shall promptly pay GTE, GTE Connecticut and Sellers any of
the $50,000 "deductible" due pursuant to Section 2.3(b) upon receipt of
written notice containing reasonable information describing the work
performed and that such work satisfies the
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criteria for reimbursement set forth in Section 2.2(a)(iii) and costs
incurred by GTE, GTE Connecticut or Sellers. Buyer shall submit payment
within 30 days of receipt of such notice, provided Buyer does not dispute
the payment thereof. The parties shall cooperate to amicably resolve any
such dispute.
(b) Defense. The procedures set forth below relate to indemnifiable claims
-------
of third parties.
(i) The Indemnifying Party may, at its option and expense,
participate in the defense of a claim by any third party. At the request of
the Indemnified Party, the Indemnifying Party shall promptly assume the
costs of defense of the indemnifiable claim, in which event, the
Indemnifying Party shall retain experienced counsel reasonably satisfactory
to the Indemnified Party and thereafter shall control defense of the claim.
Notwithstanding the foregoing, the Indemnified Party shall have the right
to retain counsel of its choice at the expense of the Indemnifying Party
and control the defense of the indemnifiable claim under any of the
following circumstances:
(x) The Indemnifying Party fails to assume the defense of a claim
within 30 days after receiving written notice of the existence of the
claim and, in any event, the Indemnified Party may retain such counsel
and control such defense during such 30-day notice period (unless,
prior to the end of such 30 days, the Indemnifying Party assumes such
defense); or
(y) The Indemnifying Party agrees to assume the defense of a
claim but either reserves its rights to challenge, or does not upon
request acknowledge in writing, its obligation to the Indemnified
Party; or
(z) The Indemnified Party reasonably believes and so notifies the
Indemnifying Party in writing that the claim, even if indemnified for,
materially and adversely will affect its business, financial condition
or results of operations.
(ii) In all cases, the party without the right to control the defenses
of the indemnifiable claim may participate in the defense at its own
expense.
(iii) In the event that any claims by a third party involve both
indemnifiable claims and claims for which no indemnification is owed by the
Indemnifying Party, then the Indemnifying Party and the Indemnified Party
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shall jointly determine at all times thereafter the actions to be taken
with respect to such claims and the control, investigation, prosecution,
defense and settlement thereof.
2.7 Tax Adjustments.
---------------
Any amounts payable by the Indemnifying Party to or on behalf of an
Indemnified Party in respect of an Environmental Liability shall be adjusted as
follows:
(a) If such Indemnified Party is liable for any additional Taxes as a
result of the receipt of amounts in respect of an indemnifiable claim, the
Indemnifying Party will pay to the Indemnified Party in addition to such
amounts in respect of the Environmental Liability within 10 days after being
notified by the Indemnified Party of the payment of such liability (i) an
amount equal to such additional Taxes (the "Tax Reimbursement Amount") plus
(ii) any additional amounts required to pay additional Taxes imposed with
respect to the Tax Reimbursement Amount and with respect to amounts payable
under this clause (ii), with the result that the Indemnified Party shall have
received from the Indemnifying Party, net of the payment of Taxes, an amount
equal to the Environmental Liability to be paid under Section 2.2 or 2.3.
(b) The Indemnified Party shall reimburse the Indemnifying Party an amount
equal to the net reduction in any year in the liability for Income Taxes of
the Indemnified Party of any member of a consolidated or combined tax group
of which the Indemnified Party is, or was at any time, part, which reduction
is actually realized with respect to any period after the Closing Date and
which reduction would not have been realized but for the amounts paid (or any
audit adjustment or deficiency with respect thereto, if applicable) in
respect of an Environmental Liability, or amounts paid by the Indemnified
Party pursuant to this paragraph (a "Net Tax Benefit"). The amount of any Net
Tax Benefit shall be paid not later than 15 days after the date on which such
Net Tax Benefit is used to compute an obligation to pay installments of
estimated tax; provided, however, that if the amount of any Net Tax Benefit
-------- -------
is subsequently affected by reason of any event or events, including any
payment of Income Taxes by such Indemnified Party with respect to the loss of
such Net Tax Benefit upon audit or litigation, appropriate adjustments and
payments to take into account the increase or decrease in such Net Tax
Benefit shall be made between the Indemnified Party and the Indemnifying
Party within 15 days after such event or events. Any reasonable expenses
associated with the realization of a Net Tax Benefit or any contest or
proceeding with respect to a Net Tax Benefit shall be deemed
8
<PAGE>
to reduce such Net Tax Benefit. Buyer agrees to provide GTE Connecticut and
Sellers or their designated representatives with assistance and such
documents and records reasonably requested by them that are relevant to their
ability to determine whether a Net Tax Benefit has been realized including
copies of Tax Returns, estimated tax payments, schedules, and related
supporting documents.
(c) Notwithstanding anything in this Section 2.7 to the contrary, no Tax
Reimbursement Amount or Net Tax Benefit shall arise where and to the extent
that adjustment to the basis of any asset resulting from a payment being
treated as an adjustment to the Purchase Price pursuant to Section 2.13 or
any additional or reduced Taxes resulting from any such basis adjustment
unless there is a final determination providing that such payment is not an
adjustment to the Purchase Price for federal income tax purposes and is
instead includible in the gross income of the recipient thereof.
2.8 Settlement Limitations.
----------------------
Notwithstanding anything in this Article II to the contrary, neither the
Indemnifying Party nor the Indemnified Party shall, without the written consent
of the other party, settle or compromise any indemnifiable claim or permit a
default or consent to entry of any judgment, except that (x) GTE, GTE
Connecticut or Sellers may settle or compromise any indemnifiable claim if it
relates to, or the claim resulting in such judgment would have given rise to,
any indemnifiable claim under Section 2.2 and (y) Buyer may settle or compromise
any indemnifiable claim if it relates to, or the claim resulting in such
judgment would have given rise to, an indemnifiable claim under Section 2.3. If
a settlement offer solely for money damages is made by the applicable third
party claimant, and the Indemnifying Party notifies the Indemnified Party in
writing of the Indemnifying Party's willingness to accept the settlement offer
and pay the amount called for by such offer without reservation of any rights or
defenses against the Indemnified Party, the Indemnified Party may continue to
contest such claim, free of any participation by the Indemnifying Party, and the
amount of any ultimate liability with respect to such indemnifiable claim that
the Indemnifying Party has an obligation to pay hereunder shall be limited to
the lesser of (A) the amount of the settlement offer that the Indemnified Party
declined to accept plus the Environmental Liabilities of the Indemnified Party
relating to such indemnifiable claim through the date of its rejection of the
settlement offer and (B) the aggregate Environmental Liabilities of the
Indemnified Party with respect to such claim. Except as provided in Section
2.11, the Indemnifying Party shall be subrogated, to the extent of such payment,
to all rights and remedies of the Indemnified Party to any insurance benefits or
other claims of the Indemnified Party with respect to such claim.
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2.9 Survival.
--------
This Article II and the indemnification hereunder shall survive and shall
remain in effect indefinitely, except as follows:
(a) Sections 2.2(a)(i), (ii) and 2.2(b) shall survive for, and any claim
for indemnification shall be made prior to the expiration of, a period of three
years after the Closing Date;
(b) Section 2.2(a)(iii) shall survive:
(i) indefinitely with respect to any Off-Site Environmental Liabilities
arising out of or relating to personal injury;
(ii) for, and any claim for indemnification shall be made prior to the
expiration of, a period of five years after the Closing Date with respect to any
Off-Site Environmental Liabilities arising out of or relating to any matter
other than personal injury, including, but not limited to damage to property,
the environment or natural resources; and
(c) Sections 2.2 (a)(iv) and 2.2(c) shall survive for, and any claim for
indemnification shall be made prior to the expiration of, a period ending three
years following the date on which GTE, GTE Connecticut or Sellers deliver a
certification or certifications to the Maine DEP that (i) Contamination of the
groundwater originating from the surface impoundment at the Standish Facility or
(ii) Contamination of the groundwater originating from the out-of-service leach
field at the Standish Facility has been remediated in accordance with the
applicable requirements of the Maine DEP, whichever occurs later; provided,
--------
however, that, neither GTE, GTE Connecticut nor any Seller shall deliver any
- ------- ----
such certifications unless and until the Contamination set forth in this Section
2.9(c)(i) and (ii) has been remediated in accordance with the applicable
requirements of the Maine DEP or the EPA; and
(d) any representations and warranties contained in or made pursuant to
this Agreement shall survive for a period of three years after the Closing Date.
Any matter covered by this Article II as to which a claim has been asserted
by notice to the other party under Section 2.6 that is pending or unresolved at
the end of any applicable survival period shall continue to be covered by this
Article II notwithstanding any applicable statute of limitations (which the
parties hereby waive) until such matter is finally terminated or otherwise
resolved by the parties under this Agreement or by a court of competent
jurisdiction and any amounts payable hereunder are finally determined and paid.
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2.10 Actual Damages.
--------------
Any indemnifiable claim shall be limited to the amount of actual
Environmental Liabilities sustained by the Indemnified Party and shall be net of
any insurance proceeds received by the Indemnified Party from insurance
companies, including affiliated insurance companies. The Indemnified Party
shall promptly reimburse the Indemnifying Party for any insurance proceeds it
may so receive subsequent to its indemnification under this Agreement.
Notwithstanding anything to the contrary contained herein, Environmental
Liabilities with respect to claims of any Indemnified Party shall not include
consequential damages.
2.11 Acknowledgement.
---------------
Buyer hereby acknowledges that (i) with respect to Environmental
Liabilities, the Insurance Policies (and benefits thereunder) have been assigned
to an Affiliate of GTE Connecticut and (ii) Buyer shall not have any rights to
any Insurance Policies (or benefits thereunder) with respect to Environmental
Liabilities. Notwithstanding the foregoing, to the extent that Insurance
Policies cover asbestos claims, the benefits of such Insurance Policies remain
available to Buyer.
2.12 Limitations on Indemnification
------------------------------
Neither GTE, GTE Connecticut nor either Seller shall be required to
indemnify any Person under Section 2.2 unless the aggregate of all amounts for
which indemnity would otherwise be payable by GTE, GTE Connecticut and Sellers
thereunder exceeds $50,000; provided that the foregoing limitation upon the
obligations of GTE, GTE Connecticut and Sellers under Section 2.2 shall not
apply to amounts for which indemnity would otherwise be payable under Section
2.2(a)(iii) which latter amounts shall also not be included in calculating
whether the aggregate has been exceeded.
2.13 Treatment of Payments.
---------------------
All payments made pursuant to this Article II shall be treated as provided
in Section 8.7 of the Asset Purchase Agreement.
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ARTICLE III
PERMITS AND APPROVALS;
REPRESENTATIONS; CLOSING CONDITIONS
3.1 Duties to Cooperate.
-------------------
GTE, GTE Connecticut, Sellers and Buyer shall cooperate and use their best
efforts to obtain, as necessary, (a) those Approvals and Permits required by any
applicable Existing Environmental Requirement that are held by Sellers to enable
Buyer to continue operations in the same manner subsequent to the Closing Date
as before the Closing Date, and (b) those Approvals and Permits required by any
applicable Existing Environmental Requirement necessary to effect the transfer
of the Purchased Assets contemplated by the Asset Purchase Agreement. Sellers
and Buyer shall promptly prepare, or cause to be prepared, all registrations,
filings and applications, requests and notices preliminary to all such Approvals
and Permits and shall furnish each other such necessary information and
reasonable assistance as the other may reasonably request in connection with the
preparation of such registrations, filings or applications under the provisions
of such Existing Environmental Requirements. GTE, GTE Connecticut, Sellers, and
Buyer shall supply to each other copies of all correspondence, filings or
communications, including file memoranda evidencing telephonic conferences, by
such party or its Affiliates with any Governmental Entity or members of its
staff, with respect to the subject matter of this Section 3.1 and Section 2.2.
3.2 Representations.
---------------
GTE, GTE Connecticut and each Seller represents, warrants and agrees as
follows:
(a) Except as set forth in Schedule 2.2 and Schedule 3.2, to the best
knowledge of Sellers, there are no Environmental Liabilities at the Acquired
Facilities that individually or in the aggregate would reasonably be expected
to have a material adverse effect on (i) the ability of Sellers to consummate
the transactions contemplated by the Asset Purchase Agreement or (ii) the
Business.
(b) Except as set forth on Schedule 3.2, to the best knowledge of Sellers,
Sellers hold (i) all Environmental Permits that are required by any
Governmental Entity in connection with Existing Environmental Requirements to
permit them to conduct the Business as now conducted, and (ii) all such
Environmental Permits are valid and in full force and effect and, provided
Buyer has made the appropriate applications and proposes no change to the
Environmental Permits, will either remain valid and in full force and effect
upon consummation of the transactions
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contemplated by this Agreement or will be issued to Buyer following such
applications except where, in the case of both clauses (i) and (ii), the
failure to hold any such Environmental Permit would not singly or in the
aggregate, constitute a Material Adverse Circumstance. To the best knowledge
of Sellers, no suspension, cancellation or termination of any Environmental
Permit referred to in clause (i) above (after taking into account the
exception thereto and any such cancellation or termination resulting from
this transaction) is threatened or imminent.
3.3 Conditions to Effectiveness.
---------------------------
(a) The provisions of Article II of this Agreement shall not take effect
until the following conditions have been satisfied, unless waived in writing by
all parties:
(i) Those Environmental Permits that are required by any Existing
Environmental Requirement to be held by Buyer to enable Buyer to continue
operations at any Acquired Facility in substantially the same manner
subsequent to the Closing Date as before Closing Date shall have been
received or obtained on or prior to or shall otherwise be effective as of the
Closing Date except for any such Environmental Permit the failure to have
received or obtained would not, individually or in the aggregate, constitute
a Material Adverse Circumstance or otherwise materially interfere with the
conduct of the business at any Acquired Facility.
(ii) Any Permit and Approval required by any applicable Existing
Environmental Requirement necessary to effect the transfer of the Purchased
Assets shall have been received or obtained on or prior to or shall otherwise
be effective as of the Closing Date.
(iii) The representations and warranties of Sellers contained herein
shall be true in all material respects at the Closing Date with the same
effect as though made at such time.
(iv) Buyer shall have received or obtained a new RCRA generator
identification number for use by Buyer in connection with any hazardous waste
management activities to be carried out by Buyer under Environmental
Requirements on or after the Closing Date at the Standish Facility and GTE
Connecticut shall have retained the existing RCRA generator identification
number for use in connection with any hazardous waste management activities
required to be carried out by GTE, GTE Connecticut and Sellers under this
Agreement at the Standish Facility, provided that, in the event Buyer is
unable to obtain a new RCRA generator identification number, GTE, GTE
Connecticut and Sellers, at their option, may request a new RCRA
identification number or, the parties
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agree that Buyer, GTE, GTE Connecticut and Sellers may use the existing RCRA
generator identification number for the Standish Facility, in which event,
(x) this condition to closing shall be deemed waived by the parties, (y)
Buyer shall defend, indemnify and hold harmless GTE, GTE Connecticut, Sellers
and their respective directors, officers, employees, Affiliates, agents and
assigns from and against any environmental liabilities arising out of or
relating to Buyer's use of the existing RCRA generator identification number
and (z) GTE, GTE Connecticut and Sellers shall defend, indemnify and hold
harmless Buyer, its directors, officers, employees, Affiliates, agents and
assigns from and against any Environmental Liabilities arising out of or
relating to GTE's GTE Connecticut's or Sellers' use of the existing RCRA
generator identification number. The procedures applicable to Environmental
Liabilities set forth in Section 2.6 shall apply to any matter for which
indemnification is sought hereunder.
(v) Buyer shall have received the results of a phase 1 environmental
site assessment conducted by Buyer's environmental consultants and shall have
notified Sellers by July 21, 1994 of such results. Such results shall not
have disclosed any Environmental Liability not previously disclosed by
Sellers to Buyer requiring more than $100,000 to remediate.
(b) The failure to receive any Approval or Permit as described in Section
3.3(a) shall not excuse Buyer from its obligations to consummate the Closing if
such failure to receive an Approval or Permit can be remedied subsequent to
Closing by agreement of the Governmental Entity from which the Permit or
Approval is required to be obtained to allow operations to continue without the
incurrence by Buyer of any fines, penalties or other sanctions or the imposition
on Buyer of any material limitations on the affected operations, and there is
prior agreement with Buyer and Sellers to accept the terms of any such
agreement.
(c) GTE, GTE Connecticut, Sellers and Buyer agree to cooperate and to use
their best efforts to obtain (and will immediately prepare all registrations,
filings and applications, requests and notices preliminary to obtaining) all
Permits, Approvals and the new RCRA generator identification number for Buyer
required by the conditions to Closing set forth in Section 3.3(a).
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ARTICLE IV
CONTINUING COVENANTS
4.1 Buyer's Obligation to Maintain Records.
--------------------------------------
After the Closing date, Buyer shall maintain any records or other documents
at the Acquired Facilities relating to the subject matter of this Agreement
indefinitely or until notification from GTE, GTE Connecticut that such
maintenance is no longer necessary.
4.2 Sellers' Access to Acquired Facilities After the Closing Date and
Buyer's Obligations in Respect of a Subsequent Owner.
-----------------------------------------------------------------
(a) Buyer shall cooperate with GTE, GTE Connecticut and Sellers to the
extent necessary to allow them, among other things, to obtain access to all or
any portion of the Acquired Facilities and to records or other documents in the
possession or control of Buyer, subject to doctrines of legal privilege, to the
extent necessary to perform any work required by this Agreement, including
granting to GTE, GTE Connecticut and Sellers easements to afford such access.
Buyer also agrees that, in connection with the conveyance of any real property
included in the Purchased Assets, Buyer shall grant to GTE, GTE Connecticut and
Sellers such easement or easements and create such restrictive covenant or
covenants upon the use and enjoyment of such real property, all as shall be
agreed to by the parties as necessary for any of the aforesaid purposes in
substantially the form set forth in Schedule 4.2.
(b) If after the Closing Date, (i) GTE, GTE Connecticut, Sellers or Buyer
must comply with any Environmental Requirement, (ii) GTE, GTE Connecticut,
Sellers or Buyer is subject to any claim or Action with respect to Environmental
Liabilities, or (iii) for purposes of carrying out any obligations hereunder,
GTE, GTE Connecticut, Sellers, and Buyer shall cooperate to the extent necessary
to permit such actions to be taken as may be necessary to comply with such
Environmental Requirements and the terms of this Agreement. Buyer shall provide
GTE Connecticut with timely notice of any oral or written communication relating
to Environmental Liabilities for which GTE, GTE Connecticut or Sellers may be
required to take action pursuant to this Agreement.
(c) In the event that Buyer fails to grant GTE, GTE Connecticut and
Sellers access to or otherwise materially interferes with their right to access
the Acquired Facilities, materially violates any restrictive covenant as
described in this Section 4.2 or materially interferes with or adversely affects
the performance by GTE, GTE Connecticut or Sellers of any activity described in
Section 2.2(a)(iv), any one of which occasions a Loss to GTE, GTE Connecticut or
Sellers (i) Buyer
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shall defend, indemnify and hold harmless GTE, GTE Connecticut, Sellers and
their respective directors, officers, employees, Affiliates, agents and assigns
from and against any Losses incurred in whole or in part on account of such
failure, interference or breach or arising out of or relating thereto in
accordance with the same procedures applicable to Environmental Liabilities as
set forth in Section 2.6 hereof, and (ii) Buyer agrees that such failure,
interference or breach constitutes irreparable and immediate injury to GTE, GTE
Connecticut and Sellers for which GTE, GTE Connecticut and Sellers have no
adequate remedy at law and (iii) Buyer agrees that as long as Buyer is the owner
or occupier of the Acquired Facility, prior notice of any proceeding initiated
by GTE, GTE Connecticut or Sellers seeking relief in the nature of a temporary
restraining order enforcing said rights of access or restrictive covenant shall
be adequate if provided by telephone communication, telecopy or personal
delivery to any officer or plant manager of Buyer at least two hours in advance
of the initiation of the proceeding, unless additional advance notice is
required by law and such requirement is non-waivable.
(d) Buyer shall cause any subsequent owner of the Business or any Acquired
Facility to agree to (i) comply with the obligations of Buyer under Sections
4.2(a),(b) and (c) and (ii) indemnify GTE, GTE Connecticut and Sellers with
respect to such Acquired Facility in accordance with Buyer's obligations
hereunder; provided that no such agreement shall relieve Buyer of any such
obligations.
4.3 Off-Site Remediation Through On-Site Activities.
-----------------------------------------------
If, after the Closing Date, GTE, GTE Connecticut and Sellers are required
to remediate off-site groundwater contamination in the area beyond the
boundaries of the Standish Facility, and if such off-site groundwater
contamination may be addressed through Sellers' on-site remedial activities
without interfering with Buyer's operations or ongoing remedial activities, then
Buyer shall cooperate with GTE, GTE Connecticut and Sellers in conducting such
remediation, including allowing GTE, GTE Connecticut and Sellers to utilize the
groundwater treatment system constructed by GTE, GTE Connecticut and Sellers at
the Standish Facility at no charge to GTE, GTE Connecticut and Sellers. With the
consent of Buyer and Maine DEP (if required), GTE, GTE Connecticut and Sellers
may, at their own expense, modify or expand the existing groundwater treatment
system to accomplish the remediation of any off-site groundwater contamination.
4.4 Transfer of Title to Remediation Facilities.
--------------------------------------------
Upon termination of the indemnification obligations set forth in
Section 2.2(a)(iv), GTE, GTE Connecticut and Sellers shall transfer to Buyer
title to the assets used at the
16
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remediation facility operated at the surface impoundment area and proposed to be
conducted at the remediation facility to be operated at the out-of-service leach
field area, free and clear of any Encumbrances other than the Permitted
Exceptions.
ARTICLE V
EXCLUSIVE AGREEMENT
5.1 General.
-------
GTE, GTE Connecticut, Sellers, and Buyer, for themselves and for their
successors and assigns, acknowledge that all rights, liabilities,
representations, warranties, disclosures, indemnifications, remedies and any
other matters relating to Regulated Materials, Environmental Requirements,
Environmental Permits and Environmental Liabilities shall be governed for all
purposes by this Agreement; provided that the general provisions of Sections
4.1, 4.3, 5.2, 9.2, 9.5, 9.6, 9.7, 9.8 and 9.9 of the Asset Purchase Agreement
shall apply to such matters and are incorporated herein by reference.
5.2 Permits and Approvals.
---------------------
Without limiting the scope of Section 5.1, any matter relating to any
Permit or Approval issued or required to be issued pursuant to any Environmental
Requirement shall be governed for all purposes by this Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 Documentary Conventions.
-----------------------
This Agreement shall be governed by all the Documentary Conventions.
6.1 Termination.
-----------
This Agreement shall terminate in its entirety if the Asset Purchase
Agreement terminates pursuant to Section 7.1 thereof. In the event that this
Agreement shall be terminated on account of a termination of the Asset Purchase
Agreement pursuant to Section 7.1 thereof, the parties shall have no further
rights or liabilities hereunder.
6.3 Survival.
--------
Except as provided in Section 2.9 and 6.2 of this Agreement, this
Agreement, its terms, conditions and limitations shall survive the Closing Date
and shall remain in full force and effect indefinitely.
17
<PAGE>
6.4 Effective Dates.
---------------
Except as set forth in Section 3.3 of this Agreement, this Agreement
shall take effect upon the date of execution hereof.
18
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their authorized representatives as of the date first above
mentioned.
CONTROL DEVICES, INC.
By:
------------------------
Name:
Title:
GTE CORPORATION
By:
------------------------
Name:
Title:
GTE PRODUCTS OF CONNECTICUT
CORPORATION
By:
------------------------
Name:
Title:
GTE CONTROL DEVICES INCORPORATED
By:
------------------------
Name:
Title:
DOMINICAN OVERSEAS TRADING COMPANY
By:
------------------------
Name:
Title:
S-1
ENVIRONMENTAL AGREEMENT
<PAGE>
EXHIBIT 10.2
LEASE ASSIGNMENT, ASSUMPTION AGREEMENT AND RELEASE
(Dominican Republic Property)
THIS LEASE ASSIGNMENT, ASSUMPTION AGREEMENT AND RELEASE (this "Assignment")
is made as of the 29th day of July, 1994, between GTE Control Devices
Incorporated, a Delaware corporation ("Assignor"), and CONTROL DEVICES, INC. an
Indiana corporation ("Assignee"), pursuant to the Asset Purchase Agreement dated
as of July 6, 1994 by and among Assignor, Assignee, GTE Products of Connecticut
Corporation and Dominican Overseas Trading Company (the "Agreement"). Terms
used herein and not otherwise defined herein shall have the meanings assigned to
them in the Agreement.
W I T N E S S E T H :
WHEREAS, pursuant to the Agreement, Assignor has agreed to assign, transfer
and convey, and Assignee has agreed to acquire and accept, certain assets,
properties, rights, privileges, claims and contracts described in the Agreement
including, without limitation, the interest of Assignor under the Lease attached
hereto as Exhibit 1 (the "Leasehold");
WHEREAS, prior to the transfer of the assets pursuant to the Agreement (the
"Closing"), certain consents and regulatory approvals must be obtained and other
requirements must be satisfied;
WHEREAS, Assignee has agreed under the Agreement to assume and discharge
all obligations of Assignor under the Lease which arise from and after the
Closing.
NOW, THEREFORE, with reference to the foregoing recitals which are
incorporated herein by this reference and for other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Assignor does hereby assign, grant, transfer and convey to Assignee all
of its right, title and interest as tenant under the Lease demising the real
property described therein (the "Real Property").
2. Effective as of the date hereof, Assignee accepts the foregoing
assignment and assumes and agrees to perform and to pay or discharge any and all
obligations of the tenant under the Lease arising from and after the Closing.
3. Assignor hereby agrees not to further assign, grant, transfer, sell,
convey, mortgage, pledge or otherwise encumber all or any portion of its
interest in the Lease. Any attempted further assignment, grant, transfer, sale,
conveyance, mortgage, pledge or other encumbrance, whether made voluntarily or
otherwise, shall be void and of no effect.
4. Assignor represents to Assignee that Exhibit 1 constitutes a true and
complete copy of the Lease including all amendments, modifications and
supplements thereto.
<PAGE>
5. Assignee hereby releases Assignor from any further obligation under the
terms of the Lease arising on or after the date hereof.
6. The persons executing this Assignment hereby represent and warrant that
they are duly authorized to execute and deliver this Assignment on behalf of
Assignor or Assignee, as the case may be.
7. This Assignment may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute
only one instrument.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Assumption Agreement to be executed as of the date first above written.
GTE CONTROL DEVICES INCORPORATED
By: /s/ Marianne Drost
------------------
Name: Marianne Drost
Title: Secretary
CONTROL DEVICES, INC.
By: /s/ John M. Ramey
------------------
Name: John M. Ramey
Title: Vice President
3
<PAGE>
EXHIBIT 1
TO
LEASE ASSIGNMENT AND ASSUMPTION AGREEMENT
(DOMINICAN REPUBLIC PROPERTY)
LEASE DATED SEPTEMBER 23, 1993
BETWEEN
WESTINGHOUSE ELECTRIC CORPORATION
AND
GTE CONTROL DEVICES INCORPORATED
RELATING TO
DOMINICAN REPUBLIC PROPERTY
Exhibit 1-1
<PAGE>
LEASE
THIS LEASE. made as of September 23 , 1993, is between WESTINGHOUSE
ELECTRIC CORPORATION, a Pennsylvania corporation, with its principal place of
business at Gateway Center, Pittsburgh, PA 15222 (hereinafter called "LESSOR")
and GTE CONTROL DEVICES INCORPORATED, having its office at Parque Industrial de
Itabo, Haina Santo Domingo, the Dominican Republic (hereinafter called
"LESSEE").
WITNESSETH:
-----------
LESSOR, for and in consideration of payment by LESSEE of the rent
hereinafter reserved and the performance by LESSEE of the covenants and
agreements hereinafter agreed to be performed by it, and in accordance with all
of the provisions hereinafter set forth, does hereby let and demise unto LESSEE
and LESSEE does hereby take and hire from LESSOR, the following described real
property hereinafter referred to as the "leased premises":
a 25,567 square foot building located at the Parque Industrial Itabo in
Haina, Dominican Republic, more specifically described in Exhibit A,
referenced hereto and made a part hereof.
This lease is made upon the foregoing and the following agreements,
covenants and conditions, all and every one of which LESSOR and LESSEE agree to
keep and perform:
1. RENT:
(a) LESSEE shall pay LESSOR rent (sometimes referred to as "Rent" or
"rent") in equal monthly installments of (i) 50% of the first year rental (U.S.
$4,793.82) for the three-month period beginning on the Commencement Date; (ii)
U.S. $9,587.63 (Nine Thousand, Five Hundred Eighty Seven Dollars and Sixty-Three
Cents) during the second period of one year; and (iii) U.S. $11,718.21 (Eleven
Thousand, Seven Hundred Eighteen Dollars and Twenty-One Cents) during the third
period of two years.
(b) LESSEE shall pay rent which shall commence on September 28, 1993, as
------------
set forth above on the first day of each month in advance and without demand, to
LESSOR at the address in the Dominican Republic specified by LESSOR.
(c) The obligation to pay hereunder is an independent covenant of the
LESSEE and shall be paid when due without any prior demand, and without any
abatement, offset, deduction or counterclaim except as explicitly permitted
herein.
(d) All payments of rent shall be made in United States dollars to the
extent permitted by law, and if not so permitted, shall be paid in the local
currency equivalent of the United States dollar
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<PAGE>
amounts stated herein, using the then-prevailing exchange rate.
2. SECURITY DEPOSIT:
LESSEE has deposited with LESSOR the sum of U.S. $9,587.63 as security for
the faithful performance and observance by LESSEE of the terms, provisions, and
conditions of this lease. It is agreed that in the event LESSEE defaults in
respect of any of the terms, provisions, and conditions of this lease, including
but not limited to the payment of rent and additional rent, within 30 days of
written notice or within any specific cure period set forth herein, LESSOR may
use, apply or retain the whole or any part of security so deposited to the
extent required for the payment of any rent and additional rent or any other sum
as to which LESSEE is in default or for any sum which LESSOR may expend or may
be required to expend by reason of LESSEE's default in respect of any of the
terms, covenants, and conditions of this lease including but not limited to any
damages or deficiency in the reletting of the premises, whether such damages or
deficiency accrued before or after summary proceedings or other reentry by
LESSOR.
In the event that LESSEE shall fully and faithfully comply with all of the
terms, provisions, covenants, and conditions of this lease, the security deposit
shall be returned to LESSEE after the date fixed at the end of the lease and
after delivery of entire possession of the leased premises to landlord.
In the event of a sale of the land and building or leasing of the building
of which the leased premises form a part, LESSOR shall have the right to
transfer the security to the LESSEE, and LESSOR shall thereupon be released by
LESSEE from all liability for the return of such security; and agree to look to
the new LESSOR solely for the return of said security; and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
security to a new LESSOR.
LESSEE further covenants that it will not assign or encumber or attempt to
assign or encumber the moneys deposited herein as security, except in connection
with an assignment permitted under Article 15, and that neither LESSOR nor its
successors or assigns shall be bound by any such assignment, encumbrance,
attempted assignment, or attempted encumbrance.
3. TERM:
This lease shall have a term of three years and three months, commencing as
of September 28, 1993, (the "Commencement Date") and ending on December 28,
1996.
4. OPTION TO RENEW:
(a) LESSEE shall have the right to renew and extend the term of the lease
on a year-to-year basis beginning upon the expiration of the initial term,
provided that LESSEE, at least thirteen (13) months prior to the expiration of
the initial term, gives LESSOR written notice of its intention to exercise such
right. LESSOR shall have the right to accept or refuse said renewal by written
notice
Page 2
<PAGE>
to LESSEE within thirty (30) days of LESSEE's notice.
(b) The annual rent for each renewal term shall be computed by multiplying
the annual rent as set forth herein by a fraction whose denominator shall be the
U.S. Department of Labor Statistics Consumer Price Index, U.S. City Average, All
Items, for the month of January of the year prior to exercising the option, and
whose numerator shall be said Consumer Price Index, U.S. City Average, All
Items, for the month of January of the year of the lease renewal date. In the
event the above index is discontinued or substantially changed so as not to be
comparable, then LESSOR and LESSEE shall agree upon a new index to substitute
for said Consumer Price Index and shall otherwise be subject to all agreements,
covenants and conditions set forth in this lease.
5. USE OF PREMISES:
(a) LESSEE will use and occupy the leased premises for assembling
electromechanical devices and uses ancillary thereto and for no other purposes.
LESSEE will comply with any and all laws, ordinances, rules, orders, and
regulations of any governmental authority which are applicable to the conduct of
LESSEE'S business on the leased premises provided, however, that LESSEE shall
not hereby be under any obligation to make any structural change in or
alteration of the leased premises.
(b) LESSOR shall have the right to enter upon the leased premises from
time to time in order to inspect and show potential purchasers the same (but
without any duty to inspect) and to perform any maintenance, repairs, remedies,
and replacements which are necessary or required under the provisions of this
lease, but this right shall be exercised in such manner as not to interfere with
LESSEE's use and enjoyment of the leased premises, shall be in compliance with
LESSEE's reasonable security regulations, and shall be subject to any and all
laws, orders, or regulations of any governmental authority with jurisdiction
over the leased premises or LESSOR's conduct as it relates to the leased
premises.
(c) LESSEE shall have the non-exclusive right to use the roads and other
common areas located on other property owned by LESSOR or which LESSOR has the
right from others to use that are necessary to provide free and unfettered
access to the leased premises. LESSOR shall be responsible for the maintenance
and repair of such roads and common areas. To the extent LESSOR is the
beneficiary of any rights or privileges as a result of the leased premises being
located within the San Cristobal Industrial Free Zone, LESSEE shall be entitled
during the term of this lease to enjoy such rights and privileges as applicable
to the leased premises and enforce them in its own name, or if necessary and
with written notice to and consent from LESSOR, in the name of LESSOR.
6. BUILDING SERVICES:
LESSEE shall transact business directly with the respective utilities and
shall pay to such utilities all charges for sewage disposal, janitorial
services, electricity, water and gas or other fuel
Page 3
<PAGE>
consumed by it upon the leased premise.
7. INSURANCE:
LESSEE shall procure and maintain during the term of this lease policies of
fire and extended coverage insurance insuring the building and improvements
constituting the leased premises in an amount equal to at least one hundred
percent (100%) of the full replacement value thereof, excluding foundation and
excavation costs. The proceeds of such policies shall be made payable to LESSOR
and LESSEE as their interests may appear and shall be used as herein provided.
Any loss shall be adjusted by LESSEE. LESSEE shall upon demand, obtain and
deliver to LESSOR certificates evidencing the existence of the policies of
insurance required to be procured and maintained by LESSEE pursuant to this
paragraph. The policies required hereunder and any certificates evidencing such
policies shall provide that they shall not be cancelled or changed without first
giving LESSOR at least ten (10) days' prior written notice.
LESSEE shall also procure and maintain all insurance which it deems
necessary for its protection against loss of or damage to any of its property
situated on the leased premises.
Nothing contained in this lease shall be construed to require LESSOR to
repair, replace, reconstruct, or pay for any property of LESSEE which may be
damaged or destroyed by fire, flood, windstorm, earthquake, strikes, riots civil
commotions, acts of public enemy, acts of God, or other casualty, and LESSEE
hereby waives, on behalf of itself and its insurer, all rights of subrogation
and claims against LESSOR for all loss or damage arising out of perils normally
insured against by standard fire and extended coverage insurance.
LESSEE shall, at its sole cost and expense, procure and maintain throughout
the term of this lease, a policy of public liability insurance, naming LESSOR as
an additional insured, with limits not less than as follows: Five Hundred
Thousand Dollars ($500,000.00) with respect to injury to any one person, One
Million Dollars ($1,000,000.00) with respect to any one occurrence, and Five
Hundred Thousand Dollars ($500,000.00) with respect to property damage arising
out of any one occurrence: and said policies shall contain a clause that the
insurer will not cancel or change said policy or polices without first giving
LESSOR at least ten (10) days' prior written notice.
8. MAINTENANCE AND REPAIRS:
LESSEE shall at all times during the term of this lease, and at its sole
cost and expense, keep and maintain or cause to be kept and maintained in repair
and good condition (ordinary wear and tear excepted) the leased premises,
including the air conditioning system. LESSEE shall use all reasonable
precaution to prevent waste, damage or injury to the leased premises. If (i)
repairs are required due to a structural defect or problem with the building or
(ii) a capital improvement to the leased premises (which does not relate solely
to the nature of Lessee's operations) is required by law, then Lessor shall
undertake such repairs or improvements, unless the Lessor reasonably determines
that the costs are not economically justifiable, in which event the parties
shall discuss an alternative
Page 4
<PAGE>
allocation of such costs. If LESSOR and LESSEE cannot agree on an allocation,
then either party shall have the right to terminate this lease upon 60 days'
prior written notice. LESSEE shall also receive the benefit of all seller or
manufacturer warranties and service contracts applicable to the leased premises.
9. DAMAGE TO OR DESTRUCTION OF PREMISES:
If, during the term of this lease, the leased premises are damaged by fire,
flood, windstorm, strikes, riots, civil commotions, acts of public enemy, acts
of God, or other casualty so that the same are rendered wholly unfit for
occupancy, so that it cannot be reasonably repaired within thirty (30) days,
then upon the making of such determination either LESSOR or LESSEE may terminate
this lease upon written notice. If said premises shall be damaged by any of the
above casualties as not to be rendered wholly unfit for occupancy, LESSOR shall
repair the premises promptly and during the period from the date of such damage
until the repairs are completed the rent shall be apportioned so that LESSEE
shall pay as rent an amount which bears the same ratio to the entire monthly
rent as the portion of the leased premises which LESSEE is able to occupy
without disturbance during such period bears to the entire leased premises. If
neither party terminates the lease or the premises are not wholly unfit for
occupancy, the parties shall determine how long it will take to rebuild the
building, or, if applicable, the cost of such restoration, within fifteen (l5)
days of the casualty. Should neither party terminate the lease, LESSOR shall
promptly commence to diligently correct such damage or destruction.
Notwithstanding anything to the contrary herein if such restoration is not
completed within one hundred twenty (120) days from the time of such damage,
then this lease, at the option of the LESSEE, may be terminated as of the date
of such damage. In the event either LESSOR or LESSEE elects to terminate the
lease pursuant to this Section 9, the LESSEE shall pay the rent apportioned to
the time of damage and shall immediately surrender the leased premises to LESSOR
who may enter upon and repossess the same and LESSEE shall be relieved from any
further liability hereunder; provided that LESSEE shall have a reasonable period
of time to arrange for the removal of any of its property from the premises. If
neither party elects to terminate the lease, and if any damage by any of the
above casualties is repaired in a timely manner, this lease shall not be
affected in any manner except that the rent shall be suspended and shall not
accrue from the date of such damage until such repairs have been completed. If
the damage by any of the above casualties is so slight that LESSEE is not
disturbed in its possession and enjoyment of the leased premises, then LESSEE
shall repair the same promptly and in that case the rent accrued or accruing
shall not abate. All such slight damage shall in any event be repaired in a
reasonable time and in a manner which will not materially interfere with
LESSEE's possession and enjoyment of the leased premises.
10. ACTIONS OF PUBLIC AUTHORITIES:
In the event that any exercise of the power of eminent domain by any
governmental authority, or by any other party vested by law with such power
shall at any time substantially interfere with LESSEE's use and enjoyment of the
leased premises for the purposes set forth in Section 3, LESSOR and LESSEE shall
each have the right thereupon to terminate this lease. In the
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<PAGE>
event of any such action both LESSOR and LESSEE shall have the right to claim,
recover, and retain from the governmental authority or other party taking such
action the damages suffered by them respectively as a result of such action;
provided, however, LESSEE hereby expressly waives the right to recover any award
not separately made to LESSEE or which would in any maimer reduce or diminish
the award LESSOR would then be entitled to receive in such proceedings.
11. IMPROVEMENTS BY LESSEE:
LESSEE may make such alterations, additions, or improvements in or to the
leased premises as it shall consider necessary or desirable for the conduct of
its business. All such work shall be done in a good and workmanlike manner, and
the structural integrity of any Building shall not be impaired, and no liens
shall attach to the leased premises by reason thereof. Further, if the value of
said work shall exceed Five Thousand Dollars ($5,000.00) or LESSEE would not
plan to remove the work upon termination of the lease, then LESSEE must first
obtain LESSOR's prior written approval for the work, which approval shall not be
unreasonably withheld or delayed. LESSEE shall not have the right to obtain
financing for any improvements to the leased premises contemplated by this
paragraph which would create or result in a lien on the leased premises and
shall not have the right to place a mortgage, deed of trust, deed to secure debt
or other security document on LESSEE's estate in the leased premises in order to
secure such financing. Should LESSEE desire to perform some alteration or
improvement upon the leased premises, it shall, prior to commencing the work,
transmit a reasonably detailed description of the work to LESSOR, including
drawings or plans. Within ten (10) days of the receipt of the same, LESSOR shall
notify LESSEE as to its approval of the drawings or plans, which approval shall
not be unreasonably withheld. If LESSOR has not notified LESSEE of its
disapproval of the drawings or plans by the end of such ten (10) day period,
LESSOR shall be deemed to have approved such drawings and plans. Upon the
termination of this lease, such alterations, additions or improvements shall be
removed by the LESSEE, provided that any part of the leased premises affected by
such removal shall be restored by LESSEE to its original condition, reasonable
wear and tear excepted, unless LESSOR has consented in writing to accept such
addition or improvement, in which case it will become the property of LESSOR.
12. FIXTURES AND SIGNS:
(a) LESSEE shall have the right to install in or place on the leased
premises trade or moveable fixtures, machines, tools, or other equipment as it
may choose. Such fixtures, machines, tools, or other equipment, shall at all
times remain the personal property of LESSEE regardless of the maimer or degree
of attachment thereof to the leased premises and may be removed at any time by
LESSEE whether at the termination of this lease or otherwise, provided, however,
that LESSEE shall restore the leased premises, as nearly as may be to its
original condition, except for reasonable wear and tear, in the event that any
damage is done thereto in the removal of any such property.
(b) Subject to LESSOR's reasonable approval, LESSEE shall have the right
to install or erect on the leased premises or to affix to any building which is
a part of the leased premises, such signs as it may deem necessary or
appropriate to advertise its name and business, provided, however, that
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<PAGE>
such sign or signs comply with all applicable laws and ordinances.
13. LIABILITY; INDEMNITY:
(a) LESSEE shall be liable for any injury to or death of persons and for
any loss of or damage to property caused by the negligent acts or omissions of
its agents, employees, or invitees, or caused by LESSEE's failure to perform the
maintenance, repairs, and replacements required to be performed by it under the
provisions of Section 8 (Maintenance and Repairs) or any other of its
obligations of this lease. LESSEE shall indemnify and save LESSOR harmless
against any and all liabilities, claims, demands, actions, costs, and expenses
which may be sustained by LESSOR by reason of any of the causes for which LESSEE
is liable pursuant to this subsection (a).
(b) LESSOR shall be liable for any injury to or death of persons and for
any loss of or damage to property caused by the negligent acts or omissions of
its agents, employees, or invitees, or caused by LESSOR's failure to perform the
maintenance, repairs, and replacements required to be performed by it under the
provisions of Section 8 (Maintenance and Repairs) or any other of its
obligations of this lease. LESSOR shall indemnify and save LESSEE harmless
against any and all liabilities, claims, demands, actions, costs, and expenses
which may be sustained by LESSEE by reason of any of the causes for which LESSOR
is liable pursuant to this subsection (b).
(c) The provisions of this Section 13 shall survive the expiration or
earlier termination of this lease.
14. DEFAULT:
(a) If the LESSEE shall fail to pay any rent to LESSOR when the same is
due and payable under the terms of this lease and such default shall continue
for a period of twenty (20) days after written notice thereof has been given to
LESSEE by LESSOR, or if the LESSEE shall fail to perform any other duty or
obligation imposed upon it by this lease and such default shall continue for a
period of thirty (30) days after written notice thereof has been given to LESSEE
by LESSOR, provided, however, if the default is of such a nature that it cannot
be cured within such thirty (30) day period, the Lease shall not be terminated
provided LESSEE commences to cure the default within such thirty (30) day period
and diligently pursues such a cure, or if LESSEE shall commence any bankruptcy
proceeding, whether voluntary or involuntary or make a general assignment or
arrangement for the benefit of its creditors, or if a receiver of any property
of LESSEE in or upon the leased premises be appointed in any action, suit, or
proceeding by or against LESSEE and such suit, proceeding or appointment shall
not be dismissed, vacated or annulled within sixty (60) days, or if the interest
of LESSEE in the leased premises shall be sold under execution or other legal
process, then and in any such event LESSOR shall have the right but not the
obligation, to enter upon the leased premises and again have, repossess, and
enjoy the same as if this lease had not been made, and thereupon this lease
shall terminate without prejudice, however, to the right of LESSOR to recover
from LESSEE all rent due and unpaid up to the time of such re-entry. In the
event of any such default and re-entry, LESSOR shall have the right to relet the
leased premises for the remainder
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of the then existing term whether such term be the initial term of this lease or
any renewed or extended term, for the highest rent then obtainable, and to
recover from LESSEE the difference between the rent reserved by this lease and
the amount obtained through such reletting less the costs and expenses
reasonably incurred by LESSOR in such reletting. In the event that the amount
obtained through such reletting, less the reasonable costs and expenses thereof,
shall exceed the rent herein reserved, LESSOR shall pay such excess to LESSEE.
LESSOR hereby expressly reserves all other rights and remedies available to it,
whether at law or equity.
(b) If any rent shall not be paid within ten (10) days after due, in
addition to, and without waiving or releasing any other rights and remedies of
LESSOR, a late charge of one percent (l%) per month (computed on a 30-day month)
on the amount of such rent (computed from the due date thereof through the date
payment of such rent is made) shall become immediately due and payable to
LESSOR, as liquidated damages for LESSEE's failure to make prompt payment, and
the same shall be considered as rent.
(c) If LESSEE shall fail to perform any duty or obligation imposed upon it
by this lease such default shall continue for a period of thirty (30) days after
written notice thereof from LESSOR has been received by LESSEE, then and in such
event LESSOR may, at its option, perform LESSEE's obligations and charge LESSEE,
as additional rent, the reasonable cost of performing such obligations,
including interest at the rate of one percent (l%) per month from the date
LESSOR performed such obligations to the date such obligations are repaid by
LESSEE.
(d) Subject to the provisions of Article 24, in the event LESSOR fails to
perform any of its obligations hereunder within thirty (30) days of notice from
LESSEE, LESSEE shall be entitled to pursue all remedies available to LESSEE at
law or in equity including, without limitation, the right to terminate this
lease or sue for specific performance.
15. ASSIGNMENT; SUBLETTING:
(a) LESSEE shall not have the right to assign this lease or to sublet the
leased premises or any portion thereof without the consent of LESSOR, which
consent shall not be unreasonably withheld, except that LESSEE may assign its
rights and obligations once during the term of this lease to a company which
acquires all or substantially all the assets of LESSEE.
(b) No assignment or subletting shall relieve LESSEE from its duty to
perform fully all of the agreements, covenants, and conditions set forth in this
lease. (c) LESSOR shall have the right to assign this lease to any subsidiary
of Westinghouse Electric Corporation, including but not limited to Westinghouse
Electric Dominican S.A. or to any other person or entity which purchases the
property on which the leased premises are located.
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<PAGE>
16. WARRANTY OF LESSOR:
LESSOR represents and warrants to LESSEE that LESSOR has the power and
authority to execute and deliver this lease and to incur all obligations
provided herein, that the performance and compliance with all the terms,
provisions and conditions of this lease do not and will not conflict with or
result in any violation of any of the terms, conditions or provisions of any
agreement, obligations, judgment, decree or order applicable to LESSOR and that
LESSOR shall not unreasonably interfere with LESSEE's peaceful use and enjoyment
of the leased premises during the term hereof.
17. SURRENDER:
When this lease shall terminate in accordance with the terms hereof,
LESSEE shall quietly and peaceably deliver up possession to LESSOR other than as
may be specifically required by any provision of this lease. LESSEE shall
deliver up possession of the leased premises broom clean in as good order,
repair, and condition as the same are in at the beginning of the term of this
lease except for reasonable wear and tear or that loss or damage caused by a
casualty event or by the negligence or willful misconduct of LESSOR, its agents,
employees or invitees.
18. NOTICE:
(a) Any notice or demand required by the provisions of this lease to be
given to LESSOR shall be deemed to have been given adequately if delivered by
hand or within three (3) calendar days after mailing if sent by certified or
registered mail, return receipt requested to LESSOR at the following address:
Westinghouse Electric Dominicana S. A.
Parque Industrial de Itabo, Haina
Santo Domingo, Republica Dominicana
(b) Any notice or demand required by the provisions of this lease to be
given LESSEE shall be deemed to have been given adequately if delivered by hand
or three (3) calendar days after mailing sent by certified mail to LESSEE at:
GTE Control Devices Incorporated
Parque Industrial de Itabo, Haina
Santo Domingo, Republica Dominicana
(c) either party shall have the right to change its address as above
designated by giving to the other party fifteen (15) days' notice of its
intention to make such change and of the substituted address at which any notice
or demand may be directed to it.
(d) All notices required or permitted hereunder shall be deemed effective
upon receipt by
Page 9
<PAGE>
the party to whom such notice is addressed.
19. SUBORDINATION:
LESSEE agrees that this lease shall be subordinate to any mortgage or trust
deed that is or may hereafter be placed upon the leased premises, and to any and
all advances to be made thereunder, and to the interest, thereon, and all
renewals, replacement and extensions thereof, provided that the rights of LESSEE
as set forth herein shall not be affected in the event of foreclosure so long as
LESSEE is not in default under the terms hereof. LESSOR shall, upon request of
LESSEE, use reasonable efforts to procure and deliver a certificate of
nondisturbance from the mortgages as it relates to the tenancy hereunder.
20. CHANGES, MODIFICATIONS OR AMENDMENTS:
This lease may not be changed, modified, discharged or terminated orally or
in any other manner than by an agreement mutually signed by the parties hereto
or their respective successors and assigns.
21. COVENANTS TO BIND RESPECTIVE PARTIES:
This lease, and all of the agreements, covenants, and conditions contained
herein shall be binding upon LESSOR and LESSEE and upon their respective
successors and assigns.
22. MISCELLANEOUS:
This lease shall be governed by the laws of the Dominican Republic. This
lease may be executed in more than one counterpart, each of which shall be
deemed an original. If any provision hereof shall be declared invalid as
offending any applicable law, the remaining provisions of this lease shall
continue in full force and effect.
23. HAZARDOUS WASTE:
LESSEE, at LESSEE's expense, shall comply with all laws, rules, orders,
ordinances, directions, regulations and requirements of the Dominican Republic
and its political subdivisions applicable to LESSEE'S use of the leased premises
and pertaining to environmental matters ("Environmental Laws").
LESSEE shall not cause or permit any Hazardous Material to be brought upon,
kept or used in or about the leased premises by LESSEE, its agents, employees,
contractors or invitees, except in compliance with applicable Environmental
Laws. If LESSEE breaches this obligation, LESSEE shall indemnify, defend and
hold LESSOR harmless from any and all claims, judgments, damages, penalties,
fines, costs, liabilities or losses (including, without limitation, diminution
in value of the leased premises, damages for the loss or restriction on use of
rentable or usable space or of any
Page 10
<PAGE>
amenity of the leased premises, damages arising from any adverse impact on
marketing of space, and sums paid in settlement of claims, attorneys' fees,
consultant fees and expert fees) which arise during or after the lease term as a
result of such activities of LESSEE not in compliance with Environmental Laws.
This indemnification of LESSOR by LESSEE includes, without limitation, costs
incurred in connection with any investigation of site conditions or any clean-
up, remedial, removal or restoration work required to restore the leased
premises to a marketable condition or required by any Environmental Law,
governmental agency or political subdivision because of Hazardous Material
present in the soil or groundwater on or under the leased premises as a result
of LESSEE's non-compliance with Environmental Laws.
Without limiting the foregoing, if the presence of any Hazardous Material
on the leased premises caused by LESSEE results in any contamination of the
leased premises, LESSEE shall promptly take all actions at its sole expense as
are necessary to return the leased premises to the conditions existing prior to
the introduction of any such Hazardous Material to the leased premises and shall
fully indemnify the LESSOR as provided above; provided the LESSOR's approval of
such actions shall first be obtained, which approval shall not be unreasonably
withheld. The foregoing indemnities shall survive the expiration or earlier
termination of this lease.
As used herein, the term "Hazardous Material" means any hazardous or toxic
substance, material or waste, including, but not limited to, those substances,
materials and wastes listed in the U.S. Comprehensive Environmental Response
Compensation and Liability Act, as amended, and the U.S. Resource Conservation
and Recovery Act, as amended or any analogous law of the Dominican Republic or
its political subdivisions, as well as asbestos and oil or petroleum substances.
LESSOR and its agents shall have the right, but not the duty, to inspect
the leased premises at any time to determine whether LESSEE is complying with
the terms of this Section 23. If LESSEE is not in compliance, LESSOR shall have
the right (if necessary to protect LESSOR's interests) to immediately enter upon
the leased premises to remedy, at LESSEE's expense, any contamination caused by
LESSEE's failure to comply with any provisions of this Section 23 and to seek
indemnification in accordance with this Section. LESSOR shall use its best
reasonable efforts to minimize interference with LESSEE's business.
24. ARBITRATION:
In the event of any disagreement or dispute with respect to the
interpretation, performance or any other aspect of this lease, the parties shall
try to resolve the matter amicably. Any such matter shall be finally resolved
by a single arbitrator appointed by the American Arbitration Association based
on a list of recommended candidates provided by the parties, and the arbitration
shall take place in Santo Domingo, Dominican Republic. The arbitrator shall
conduct the proceedings in accordance with the Rules of the American Arbitration
Association, and shall enter a decision within one hundred twenty (120) days of
his appointment. The arbitrator's decision may be entered by either of the
parties for a judgment in a court of competent jurisdiction.
Page 11
<PAGE>
25. ENTIRE AGREEMENT:
This instrument constitutes the entire agreement between the parties, and
there are no verbal or collateral understandings, agreements, representations or
warranties other than as expressly set forth herein.
IN WITNESS HEREOF, LESSOR and LESSEE have caused these presents to be
executed by their duly authorized officers and have caused their respective
corporate seals to be hereto affixed, all as of the day and year first above
written.
ATTEST: WESTINGHOUSE ELECTRIC CORPORATION
/s/ By:/s/ Robert E. Burns
- -------------------- -----------------------------------------
ATTEST: GTE CONTROL DEVICES INCORPORATED
/s/ /s/ Bruce D. Atkinson
- -------------------- -----------------------------------------
Page 12
<PAGE>
EXHIBIT 10.3
ASSIGNMENT, ASSUMPTION AGREEMENT AND RELEASE
--------------------------------------------
(Dearborn, MI Property)
THIS LEASE ASSIGNMENT, ASSUMPTION AGREEMENT AND RELEASE (this "Assignment")
is made as of the 29th day of July, 1994, between GTE Control Devices
Incorporated, a Delaware corporation ("Assignor"), and CONTROL DEVICES, INC. an
Indiana corporation ("Assignee"), pursuant to the Asset Purchase Agreement dated
as of July 6, 1994 by and among Assignor, Assignee, GTE Products of Connecticut
Corporation and Dominican Overseas Trading Company (the "Agreement"). Terms
used herein and not otherwise defined herein shall have the meanings assigned to
them in the Agreement.
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Agreement, Assignor has agreed to assign, transfer
and convey, and Assignee has agreed to acquire and accept, certain assets,
properties, rights, privileges, claims and contracts described in the Agreement
including, without limitation, the interest of Assignor under the Lease attached
hereto as Exhibit 1 (the "Leasehold");
WHEREAS, prior to the transfer of the assets pursuant to the Agreement (the
"Closing"), certain consents and regulatory approvals must be obtained and other
requirements must be satisfied;
WHEREAS, assignee has agreed under the Agreement to assume and discharge
all obligations of Assignor under the Lease which arise from and after the
Closing.
NOW, THEREFORE, with reference to the foregoing recitals which are
incorporated herein by this reference and for other valuable consideration, the
receipt and sufficiency of which are hereby acknowledge, the parties hereto
agree as follows:
1. Assignor does hereby assign, grant, transfer and convey to Assignee all
of its right, title and interest as tenant under the Lease demising the real
property described therein (the "Real Property").
2. Effective as of the date hereof, Assignee accepts the foregoing
assignment and assumes and agrees to perform and to pay or discharge any and all
obligations of the tenant under the Lease arising from and after the Closing.
3. Assignor hereby agrees not to further assign, grant, transfer, sell,
convey, mortgage, pledge or otherwise encumber all or any portion of its
interest in the Lease. Any attempted further assignment, grant, transfer, sale,
conveyance, mortgage, pledge or other encumbrance, whether made voluntarily or
otherwise, shall be void and of no effect.
4. Assignor represents to Assignee that Exhibit 1 constitutes a true and
complete copy of the Lease including all amendments, modifications and
supplements thereto.
<PAGE>
5. Assignee hereby releases Assignor from any further obligation under the
terms of the Lease arising on or after the date hereof.
6. The persons executing this Assignment hereby represent and warrant that
they are duly authorized to execute and deliver this Assignment on behalf of
Assignor or Assignee, as the case may be.
7. This Assignment may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute
only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Assumption Agreements to be executed as of the date first above written.
GTE CONTROL DEVICES INCORPORATED
By: /s/ Marianne Drost
Name: Marianne Drost
Title: Secretary
CONTROL DEVICES, INC.
By: /s/John M. Ramey
Name: John M. Ramey
Title: Vice President
<PAGE>
EXHIBIT 1
TO
LEASE ASSIGNMENT AND ASSUMPTION AGREEMENT
(DEARBORN, MI PROPERTY)
LEASE DATED DECEMBER 1, 1993
BETWEEN
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
AND
GTE CONTROL DEVICES INCORPORATED
RELATING TO
DEARBORN, MI PROPERTY
Exhibit 1-1
<PAGE>
LEASE
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
("Landlord")
AND
GTE CONTROL DEVICES INCORPORATED
("Tenant")
<PAGE>
ARTICLE I
---------
SUMMARY OF BASIC LEASE PROVISIONS
1.1 BASIC DATA
ARTICLE II
----------
DESCRIPTION OF PREMISES AND
APPURTENANT RIGHTS; NET RENTABLE AREA
2.1 LOCATION OF PREMISES
2.2 APPURTENANT RIGHTS AND RESERVATIONS 2
ARTICLE III
-----------
TERMS OF LEASE; CONSTRUCTION
3.1 COMMENCEMENT DATE 2
3.2 INITIAL CONSTRUCTIONS 3
3.3 PREPARATION OF PREMISES FOR OCCUPANCY 3
3.4 TENANT'S OCCUPANCY 4
3.5 PERFORMANCE OF THE LANDLORD'S WORK 4
3.6 TENANT PAYMENTS OF CONSTRUCTION COSTS 4
ARTICLE IV
----------
TERM
4.1 EXTENSION OF TERM 4
ARTICLE V
---------
RENT
5.1 RENT 4
ARTICLE VI
----------
USE OF PREMISES
6.1 PERMITTED USE 5
6.2 ALTERATIONS 6a
<PAGE>
ARTICLE VII
-----------
ASSIGNMENT AND SUBLETTING
7.1 PROHIBITION 7
7.2 ACCEPTANCE OF RENT FROM TRANSFEREE 8
ARTICLE VIII
------------
RESPONSIBILITY FOR REPAIRS
8.1 REPAIRS 8
ARTICLE IX
----------
SERVICES TO BE FURNISHED BY LANDLORD
9.1 CLEANING SERVICES 9
9.2 OTHER SERVICES 9
9.3 ADDITIONAL SERVICES 9
9.4 CAUSES BEYOND CONTROL OF THE LANDLORD 10
ARTICLE X
---------
REAL ESTATE AND OTHER TAXES; OTHER EXPENSES
10.1 LANDLORD TO PAY REAL ESTATE TAXES 10
ARTICLE XI
----------
ELECTRICITY COSTS
11.1 TENANT'S SHARE OF ELECTRICITY COSTS 10
ARTICLE XII
-----------
INDEMNITY
12.1 THE TENANT'S INDEMNITY 11
12.2 THE TENANT'S RISK 11
12.3 INJURY CAUSED BY THIRD PARTIES 11
ARTICLE XIII
------------
THE LANDLORD'S ACCESS TO PREMISES
<PAGE>
13.1 THE LANDLORD'S RIGHT OF ACCESS 12
13.2 ACCESS DURING THE LAST MONTH OF TERM 12
ARTICLE XIV
-----------
CASUALTY
14.1 DEFINITION OF "SUBSTANTIAL DAMAGE" AND PARTIAL DAMAGE 12
14.2 PARTIAL DAMAGE TO THE BUILDING 12
14.3 SUBSTANTIAL DAMAGE TO THE BUILDING 12
14.4 ABATEMENT OF RENT 13
14.5 MISCELLANEOUS 13
ARTICLE XV
----------
EMINENT DOMAIN
15.1 RIGHTS OF TERMINATION FOR TAKING 13
15.2 PAYMENT OF AWARD 14
15.3 ABATEMENT OF RENT 14
15.4 MISCELLANEOUS 14
ARTICLE XVI
-----------
INSURANCE
16.1 PUBLIC LIABILITY AND PROPERTY INSURANCE 14
16.2 NON-SUBROGATION 15
16.3 EXTRA HAZARDOUS USE 15
ARTICLE XVII
------------
DEFAULT
17.1 TENANT'S DEFAULT 16
17.2 THE LANDLORD'S DEFAULT 17
ARTICLE XVIII
-------------
MISCELLANEOUS PROVISIONS
18.1 WAIVER 18
18.2 COVENANT OF QUIET ENJOYMENT 18
18.3 NO PERSONAL LIABILITY OF THE LANDLORD 18
18.4 NOTICE TO MORTGAGEE AND GROUND LESSOR;
<PAGE>
OPPORTUNITY TO CURE 18
18.5 NO BROKERAGE 19
18.6 INVALIDITY OF PARTICULAR PROVISIONS 19
18.7 PROVISIONS BINDING, ETC. 19
18.8 RECORDING 19
18.9 NOTICES 19
18.10 WHEN LEASE BECOMES BINDING 20
18.11 PARAGRAPH HEADINGS 20
18.12 RIGHTS OF MORTGAGEE 20
18.13 STATUS REPORT; MODIFICATION 21
18.14 SECURITY DEPOSIT 21
18.15 SELF-HELP 22
18.16 HOLDING OVER 22
18.17 CERTIFICATE 22
ENUMERATION OF EXHIBITS
-----------------------
Exhibit A: Plan showing the Premises.
Exhibit B: Intentionally Deleted.
Exhibit C: Intentionally Deleted.
Exhibit D: Cleaning Schedule.
Exhibit E: Other Services of the Landlord.
Exhibit F: Description of Lot.
Exhibit G: Rules and Regulations
Exhibit H: Certificate
<PAGE>
LEASE
This instrument is an Indenture of Lease between John Hancock Mutual Life
Insurance Company (the "Landlord") and GTE Control Devices Incorporated, a
Delaware corporation (the "Tenant").
The parties to this instrument hereby agree with each other as follows:
ARTICLE I
---------
SUMMARY OF BASIC LEASE PROVISIONS
1.1 BASIC DATA
Date: December 1, 1993
Landlord: John Hancock Mutual Life Insurance Company
Present Mailing Address of
Landlord: John Hancock Place
P.O. Box 111
Boston, Massachusetts 02117
Tenant: GTE Control Devices Incorporated
Present Mailing Address of
Tenant: Route 25
Standish, Maine 04084
Leased Premises: Premises located on the third floor, west wing,
Commerce Park South
Dearborn, Michigan, as shown on Exhibit A
Square Footage: 1,320 rentable square feet.
1,200 usable square feet
Lease Term: 36 calendar months
Commencement Date: December 1, 1993
Rent: At the rate of $2,145.00 per calendar month for
Year 1; $2,172.50 per calendar month for Year
2; and $2,200.00 per calendar month for Year 3.
<PAGE>
Tenant's Proportionate Share: .0096 (based upon the ratio of the rentable
square footage of Tenant's Premises to the
rentable square footage of the third floor,
west wing of building).
Security Deposit: $2,145.00
Tenant Improvements Submission
Date: N/A
Time Estimated for Completion of
Tenant's Work on Premises: N/A
Scheduled Term Commencement
Date: December 1, 1993
ARTICLE II
----------
DESCRIPTION OF PREMISES AND
APPURTENANT RIGHTS; NET RENTABLE AREA
2.1 LOCATION OF PREMISES
The Landlord hereby leases to the Tenant, and the Tenant hereby accepts
from the Landlord, the premises (the "Premises") identified on Exhibit A,
attached hereto and incorporated herein by reference, in the Landlord's building
(the "Building") located on land owned by the Landlord (the "Lot") more
particularly described in Exhibit F, attached hereto and incorporated herein by
reference, known as and numbered 3200 Greenfield, Dearborn, Michigan. Nothing
in Exhibit A shall be treated as a representation that the Premises shall be
precisely of the dimensions or shapes as shown diagrammatically, rather than
precisely, on Exhibit A, the layout of the Premises.
2.2 APPURTENANT RIGHTS AND RESERVATIONS
Tenant shall have, as appurtenant to the Premises, rights to use in common
with others entitled thereto: (a) the common facilities included in the Building
or Lot, including common walkways, driveways, lobbies, hallways, ramps,
stairways and elevators; (b) the parking facility (including the visitor's
parking area and parking spaces reserved for the handicapped), at locations
which may from time to time be designated by Landlord, and only between the
hours of 7:00 AM and 7:00 PM, Monday through Friday, and 8:00 AM and 1:00 PM
Saturdays (legal holidays excepted); (c) the pipes, ducts, conduits, wires and
appurtenant equipment serving the Premises; and (d) if the Premises include less
than the entire rentable area of any floor, the common toilets, if any, in the
central core area of such floor. Such rights shall always be subject to the
Rules and Regulations set forth in Exhibit G attached hereto and incorporated
herein by reference, as the same
<PAGE>
may be amended by the Landlord from time to time and such other reasonable rules
and regulations from time to time established by the Landlord by suitable
notice, and to the right of the Landlord to designate and change from time to
time areas and facilities so to be used.
Not included in the Premises are the roof or ceiling, the floor and all
perimeter walls of the space identified in Exhibit A, except the inner surfaces
thereof and the perimeter doors and windows. The Tenant agrees that the Landlord
shall have the right to place in the Premises (but in such manner as not
unreasonably to interfere with the Tenant's use of the Premises) utility lines,
telecommunication lines, shafts, pipes and the like, for the use and benefit of
Landlord and other tenants in the Building, and to replace and maintain and
repair such lines, shafts, pipes and the like, in, over and upon the Premises.
Such lines, shafts, pipes and the like, shall not be deemed part of the Premises
under this Lease.
ARTICLE III
-----------
TERMS OF LEASE; CONSTRUCTION
3.1 COMMENCEMENT DATE
The Term of this Lease shall be the period specified in Section 1.1 hereof
as the "Lease Term." If Section 1.1 provides for a fixed Commencement Date,
then the Commencement Date of the term hereof shall be such date. Otherwise,
the term of this Lease shall commence on, and the Commencement Date shall be,
the first to occur of:
(a) the date on which the Premises shall be deemed ready for occupancy, as
defined in Section 3.3 below; or
(b) the date upon which Tenant commences beneficial use of the Premises (as
distinguished from the conduct of construction work to be performed by Tenant in
the Premises incident to preparing the Premises for Tenant's own use).
Tenant shall, in all events, be treated as having commenced beneficial use
of the Premises when it begins to move in the Premises furniture and equipment
for its regular business operations.
Promptly after the Commencement Date has been determined, Landlord and
Tenant agree to join with each other in the execution of a written declaration
in which the Commencement Date and specified term of this Lease shall be stated.
3.2 INITIAL CONSTRUCTIONS
The Tenant and Landlord have agreed upon drawings and specifications for
the construction of Tenant's leasehold improvements, including the locations
desired for partitions, doors, electric switches and outlets, lighting fixtures,
and specifications for any flooring, ceiling and wall coverings,
<PAGE>
electric, plumbing, heating, air-conditioning and ventilating systems so far as
the same are to be provided. Architectural and engineering services rendered in
the preparation of such construction drawings and specifications and any changes
therein shall be performed by Landlord's architect and engineer. Simultaneous
with the execution of the Lease, the Landlord and Tenant shall join in the
execution of a letter substantially in the form attached hereto as Exhibit C
authorizing the commencement of construction in accordance therewith. Landlord
shall provide a turnkey suite based on a mutually agreeable floor plan. All
such work shall be performed by Landlord's general contractor. Landlord will
not approve: (a) any alterations or additions which will require unusual expense
to readapt the Premises to normal office use on lease termination or which will
increase the cost of construction, insurance or taxes on the Building or of
Landlord's services called for by Article VIII unless Tenant first gives
assurances acceptable to Landlord for payment of such increased cost and that
such readaptation will be made prior to such termination with expense to
Landlord; or (b) any alterations or additions which will delay completion of the
Premises or the Building. All changes and additions shall be part of the
Building, except such items as by writing at the time of approval the parties
agree shall be removed by Tenant on termination of this lease, or Landlord
agrees that Tenant may then elect to remove or leave.
3.3 PREPARATION OF PREMISES FOR OCCUPANCY
Landlord agrees to use reasonable efforts to have the Premises ready for
occupancy on or before the Scheduled Term Commencement Date, which shall,
however, be extended for a period equal to that of any delays caused by the
action or inaction of the Tenant, or delays due to governmental regulations,
scarcity of or inability to obtain labor or materials, strikes, labor
difficulties, casualty or other causes reasonably beyond Landlord's control.
The Premises shall be deemed ready for occupancy on the date on which (i)
the Premises, together with sufficient facilities for reasonable access and
service thereto, have been substantially completed, except for items of work and
mechanical adjustment of equipment and fixtures which (x) are not necessary to
make the Premises reasonably tenantable for its Permitted Use, or (y) are not
them completed because of delay by Tenant in submitting the construction
drawings and specifications as required by Section 3.2, or because of approved
requests made by Tenant, after such delivery, for further alterations or
additions; and (ii) unless the Premises are not completed as provided in (y)
above, Landlord provides Tenant with certification of Landlord's architect that
the Premises are substantially completed.
Landlord shall complete as soon as conditions practicably permit all items
and work excepted under the above paragraph and Tenant shall not use the
Premises in such manner as to increase the cost of such completion.
In the event of Tenant's failure to comply with the provisions of Section
3.2 of this Lease, Landlord may, at Landlord's option, exercisable by notice to
Tenant, terminate this Lease on the date specified in such notice to Tenant and
upon such termination landlord shall have all the rights provided in event of
Tenant's default in Article XVI of this Lease.
<PAGE>
3.4 TENANT'S OCCUPANCY
As soon as reasonably possible after the Premises are deemed ready for
occupancy as provided in Section 3.3, the Tenant shall commence beneficial use
of the Premises.
3.5 PERFORMANCE OF THE LANDLORD'S WORK
Except to the extent to which the Tenant shall have given the Landlord
notice, not later than the end of the second full calendar month next beginning
after the Commencement Date, of respects in which the Landlord has not performed
the Landlord's obligations under this Article III, the Tenant shall have no
claim that the Landlord has failed to perform any such obligations.
3.6 TENANT PAYMENTS OF CONSTRUCTION COSTS
The Landlord shall have the same rights and remedies which the Landlord has
for nonpayment of Rent for nonpayment of amounts which the Tenant is required to
pay to the Landlord in connection with the preparation of the Premises for
Tenant's occupancy.
ARTICLE IV
----------
TERM
4.1 EXTENSION OF TERM
[DELETED]
ARTICLE V
---------
RENT
5.1 RENT
The Rent (specified in Section 1.1 hereof and in this Article) and any
additional rent or other charges payable pursuant to this Lease shall be payable
by the Tenant to the Landlord at Landlord's mailing address or such other place
as the Landlord may from time to time designate by notice to the Tenant without
prior demand therefor and without any offset whatsoever except as otherwise
specifically provided for in this Lease. Base Rent for each of the months 1
through 12, inclusive shall be at a rate of $19.50 per rentable square foot;
Base Rent for each of the months 13 through 24 inclusive, shall be at a rate of
$19.75 per rentable square foot; Base Rent for each of the months 25 through 36
inclusive, shall be at a rate of $20.00 per rentable square foot.
(a) The Rent shall be payable in advance on the first day of each and
every calendar month during the term of this Lease, except as
otherwise provided in Subsection (b)
<PAGE>
of this Section 5.1.
(b) The Rent for the first calendar month of the Lease Term is due and
payable at the time of execution and delivery of the Lease. If the
Commencement Date occurs on a day other than the first day of a
calendar month, the Tenant shall pay to the Landlord on the first day
of the succeeding calendar month a pro rata payment of Rent for the
partial month from the Commencement Date to the first day of the
succeeding calendar month. Such payment, together with the payment
made by the Tenant upon execution and delivery of the Lease, shall
constitute payment for the first full calendar month of the Lease Term
plus the partial month, if any, immediately following the Commencement
Date.
(c) Rent for any partial month shall be paid by the Tenant to the Landlord
at such rate on a pro rata basis. Other charges payable by the Tenant
on a monthly basis, as hereinafter provided, shall likewise be
prorated.
(d) Rent, additional rent and any other sums due hereunder not paid within
ten (10) days of the due date shall bear interest at the rate of one
and one-half percent (1-1/2%) per month or fraction thereof (or at any
lesser maximum legally permissible rate) from the due date until paid.
ARTICLE VI
----------
USE OF PREMISES
6.1 PERMITTED USE
Tenant agrees that the Premises shall be used and occupied by Tenant only
for a general and business office and for no other purpose or purposes.
Tenant further agrees to conform to the following provisions during the
entire term of this Lease:
(a) Tenant shall cause all freight to be delivered to or removed from the
Building and the Premises in accordance with the Rules and Regulations
established by Landlord therefor;
(b) Tenant will not place on the exterior of exterior walls (including
both interior and exterior surfaces of windows and doors) or on any
part of the Building outside the Premises, any signs, symbols,
advertisement or the like visible to public view outside of the
Premises with the prior consent of Landlord. Without limitation,
lettering on windows is expressly prohibited;
<PAGE>
(c) The Tenant, at its expense, shall comply with all rules, orders,
regulations and requirements of any Board of Fire Underwriters, or any
other body hereafter constituted exercising similar functions and
governing insurance rating bureaus; and shall not do or permit
anything to be done in or upon the Premises, or bring or keep anything
therein, except as now or hereafter permitted by any governmental
authority, Board of Fire Underwriters or any other similar body having
jurisdiction, or insurance rating bureau; and shall keep the Premises
equipped with all safety appliances or equipment required by any
governmental authority, Board of Fire Underwriters or other similar
body or governing insurance rating bureau by reason of the Tenant's
particular use of the Premises or the location of partitions, trade
fixtures or other contents of the Premises; and shall procure all
licenses, permits or other approvals required because of such use, it
being understood that the foregoing provisions shall not be construed
to broaden in any way the permitted Use of the Premises; and Landlord
does hereby represent that to the best of Landlord's knowledge the
Premises conforms to all rules, orders, regulations and requirements
of the Board of Fire Underwriters and that the Permitted Use does not
violate such rules, orders, regulations and requirements;
(d) The Tenant, at its expense, shall comply with all rules, orders,
permit conditions and regulations of governmental authorities now or
hereafter in force and with any lawful direction of any public
officer, in each case to the extent the same are applicable to the
Premises or the use and maintenance thereof. If the Tenant receives
notices of any violation of law, ordinance, order, permit conditions
or regulation applicable to the Premises or the use and maintenance
thereof, it shall give prompt notice thereof to the Landlord;
(e) The Tenant shall not place a load upon any floor of the Premises
exceeding the load which such floor was designed to carry or that
which is allowed by law, whichever is less. The Landlord reserves the
right to limit the weight of safes and other heavy objects and to
designate their position. The Tenant shall not move any safes or heavy
objects in or out of the Building without the Landlord's prior
consent;
(f) The Tenant shall not commit or suffer to be committed any waste upon
the Premises or any public or private nuisance, or other act or thing
which may disturb the quiet enjoyment of any other tenant or occupant
in the Building, nor, without limiting the generality of the
foregoing, shall the Tenant make any unusual noises in the Building,
cause or permit any offensive odors to be produced upon the Premises,
or use any apparatus, machinery or device in or about the Premises
which shall cause any damage to the Building or the Premises or any
vibration outside the Premises;
(g) The electricity furnished to the Premises shall be metered in common
with other occupants on the third floor, west wing of the Building and
the Tenant shall pay the cost of such electricity consumed in the
Premises as set forth in Section 11.1 herein.
<PAGE>
The Tenant shall not, without the Landlord's written consent in each
insurance, connect to the electrical distribution system any fixtures,
appliances or equipment other than lamps, typewriters and similar
small office machines which operate on a voltage not in excess of 120,
or make any alteration or addition to the electrical system of the
Premises; and
(h) The Tenant shall continuously occupy the Premises during the Lease
Term, subject to temporary interruptions for causes beyond the
Tenant's reasonable control. The Tenant shall comply and shall cause
its employees, agents and invitees to comply with the Rules and
Regulations of the Building as set forth in Exhibit G and such changes
therein and other reasonable rules and regulations as the Landlord
shall from time to time establish for the proper regulations of the
Building and the Lot, provided that such additional rules and
regulations shall be of general application to all the tenants in the
Building and shall not conflict with any terms of the Lease, and in
the event of any such conflict, the terms of this Lease shall apply.
6.2 ALTERATIONS
The Tenant shall not redecorate or make alterations, additions or
improvements to the Premises, except with the prior written consent of the
Landlord, provided, however, Landlord's consent with respect to non-structural
redecorations, alterations, additions and improvements shall not be unreasonably
withheld.
All alterations, additions and improvements made by the Tenant to the
Premises shall remain therein and, at the termination of the Lease, shall be
surrendered as a part thereof, except for trade fixtures and equipment (as
distinguished form leasehold improvements) installed prior to or during the term
of this Lease at the Tenant's sole cost. Such trade fixtures and equipment may
be removed by the Tenant if the Tenant is not then in default hereunder, and if
such removal shall not result in permanent damage to the Premises or the
Building. The Tenant shall remove such trade fixtures and equipment at the
termination of the Lease if requested to do so by the Landlord. The Tenant
shall at its expense promptly repair any and all damage to the Premises or the
Building resulting from any removal of such fixtures and equipment, ordinary
wear and tear excepted.
Any personal property which shall remain in the Building or on the Premises
after the expiration or earlier termination of the Lease shall conclusively be
deemed to have been abandoned by the Tenant, and either may be retained by the
Landlord as its own property or may be disposed of by sale, storage or otherwise
as the Landlord shall see fit, all at the Tenant's expense. Notwithstanding the
foregoing, the Tenant will, upon request of the Landlord after the expiration or
termination of the Term hereof, promptly remove from the Building any such
personal property, or if any part of such personal property shall be sold, the
Landlord may receive and retain the proceeds of such sale and apply the same, at
its option, against the expenses of sale, the costs of moving and storage, any
arrears of Rent, additional rent or other charges payable hereunder or any
damages to which the Landlord may be entitled.
<PAGE>
ARTICLE VII
-----------
ASSIGNMENT AND SUBLETTING
7.1 PROHIBITION
Notwithstanding any other provisions of this Lease, the Tenant shall not
assign or otherwise transfer, voluntarily or involuntarily, this Lease or any
interest herein or sublet (which term, without limitation, shall include
granting of concessions, licenses and the like) or allow any other person to
occupy the whole or any part of the Premises, without, in each instance, the
prior written consent of the Landlord. This prohibition shall not include any
assignment, subletting or other transfer (1) to a parent corporation or to any
subsidiary or affiliate of the Tenant; for the purposes of this Lease, the term
"affiliate" shall mean any corporation, directly or indirectly, through one or
more intermediaries, that controls, is controlled by, or is under common control
with, the Tenant or its parent corporation; as used in the preceding clause, the
term "control" shall mean the right to exercise, directly or indirectly, more
than fifty (50%) percent of the voting rights attributable to the shares of the
controlled corporation, (2) to any corporation into which Tenant may merge or to
any corporation to which Tenant shall sell all or substantially all of its
assets or all or substantially all of its corporate stock.
In any case, whether or not the Landlord's consent to such assignment, or
other transfer or subletting is required herein, the Tenant originally named
herein shall remain fully liable for Tenant obligations hereunder, including,
without limitation, the obligations to pay the rent and other amounts provided
under this Lease, and the Tenant also hereby agrees to pay to the Landlord,
within fifteen (15) days of billing therefore, all legal and other fees incurred
by the Landlord in connection with reviewing and approving any such assignment,
other transfer or subletting. Except with respect to the assignment,
subletting, or transfer permitted pursuant to the second sentence in this
Section, the Tenant shall give written notice to the Landlord of the terms of
any such proposed assignment or sublease and the Landlord shall have the right
to terminate this Lease on notice to the Tenant if the rent and other payments
from such proposed assignee or subtenant would exceed that provided hereunder.
It shall be a condition of the validity of any permitted assignment or other
transfer or subletting that the assignee or transferee or sublessee agree
directly with the Landlord, in form satisfactory to the Landlord, to be bound by
all Tenant obligations hereunder, including, with limitation, the obligation to
pay rent and other amounts provided for under this Lease and the covenant
against further assignment or other transfer or subletting.
7.2 ACCEPTANCE OF RENT FROM TRANSFEREE
The acceptance by the Landlord of the payment of Rent, additional rent or
other charges following an assignment, subletting or other transfer prohibited
by this Article VI shall not be deemed to be a consent by the Landlord to any
such assignment, subletting or other transfer, nor shall the same constitute a
waiver of any right or remedy of the Landlord.
<PAGE>
ARTICLE VIII
------------
RESPONSIBILITY FOR REPAIRS
8.1 REPAIRS
From and after the date that possession of the Premises is delivered to the
Tenant and until the end of the Lease Term, the Tenant shall keep the Premises
and every part thereof in good order, condition and repair, reasonable wear and
tear and damage by unavoidable casualty only excepted, and the Tenant shall
surrender the Premises at the end of the Lease Term in such condition. Except
as may be provided in Articles XIII and XIV, the Landlord agrees to keep in good
order, condition and repair the structural and exterior portions of the Building
and the common areas and facilities and common equipment in the Building, except
any condition caused by any act, omission or neglect of the Tenant or any
contractor of the Tenant or any party for whose conduct the Tenant is
responsible. Without limitation, the Landlord shall not be responsible to make
any improvements or repairs other than as expressly provided in this Section,
and the Landlord shall not be liable for any failure to make such repairs unless
the Tenant has given notice to the Landlord of the need to make such repairs and
the Landlord has failed to commence to make such repairs within a reasonable
time thereafter.
Whenever the Tenant shall make repairs, alternations, decorations,
additions, removals, or improvements (including the installation of any
equipment other than normal light business office equipment) in or to the
Premises:
(a) No material or equipment shall be incorporated in or added to the
Premises in connection with any such repair, alteration, decoration,
addition, removal or improvement which is subject to or claimed to be
subject to any lien, charge, mortgage, or other encumbrance of any
kind whatsoever or is subject to any security interest or any form of
title retention agreement. Any mechanic's or materialmen's lien filed
against the Premises or the Building for work claimed to have been
done for, or materials claimed to have been furnished to the Tenant,
shall be immediately discharged by the Tenant, at the Tenant's
expense, by filing the bond required by law or otherwise. If the
Tenant fails so to discharge any lien, the Landlord may do so at
Tenant's expense and the Tenant shall reimburse the Landlord for all
expenses and costs incurred by the Landlord in so doing immediately
after rendition of a bill therefor by the Landlord to the Tenant.
(b) All installation of work done by or for the Tenant shall be at its own
expense and shall at all times comply with (i) laws, rules, orders and
regulations of governmental authorities having jurisdiction thereof:
(ii) orders, rules and regulations of any Board of Fire Underwriters,
or any other body hereafter constituted exercising similar functions,
and governing insurance rating bureaus; (iii) plans and specifications
(which shall be prepared by and at the expense of the Tenant)
theretofore submitted
<PAGE>
to and approved in writing by the Landlord.
(c) The Tenant shall procure all necessary permits before undertaking any
work in the Premises and shall do all such work in a good and
workmanlike manner, employing new materials of first class quality and
shall defend, save harmless, exonerate and indemnify the Landlord from
all injury, loss or damage to any person or property occasioned by
such work. The Tenant shall cause contractors employed by the Tenant
to carry and maintain in force during the continuance of any work
being performed for the Tenant Worker's Compensation Insurance in
accordance with statutory requirements and Comprehensive Public
Liability Insurance and Automobile Liability Insurance covering such
contractors on or about the Premises in amounts reasonably acceptable
to the Landlord and to submit certificates evidencing such coverage to
the Landlord prior to the commencement of such work.
(d) The Tenant shall not, at anytime prior to or during the Term of this
Lease, directly or indirectly employ, or permit the employment of, any
contractor, mechanic or laborer in the Premises, whether in connection
with any repair work or the making of any alteration, improvements or
additions or otherwise, if such employment will interfere or cause any
conflict with other contractors, mechanics, or laborers engaged in the
construction, maintenance or operation of the Building by the
Landlord, Tenant or others. In the event of any such interference or
conflict, the Tenant, upon demand of the Landlord, shall cause all
contractors, mechanics or laborers causing such interference or
conflict to leave the Building immediately.
ARTICLE IX
----------
SERVICES TO BE FURNISHED BY LANDLORD
9.1 CLEANING SERVICES
The Landlord shall cause cleaning services to be provided to the Premises
as described in Exhibit D.
9.2 OTHER SERVICES
The Landlord shall cause other services to be furnished to the Tenant as
set forth in Exhibit E.
9.3 ADDITIONAL SERVICES
Upon reasonable advance notice from Tenant, Landlord will endeavor to
furnish additional heat, air-conditioning or other services to the Premises on
days and at times other than as provided
<PAGE>
in Exhibits D and E, and Tenant shall on demand and as additional rent pay to
Landlord, on account thereof, a reasonable charge for such additional services
equal to Landlord's good faith estimate of the additional costs incurred by
Landlord on account thereof as specified in the Rules and Regulations.
Notwithstanding the preceding sentence, additional heat and air conditioning
services that are provided to the Premises will be charged to Tenant at a rate
of $35.00 per hour.
9.4 CAUSES BEYOND CONTROL OF THE LANDLORD
The Landlord shall in no event be liable for failure to perform any of its
obligations under this Lease when prevented from doing so by causes beyond its
control, including, without limitation, labor dispute, breakdown, accident,
order or regulation of or by any governmental authority, or failure to supply,
or inability by the exercise of reasonable diligence to obtain supplies, parts
or employees necessary to furnish services required under this Lease, or because
of war or other emergency, or for any cause due to any act, neglect or default
of the Tenant or the Tenant's servants, contractors, agents, employees, licenses
or any person claiming by, through or under the Tenant, and in no event shall
the Landlord ever be liable to the Tenant for any indirect or consequential
damages under the provisions of this Section 8.4 or any other provision of this
Lease.
ARTICLE X
---------
REAL ESTATE AND OTHER TAXES; OTHER EXPENSES
10.1 LANDLORD TO PAY REAL ESTATE TAXES
Landlord shall be responsible for the payment, before the same becomes
delinquent, of all general and special taxes, including assessments for local
improvements, and other governmental charges which may be lawfully charged,
assessed or imposed upon the Building and the Lot. However, if authorities
having jurisdiction assess real estate taxes, assessments or other charges which
Landlord considers excessive, Landlord may defer compliance therewith to the
same extent permitted by the laws of the jurisdiction in which the same are
located, so long as the validity or amount thereof is contested by Landlord in
good faith, and so long as Tenant's occupancy of the Premises is not disturbed.
ARTICLE XI
----------
ELECTRICITY COSTS
11.1 TENANT'S SHARE OF ELECTRICITY COSTS
(a) The annual rent payable by the Tenant shall be adjusted for Tenant's
costs of electricity for the Premises. The Tenant shall pay, as
additional rent, the Tenant's
<PAGE>
Proportionate Share of electricity costs based upon the costs
reflected in the common meter for the third floor, west wing of the
Building, which meter shall exclude electricity for heat and air
conditioning provided by the Landlord to the Premises and not by
separate equipment installed or placed by or for the Tenant. Such
amount shall be due and payable within thirty (30) days after the
presentation by the Landlord to the Tenant of a statement for
electricity costs for the Premises. After the first Lease Year, the
Tenant shall pay to the Landlord pro rata monthly installments on
account of projected electricity costs for the Lease Year, calculated
by the Landlord on the basis of the most recent meter reading, with an
adjustment made after actual meter readings and presentation of a
statement of costs to Tenant as aforesaid. If the total of such
monthly installments is greater than the actual electricity costs for
any month, the Tenant shall be entitled to a credit against the
Tenant's rental obligations hereunder in the amount of such
difference. If the total of such monthly installments is less than the
actual electricity cost for any month, the Tenant shall pay to the
Landlord the amount of such difference promptly upon billing therefor.
(b) For the purposes of this Article "Lease Year" shall mean any fiscal
year from January 1 to December 31, except that the first Lease Year
during the term of this Lease shall commence on the Commencement Date
and end on the second next following December 31 and the last Lease
Year during the term of this Lease shall end on the date this Lease
terminates.
(c) In no event shall the additional rent for Tenant's electric exceed
$1.00 per square foot per year or .083 cents per month per square
foot, payable monthly.
ARTICLE XII
-----------
INDEMNITY
12.1 THE TENANT'S INDEMNITY
To the maximum extent permitted by law, the Tenant shall indemnify and save
harmless the Landlord, the directors, officers, agents and employees of the
Landlord and those in privity of estate with the Landlord, from and against all
claims, expenses or liability of whatever nature (a) arising from any default,
act , omission or negligence of the Tenant, or the Tenant's contractors,
licensees, agents, servants or employees, or the failure of the Tenant or such
persons to comply with any rule, order, regulation or lawful direction now or
hereafter in force of any public authority, in each case to the extent the same
are related, directly or indirectly, to the Premises or the Building, or the
Tenant's use thereof; or (b) arising directly or indirectly from any accident,
injury or damage, however caused, to any person or property on or about the
Premises; or (c) arising, directly or indirectly, out of default or breach by
the Tenant under any of the terms or covenants of this Lease
<PAGE>
or in connection with any equipment or installations to be maintained or
repaired by the Tenant; or (d) arising directly or indirectly, from any
accident, injury or damage to any person or property occurring outside the
Premises but within the Building, or on the Lot where such accident, injury or
damage results, or is claimed to have resulted from, any act, omission or
negligence on the part of the Tenant, or the Tenant's contractors, licensees,
agents, servants, employees or customers of anyone claiming by or through the
Tenant; provided, however, that in no event shall the Tenant be obligated under
this Section 11.1 to indemnify the Landlord, the directors, officers, agents and
employees of the Landlord, or those in privity of estate with the Landlord,
where such claim, expense or liability results from any omission, fault,
negligence or other misconduct of the Landlord or the officers, agents or
employees of the Landlord on or about the Premises or the Building.
This indemnity and hold harmless agreement shall include indemnity against
all expenses and liabilities incurred in or in connection with any such claim or
proceeding brought thereon, and the defense thereof with counsel acceptable to
the Landlord or counsel selected by an insurance company which has accepted
liability for any such claim.
12.2 THE TENANT'S RISK
To the fullest extent permitted by law the Landlord shall have no
responsibility or liability for any loss of or damage to furnishings, fixtures,
equipment or other personal property of the Tenant or of any persons claiming
by, through or under the Tenant.
12.3 INJURY CAUSED BY THIRD PARTIES
The Tenant agrees that the Landlord shall not be responsible or liable to
the Tenant, or to those claiming by, through or under the Tenant, for any loss
or damage resulting to the Tenant or those claiming by, through or under the
Tenant, or its or their property, that may be occasioned by or through the acts
or omissions of persons occupying adjoining premises or any part of the premises
adjacent to or connecting with the Premises or in any part of the Building, or
for any loss or damage from the breaking, bursting, stopping or leaking of
electric cables and wires, and water, gas, sewer or steam pipes or like matters.
ARTICLE XIII
------------
THE LANDLORD'S ACCESS TO PREMISES
13.1 THE LANDLORD'S RIGHT OF ACCESS
The Landlord shall have the right to enter the Premises at all reasonable
hours for the purpose of inspecting or of making repairs, alterations or
additions to the Premises or the Building, and the Landlord shall also have the
right to make access available at all reasonable hours to prospective or
existing mortgagees or purchasers of any part of the Building. To assure access
by the Landlord to
<PAGE>
the Premises, the Tenant shall provide the Landlord with duplicate copies of all
keys used by the Tenant in providing access to the Premises.
For a period commencing six (6) months prior to the expiration of the term
of this Lease, the Landlord may have reasonable access to the Premises at all
reasonable hours for the purpose of exhibiting the same to prospective tenants.
13.2 ACCESS DURING THE LAST MONTH OF TERM
If during the last month of the Lease Term, the Tenant shall have removed
all of the Tenant's property therefrom, the Landlord may immediately enter and
alter, renovate and redecorate the Premises, without elimination or abatement of
rent, or incurring liability to the Tenant for any compensation, and such acts
shall have no effect upon otherwise applicable terms of this Lease.
ARTICLE XIV
-----------
CASUALTY
14.1 DEFINITION OF "SUBSTANTIAL DAMAGE" AND PARTIAL DAMAGE
The term "substantial damage", as used herein, shall refer to damage which
is of such a character that in the Landlord's reasonable opinion the same
cannot, in ordinary course, be expected to be repaired within 120 calendar days
from the time that such repair work would commence. Any damage which is not
"substantial damage" is "partial damage."
14.2 PARTIAL DAMAGE TO THE BUILDING
If during the Lease Term there shall be partial damage to the Building by
fire or other casualty and if such damage shall materially interfere with the
Tenant's use of the Premises as contemplated by this Lease, the Landlord shall
promptly proceed to restore the Building to substantially the condition in which
it was immediately prior to the occurrence of such damage.
14.3 SUBSTANTIAL DAMAGE TO THE BUILDING
If during the Lease Term there shall be substantial damage to the Building
by fire or other casualty and if such damage shall materially interfere with the
Tenant's use of the Premises as contemplated by this Lease, the Landlord shall
promptly restore the Building to the extent reasonably necessary to enable the
Tenant use of the Premises, unless the Landlord, within twenty (20) days after
the occurrence of such damage, shall give notice to the Tenant of the Landlord's
election whether to terminate this Lease or to restore. The Landlord shall have
the right to make such election in the event of substantial damage to the
Building whether or not such damage materially interferes with the Tenant's use
of the Premises. If the Landlord shall give such notice,
<PAGE>
or in the event no such notice is given, then this Lease shall terminate as of
the date of such notice, or on the date of the expiration of the twenty (20) day
period, whichever occurs last, with the same force and effect as if such date
were date originally established as the expiration date hereof.
14.4 ABATEMENT OF RENT
If during the Lease Term the Building shall be damaged by fire or casualty
and if such damage shall materially interfere with the Tenant's use of the
Premises as contemplated by this Lease, a just proportion of the Rent and other
charges payable by the Tenant hereunder shall abate proportionately for the
period in which, by reason of such damage, there is such interference with the
Tenant's use of the Premises.
14.5 MISCELLANEOUS
In no event shall the Landlord have any obligation to make any repairs or
perform any restoration work under this Article XIII if prevented from doing so
by reason of any cause beyond its reasonable control, including without
limitation, the requirements of any applicable laws, codes, ordinance, rules or
regulations, and in such event Landlord may terminate this Lease by written
notice to the Tenant, given within thirty (30) days after Landlord learns that
it is prevented from restoring as aforesaid. Further, the Landlord shall not be
obligated to make any repairs or perform any restoration work to any fixture in
or portions of the Premises or the Building which were constructed or installed
by or for some party other than the Landlord or which are not the property of
the Landlord.
ARTICLE XV
----------
EMINENT DOMAIN
15.1 RIGHTS OF TERMINATION FOR TAKING
If the Premises, or such portion thereof as to render the balance (if
reconstructed to the maximum extent practicable in the circumstances) physically
unsuitable for the Tenant's purposes, shall be taken by condemnation or right of
eminent domain (including a temporary taking in excess of 180 days), the
Landlord or the Tenant shall have the right to terminate this Lease by notice to
the other of its desire to do so, provided that such notice is given not later
than thirty (30) days after the Tenant has been deprived of possession.
Further, if so much of the Building (which may include the Premises) or the
Lot shall be so taken or condemned or shall receive any direct or consequential
damage by reason of anything done pursuant to public or quasi-public authority
such that continued operation of the same would, in the Landlord's reasonable
opinion, be uneconomical, the Landlord shall have the right to terminate this
Lease by giving notice to the Tenant of the Landlord's desire so to do not later
than thirty (30) days
<PAGE>
after the effective date of such taking.
Should any part of the Premises be so taken or condemned or receive such
damage and should this Lease be not terminated in accordance with the foregoing
provisions, the Landlord shall promptly after the determination of the
Landlord's award on account thereof, expend so much as may be necessary of the
net amount which may be awarded to the Landlord in such condemnation proceedings
in restoring the Premises to an architectural unit that is reasonably suitable
to the uses of the Tenant permitted hereunder. Should the net amount so awarded
to the Landlord be insufficient to cover the cost of so restoring the Premises,
in the reasonable estimate of the Landlord, the Landlord may, but shall have no
obligation to, supply the amount of such insufficiency and restore the Premises
to such an architectural unit, with reasonable diligence, or may terminate this
Lease by giving notice to the Tenant not later than a reasonable time after the
Landlord has determined the estimated cost of such restoration.
15.2 PAYMENT OF AWARD
The Landlord shall have and hereby reserves and excepts, and the Tenant
hereby grants and assigns to the Landlord, all rights to recover for damages to
the Building and the Lot and the leasehold interest hereby created, and to
compensation accrued or hereafter to accrue by reason of such taking or damage,
as aforesaid. The Tenant covenants to deliver such further assignments and
assurances thereof as the Landlord may from time to time request, hereby
irrevocably designating and appointing the Landlord as its attorney-in-fact to
execute and deliver in the Tenant's name and behalf all such further assignments
thereof. Nothing contained herein shall be construed to prevent the Tenant from
prosecuting in any condemnation proceedings a claim for the value of any of the
Tenant's usual trade fixtures installed in the Premises by the Tenant at the
Tenant's expense and for relocation expenses, provided that such action shall
not affect the amount of compensation otherwise recoverable hereunder by the
Landlord from the taking authority.
15.3 ABATEMENT OF RENT
In the event of any such taking of the Premises, the Rent and other
charges, or a fair and just proportion thereof, according to the nature and
extent of the damage sustained, shall be suspended or abated, as appropriate and
equitable in the circumstances.
15.4 MISCELLANEOUS
In no event shall the Landlord have any obligation to make any repairs
under this Article XIV if prevented from doing so by reason of any cause beyond
its reasonable control, including requirements of any applicable laws, codes,
ordinances, permit conditions, rules or regulations. Further, the Landlord shall
not be obligated to make any repairs to any portions of the Premises or the
Building which were constructed or installed by or for some party other than the
Landlord or which were not the property of the Landlord.
<PAGE>
ARTICLE XVI
-----------
INSURANCE
16.1 PUBLIC LIABILITY AND PROPERTY INSURANCE
The Tenant agrees to maintain in full force from the date upon which the
Tenant first enters the Premises for any reason, throughout the Lease Term, and
thereafter so long as the Tenant is in occupancy of any part of the Premises, a
policy of comprehensive public liability insurance, written on an occurrence
basis and including contractual liability coverage to cover any liabilities
assumed under this Lease, insuring against all claims for injury to or death of
persons or damage to property on or about the Premises or arising out of the use
of the Premises and under which the Landlord, and such other persons as are in
privity of estate with the Landlord as may be set forth in a notice given from
time to time by the Landlord and the Tenant are named as insureds, as their
respective interests appear, each with the same effect as if separately insured.
The minimum limits of liability of such insurance shall be: Bodily injury -
$1,000,000 per occurrence and in the aggregate over the term of the policy, and
Property Damage - $500,000 per occurrence. The Landlord shall have the right
from time to time to increase such minimum limits upon notice to the Tenant,
provided that any such increase shall provide for coverage in amounts similar to
like coverage being carried on like property in the greater Dearborn area.
The Tenant shall also maintain in full force and effect from the date upon
which the Tenant first enters the Premises for any reason, throughout the Lease
Term and thereafter so long as the Tenant is in occupancy of any part of the
Premises, property insurance covering the Tenant's furnishings, fixtures,
equipment or other personal property of the Tenant written on an "All Risk"
basis for full replacement cost, and such other insurance as the Landlord may,
from time to time, reasonably require. Without limiting the provisions of
Section 11.2, if the Tenant fails to take out or maintain any policy of
insurance required by this Article XV to be taken out and maintained, such
failure shall be complete defense to any claim asserted by the Tenant against
the Landlord by reason of any loss sustained by the Tenant that would have been
covered by such policy.
Each such policy shall be non-cancelable and non-amendable with respect to
the Landlord and such designees of the Landlord without thirty (30) days' prior
notice to the Landlord, and a duplicate original or certificate thereof shall be
delivered to the Landlord.
16.2 NON-SUBROGATION
Insofar as, and to the extent that, the following provision may be
effective without invalidating or making it impossible to secure insurance
coverage obtainable from responsible insurance companies doing business in the
locality in which the Premises are located (even through extra premium may
result therefrom), the Landlord and the Tenant mutually agree that, with respect
to any hazard which is covered by insurance then being carried by them,
respectively, the one carrying such insurance and suffering such loss releases
the other of and from any and all claims
<PAGE>
with respect to such loss; and they further mutually agree that their respective
insurance companies shall have no right of subrogation against the other on
account thereof. In the event that extra premium is payable by either party as
a result of this provision, the other party shall reimburse the party paying
such premium the amount of such extra premium. If, at the request of one party,
this release and non-subrogation provision is waived, then the obligation of
reimbursement shall cease for such period of time as such waiver shall be
effective. If the release of either party provided above shall contravene any
law with respect to exculpatory agreements, the liability of the party for whose
benefit such release was intended shall remain but shall be secondary to that of
the other party's insurer.
16.3 EXTRA HAZARDOUS USE
The Tenant covenants and agrees that the Tenant will not do or permit
anything to be done in or upon the Premises, or bring in anything or keep
anything therein, which would invalidate or be in conflict with insurance
coverage maintained by or for the Landlord with respect to the Building or which
would increase the rate of insurance on the Premises or on the Building for the
use to which the Tenant has agreed to devote the Premises; and the Tenant
further agrees that, in the event that the Tenant shall do any of the foregoing,
the Tenant will, at Landlord's election, cease such activity or promptly pay to
the Landlord, on demand, any such increase resulting therefrom, which shall be
due and payable as [part of this sentence may have been cut off when copied] and
at its sole cost and expense, Tenant shall comply with all laws, rules and
regulations relating to the treatment, production, storage handling, transfer,
processing, transporting and disposal of hazardous substances, toxic or
radioactive matter, or any other material or substance which may or could pose a
hazard to the health and safety of the current or future occupants of the
Premises, or the owners or occupants of property adjacent to or in the vicinity
of the Premises. Tenant shall indemnify and hold Landlord harmless for any
violation of any such laws, rules and regulations, and Tenant's obligations and
indemnity as stated in this Section shall survive the termination of this Lease.
ARTICLE XVII
------------
DEFAULT
17.1 TENANT'S DEFAULT.
If:--
a) the Tenant shall fail to pay the Rent or other charges on or before
the date on which the same becomes due and payable and the same
continues for ten (10) days after written notice to Tenant of such
delinquency, or
b) the Tenant shall fail to perform or observe some term or condition of
this Lease which, because of its character, would immediately
jeopardize the Landlord's interest
<PAGE>
(such as, but without limitation, failure to maintain public liability
insurance), and such remains uncured ten (10) days after written
notice to Tenant of such failure, or
c) the Tenant shall fail to perform or observe any other term or
condition contained in this Lease within ten (10) days after notice
from the Landlord thereof, unless such default is of such a nature
that it cannot be cured within such ten (10) day period, in which case
no event of default shall occur unless the Tenant shall not commence
to cure such failure promptly within such ten (10) day period and
thereafter continuously and diligently complete the curing of the
same, or
d) the Tenant shall vacate or abandon the Leased Premises, or
e) except as otherwise provided by applicable law, if the estate hereby
created shall be taken on execution or by other process of law, or if
the Tenant shall be judicially declared bankrupt or insolvent
according to law, or if any assignment shall be made of the property
of the Tenant for the benefit of creditors, or if a receiver,
guardian, conservator, trustee in involuntary bankruptcy or other
similar officer shall be appointed to take charge of all or any
substantial part of the Tenant's property by a court of competent
jurisdiction, or if a petition shall be filed for the reorganization
of the Tenant under any provisions of law now or hereafter enacted,
and such proceeding is not dismissed within forty-five (45) days after
it is begun, or if the Tenant shall file a petition for such
reorganization, or for arrangements under any provisions of such laws
providing a plan for a debtor to settle, satisfy or extend the time
for the payment of debts,--
then, in addition to and not as a limitation on or in lieu of such other or
additional remedies as may be available to Landlord by law, Landlord shall have
the right to declare this Lease terminated and the term ended, or to re-enter
the Premises and to remove all persons and chattels therefrom, or to exercise
all such remedies, and Landlord shall not be liable for damages to person or
property by reason of any such re-entry or termination. Landlord shall provide
Tenant fifteen (15) days prior notice before re-entry by Landlord. In the event
of such re-entry by Landlord without notice of termination of the Lease, the
liability of Tenant for the rent provided herein shall not be relinquished or
extinguished for the balance of the term of this Lease, and any rentals prepaid
may be retained by Landlord and applied against the costs of re-entry, or as
liquidated damages, or both; Tenant will pay, in addition to the rentals and
other sums agreed to be paid hereunder, reasonable attorney's fees, costs and
expenses in any suit or action instituted by Landlord to enforce the provisions
of this Lease or the collection of the rentals due Landlord hereunder.
In the event of termination of the Lease at or after the time of re-entry,
Landlord may re-let the Premises or any part thereof for a term or terms and at
a rent which may be less than or exceed the balances of the term of and the Rent
reserved under this Lease, the rent for which the Premises are so re-let being
prima facie the fair and reasonable rental value thereof, and in the event of
such declaration Tenant shall pay to Landlord as liquidated damages for Tenant's
default hereunder, at
<PAGE>
Landlord's option:
(a) Any deficiency between the total rent reserved hereunder and the net
amount, if any, of the rents collected on account of any lease or leases of the
Premises for what would otherwise have constituted the balance of the term of
this Lease; in computing such expenses which Landlord may incur in connection
with re-letting, such legal expenses, attorneys' fees and expenses, advertising
and expenses for keeping the Premises in good order or for preparing the same
for re-letting, and any such liquidated damages shall be paid in monthly
installments by Tenant on the day Rent is due hereunder, and any suit brought to
collect the deficiency for any month shall not prejudice the right of the
Landlord to collect the deficiency for any subsequent month by a similar
proceeding; or
(b) In a lump sum, the worth at the time of such declaration of any
deficiency between (a) the total rent reserved hereunder and (b) reasonably
foreseeable expenses of re-letting.
Landlord shall use its reasonable efforts to re-let the Premises but shall
not be responsible in any way whatsoever for failure to re-let the Premises, or
in the event that the Premises are re-let, for failure to collect the rent
thereof under such re-letting, provided, however, that Landlord shall have used
reasonable efforts to re-let the Premises and to collect any rent due upon re-
letting. The failure of Landlord to re-let the Premises or any part thereof
shall not release or affect Tenant's liability for rent or damages.
Notwithstanding any of the foregoing, any and all indebtedness owing by
Tenant to Landlord pursuant to the terms of this Lease, which remains unpaid for
a period of five (5) days after it first becomes due and payable, shall bear
interest at a rate which shall be the greater of eleven percent (11%) per annum
or four percent (4%) per annum over the prime interest rate charged from time to
time by the National Bank of Detroit to its best commercial customers, but not
in excess of the maximum rate permitted by law.
17.2 THE LANDLORD'S DEFAULT
The Landlord shall in no event be in default in the performance of any of
the Landlord's obligations hereunder unless and until the Landlord shall have
failed to perform such obligations within thirty (30) days, or such additional
time as is reasonably required to correct any such default, after notice by the
Tenant to the Landlord properly specifying wherein the Landlord has failed to
perform any such obligation.
Further, if the holder of a mortgage which includes the Premises notifies
the Tenant that such holder has taken over the Landlord's rights under this
Lease, then Tenant shall not assert any right to deduct the cost of repairs or
any monetary claims against the Landlord theretofore accrued from rent
thereafter due and payable, but shall look solely to the Landlord and not such
holder for satisfaction of such claim.
<PAGE>
ARTICLE XVIII
-------------
MISCELLANEOUS PROVISIONS
18.1 WAIVER
Failure on the part of the Landlord to complain of any action or non-action
on the part of the Tenant, no matter how frequently the same may occur or how
long the same may continue, shall never be a waiver by the Landlord of its
rights hereunder. Further, no waiver at any time of any of the provisions
hereof by the Landlord shall be construed as a waiver of any of the other
provisions hereof, and a waiver at any time of any of the provisions hereof
shall not be construed as a waiver at any subsequent time of the same
provisions. The consent or approval of the Landlord to or of any action by the
other requiring such consent or approval shall not be construed to waive or
render unnecessary the Landlord's consent or approval to or of any subsequent
similar act by the Tenant. No option or right granted to the Tenant to renew
this Lease or to extend the Lease Term shall be considered to give the Tenant
any further option or right to renew or extend.
18.2 COVENANT OF QUIET ENJOYMENT
Subject to the terms and provisions of this Lease and on payment of the
rent and compliance with all of the terms and provisions of this Lease, the
Tenant shall lawfully, peaceably and quietly have, hold, occupy and enjoy the
Premises during the term hereof, without hindrance or ejection by the Landlord
or by any persons lawfully claiming under the Landlord; the foregoing covenant
of quiet enjoyment is in lieu of any other covenant, express or implied.
18.3 NO PERSONAL LIABILITY OF THE LANDLORD
The Tenant agrees to look solely to the Landlord's then equity interest in
the Building at the time owned, or in which the Landlord holds an interest as
ground lessee, for recovery of any judgment from the Landlord; it being
specifically agreed that neither the Landlord (whether the Landlord be an
individual, partnership, firm, corporation, trustee or other fiduciary) nor any
of the partners comprising the Landlord, nor any beneficiary of any trust of
which any person holding the Landlord's interest is trustee nor any successor in
interest to any of the foregoing shall ever be personally liable for any such
judgment, or for the payment of any monetary obligation to the Tenant. The
covenants of the Landlord contained in this Lease shall be binding upon the
Landlord and the Landlord's successors only with respect to breaches occurring
during the Landlord's and the Landlord's successors' respective periods of
ownership of the Landlord's interest hereunder.
18.4 NOTICE TO MORTGAGEE AND GROUND LESSOR; OPPORTUNITY TO CURE
After receiving notice from any person, firm or other entity that it holds
a mortgage which includes the Premises as part of the mortgaged premises, or
that it is the ground lessor under a lease with the Landlord, as ground lessee,
which includes the Premises as a part of the demised premises,
<PAGE>
no notice from the Tenant to the Landlord shall be effective unless and until a
copy of the same is given to such holder or ground lessor, and the curing of any
of the Landlord's defaults by such holder or ground lessor shall be treated as
performance by the Landlord. Accordingly, no act or failure to act on the part
of the Landlord which would entitle the Tenant under the terms of this Lease, or
by law, to be relieved of the Tenant's obligations hereunder or to terminate
this Lease, shall result in a release or termination of such obligations or a
termination of this Lease unless (i) the Tenant shall have first given written
notice of the Landlord's act or failure to act to such holder or ground lessor,
if any, specifying the act or failure to act on the part of the Landlord which
could or would give basis to the Tenant's rights; and (ii) such holder or ground
lessor, after receipt of such notice, has failed or refused to correct or cure
the condition complained of within a reasonable time thereafter, but nothing
contained in this paragraph shall be deemed to impose any obligation on any such
holder or ground lessor to correct or cure any such condition. "Reasonable
time" as used above means and includes a reasonable time to obtain possession of
the Lot and Building if any such holder or ground lessor elects to do so and a
reasonable time to correct or cure the condition if such condition is determined
to exist.
18.5 NO BROKERAGE
The Tenant warrants and represents that the Tenant has dealt with no broker
other than G. A. Snowden & Associates, Inc. in connection with the consummation
of this Lease, and, in the event of any brokerage claims, other than claims by
G. A. Snowden & Associates, Inc., and against the Landlord predicated upon prior
dealings with the Tenant named herein, the Tenant agrees to defend the same and
indemnify the Landlord against any such claim.
18.6 INVALIDITY OF PARTICULAR PROVISIONS
If any term or provision of this Lease, or the application thereof to any
person or circumstance shall, to any extent, be invalid or unenforceable, the
remainder of this Lease, or the application of such term or provision to persons
or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Lease shall be valid and been forced to the fullest extent permitted by
law.
18.7 PROVISIONS BINDING, ETC.
Except as herein otherwise expressly provided, the terms hereof shall be
binding upon and shall inure to the benefit of the successors and assigns,
respectively, of the Landlord and the Tenant and, if the Tenant shall be an
individual, upon and to his heirs, executors, administrators, legal
representatives, successors and assigns. Each term and each provision of this
Lease to be performed by the Tenant shall be construed to be both a covenant and
a condition. The reference contained to successors and assigns of the Tenant is
not intended to constitute a consent to assignment by the Tenant, but has
reference only to those instances in which the Landlord may later give consent
to a particular assignment as required by those provisions of Article VII
hereof. If the Tenant be several persons, natural or corporate, the liability
of such persons for compliance with the obligations
<PAGE>
of the Tenant under this Lease shall be joint and several. In all instances
where the Tenant is required under this Lease to pay any sum or do any act at or
by a particular time it is agreed that time is of the essence.
18.8 RECORDING
The Tenant agrees to record this Lease.
18.9 NOTICES
Whenever, by the terms of this Lease, notice shall or may be given either
to the Landlord or to the Tenant, such notice shall be in writing and shall be
sent by registered or certified mail, postage prepaid or by so-called "express"
mail (such as Federal Express or U.S. Postal Service Express Mail):
If intended for the Landlord, addressed to the Landlord at the
address set forth on the first page of this Lease or to such other
addresses as may from time to time hereafter be designated by the
Landlord by like notice.
with a copy to: John Hancock Mutual Life Insurance Company
Group Property Management, T-32
Attention: Patricia A. Barry
John Hancock Place
Boston, MA 02117
If intended for the Tenant, addressed to the Tenant at the
address set forth on the first page of this Lease, or to such other
address or addresses as may from time to time hereafter be designated
by the Tenant by like notice.
All such notices shall be effective two (2) days after deposited in the
United States mail within the Continental United States or when received by the
"express" mail carrier, as the case may be.
18.10 WHEN LEASE BECOMES BINDING
Employees or agents of the Landlord have no authority to make or agree to
make a lease or any other agreement or undertaking in connection herewith. The
submission of this document for examination and negotiation does not constitute
an offer to lease, or a reservation of, or option for, the Premises, and this
document shall become effective and binding only upon the execution and delivery
hereof by both the Landlord and the Tenant. All negotiations, consideration,
representations and understandings between the Landlord and the Tenant are
incorporated herein and may be modified or altered only by written agreement
between the Landlord and the Tenant, and no act or omission of any employee or
agent of the Landlord shall alter, change or modify any of the
<PAGE>
provisions hereof.
18.11 PARAGRAPH HEADINGS
The paragraph headings throughout this instrument are for convenience and
reference only, and the words contained therein shall in no way be held to
explain, modify, amplify or aid in the interpretation, construction or meaning
of the provisions of this Lease.
18.12 RIGHTS OF MORTGAGEE
If any holder of a mortgage or holder of a ground lease of property which
includes the Premises, originally given to a lender, and executed and recorded
subsequent to the date of this Lease, shall so elect, the interest of the Tenant
hereunder shall be subordinate to the rights of such holder. If any holder of a
mortgage or holder of a ground lease of property which includes the Premises,
originally given to a lender, and executed and recorded prior to the date of
this Lease, shall so elect, this Lease, and the rights of the Tenant hereunder,
shall be superior in right to the rights of such holder, with the same force and
effect as if this Lease had been executed and delivered, and recorded, or a
statutory notice hereof recorded, prior to the execution, delivery and recording
of any such mortgage. If in connection with obtaining financing for the
Building, a bank, insurance company, pension trust or other institutional lender
shall request reasonable modifications in this Lease as a condition to such
financing, the Tenant will not unreasonably withhold, delay or condition its
consent thereto, provided that such modifications do not materially adversely
affect the Tenant or the leasehold interest hereby created. No assignment of
this Lease and no agreement to make or accept any surrender, termination or
cancellation of this Lease and no agreement to modify so as to reduce the rent,
change the term, or otherwise materially change the rights of the Landlord under
this Lease, or to relieve the Tenant of any obligations or liability under this
Lease, shall be valid unless consented to in writing by the Landlord's mortgages
of record, if any. Tenant agrees on request of the Landlord to execute and
deliver from time to time any agreement which may reasonably be deemed necessary
to implement the provisions of this Section 18.12.
18.13 STATUS REPORT; MODIFICATION
Recognizing that the Landlord may find it necessary to establish to third
parties, such as accountants, banks, mortgagees or the like, the then current
status of performance hereunder Tenant agrees to execute in form satisfactory to
the Landlord within ten (10) days of a written request therefor a certificate
stating (i) that this Lease is then in full force and effect and has not been
modified or, if modified, setting forth the specific nature of all
modifications, (ii) the date to which the Rent and any additional rent or other
charges has been paid, (iii) whether or not the Landlord is in default under
this Lease, and if the Landlord is in default, setting forth the specific nature
of all such defaults) and (iv) any other matters relating to the Lease
reasonably requested by Landlord. Tenant's failure to deliver such statement
within such time shall be conclusive upon Tenant that this Lease is in full
force and effect, without modification except as may be represented by Landlord,
that there are no uncured defaults in Landlord's performance and that not more
than one (1) month's Rent
<PAGE>
has been paid in advance. Without limiting the generality of the foregoing, the
Tenant specifically agrees, promptly upon the commencement of the Term hereof,
to acknowledge to the Landlord satisfaction of any requirements with respect to
construction except for such matters as the Tenant may set forth specifically in
such statement. The Tenant acknowledges that any statement delivered pursuant
to this Section 18.13 may be relied upon by any purchaser or owner of the
Building, or the Lot or any part thereof, or Landlord's interest in the Building
or the Lot or any ground or underlying lease, or by any mortgagee, or by any
assignee of any mortgagee, or by any lessee under any ground or underlying
lease.
18.14 SECURITY DEPOSIT
If, in Section 1.1 hereof a security deposit or prepaid rent is specified,
the Tenant agrees that the same will be paid upon execution and delivery of this
Lease, and that the Landlord shall hold the same, throughout the term of this
Lease, as security for the performance by the Tenant of all obligations on the
part of the Tenant to be kept and performed. The Landlord shall have the right
from time to time, without prejudice to any other remedy the Landlord may have
on account thereof, to apply such amount, or any part thereof, to the Landlord's
damages arising from any default on the part of the Tenant. The Tenant not then
being in default, with respect to a security deposit, the Landlord shall return
the deposit, or so much thereof as shall not have theretofore been applied in
accordance with the terms of this Section 18.14, to the Tenant on the expiration
or earlier termination of the Lease Term and surrender of possession of the
Premises by the Tenant to the Landlord at such time. The Landlord shall, unless
otherwise required by law, have no obligation to pay interest on the deposit or
prepaid rent and shall have the right to commingle the same with the Landlord's
other funds. If the Landlord conveys the Landlord's interest under this Lease,
the deposit or prepaid rent, or any part thereof not previously applied, may be
turned over by the Landlord to the Landlord's grantee, and, if so turned over,
the Tenant agrees to look solely to such grantee for proper application of the
deposit or prepaid rent in accordance with the terms of this Section 17.14, and
the return thereof in accordance herewith. The Tenant agrees that the Tenant
will not assign, encumber or pledge the moneys deposited herein as security, and
that neither the Landlord, nor its successors and assigns, shall be bound by any
such assignment, encumbrance or pledge, attempted assignment, attempted pledge,
or attempted encumbrance.
18.15 SELF-HELP
The Landlord shall have the right, but shall not be required, to pay such
sums or do any act which requires the expenditure of moneys which may be
necessary or appropriate by reason of the failure or neglect of the Tenant to
perform any of the provisions of this Lease, and in the event of the exercise of
such right by the Landlord, the Tenant agrees to pay to the Landlord forthwith
upon demand the cost of performing the same, plus an administrative charge
(covering overhead and profit) not to exceed 15% of such cost; and if the Tenant
shall default in such payment, the Landlord shall have the same rights and
remedies as the Landlord has hereunder for the failure of the Tenant to pay the
Rent.
<PAGE>
18.16 HOLDING OVER
Any holding over by the Tenant after the expiration of the term of this
Lease without the written consent of the Landlord shall be treated as a tenancy
at sufferance at double the rent specified herein (prorated on a daily basis)
and shall otherwise be on the terms and conditions set forth in this Lease, so
far as applicable.
Any holding over by the Tenant after the expiration of the term of this
Lease with the written consent of the Landlord shall be on a month-to-month
basis, terminable by either party on thirty (30) days' notice and shall be at
the same Rent specified herein and shall otherwise be on the terms and
conditions set forth herein, so far as applicable.
18.17 CERTIFICATE
If the Tenant is a corporation, each of the persons executing this
instrument on behalf of the Tenant, hereby covenants and warrants that the
Tenant is a duly existing and valid corporation and that the Tenant is qualified
to do business in Michigan. Further, if the Tenant is a corporation, the Tenant
shall deliver to the Landlord, at the time of execution of this Lease, a Clerk's
or Secretary's Certificate in the form attached hereto as Exhibit H (or other
suitable form satisfactory to counsel for the Landlord), as to the due
authorization of the execution of this Lease and incumbency of the signing
officer.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed, under seal, as of the Date set forth in Section 1.1.
LANDLORD: JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By:____________________________
Its
hereunto duly authorized
TENANT: GTE CONTROL DEVICES INCORPORATED
By:____________________________
Its
hereunto duly authorized
<PAGE>
18.16 HOLDING OVER
Any holding over by the Tenant after the expiration of the term of this
Lease without the written consent of the Landlord shall be treated as a tenancy
at sufferance at double the rent specified herein (prorated on a daily basis)
and shall otherwise be on the terms and conditions set forth in this Lease, so
far as applicable.
Any holding over by the Tenant after the expiration of the term of this
Lease with the written consent of the Landlord shall be on a month-to-month
basis, terminable by either party on thirty (30) days' notice and shall be at
the same Rent specified herein and shall otherwise be on the terms and
conditions set forth herein, so far as applicable.
18.17 CERTIFICATE
If the Tenant is a corporation, each of the persons executing this
instrument on behalf of the Tenant, hereby covenants and warrants that the
Tenant is a duly existing and valid corporation and that the Tenant is qualified
to do business in Michigan. Further, if the Tenant is a corporation, the Tenant
shall deliver to the Landlord, at the time of execution of this Lease, a Clerk's
or Secretary's Certificate in the form attached hereto as Exhibit H (or other
suitable form satisfactory to counsel for the Landlord), as to the due
authorization of the execution of this Lease and incumbency of the signing
officer.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed, under seal, as of the Date set forth in Section 1.1.
LANDLORD: JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By:____________________________
Its
hereunto duly authorized
TENANT: GTE CONTROL DEVICES INCORPORATED
By:____________________________
Its
hereunto duly authorized
<PAGE>
EXHIBIT 10.4
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT ("Lease") is entered into this 30th day of December,
1994, by and between Mecon MFG, a Maine corporation ("Lessor") and CONTROL
DEVICES, INC., an Indiana corporation ("Lessee").
RECITAL:
Lessor is the owner of a manufacturing facility consisting of approximately
33,000 square feet of space in the building of Lessor, situated in Caribou,
Maine, the legal description of which is attached hereto as Exhibit A (the
"Premises"). Lessor desires to lease the Premises to Lessee, and Lessee desires
to lease the Premises from Lessor, on the terms set forth in this Lease.
NOW, THEREFORE, in consideration of these premises and the mutual
agreements and covenants set forth in this lease and for the good and valuable
consideration, Lessor and Lessee agree as follows:
Section 1. Grant. Lessor hereby demises and leases all of the Premises to
---------- ------
Lessee for the term of this Lease.
Section 2. Term. The term of this Lease shall commence on January 1, 1995
---------- -----
and continue in effect until terminated in accordance with Section 9 of this
---------
Lease.
Section 3. Lease Payments; Late Fees. On or before September 1, 1995,
---------- ---------------------------
and the first day of each subsequent calendar month until this Lease is
terminated in accordance with Section 9 of this Lease, Lessee shall pay to
---------
Lessor a monthly lease payment of $10,000 per month. No payment shall be due
under the terms of this Lease prior to September 1, 1995. In the event Lessee
does not make any lease payment within fifteen days after written notice from
the Lessor, Lessee shall pay to Lessor a late fee equal to five percent of the
past due amount. All lease payments shall be mailed to Lessor's address set
forth in Section 10 of this Lease of such writing.
----------
Section 4. Maintenance. During the term of this Lease, Lessee shall be
---------- ------------
responsible for, and bear the expense of, maintaining the Premises in reasonable
condition and repair, normal wear and tear expected. Notwithstanding the above,
in the event that all or part of the Premises are destroyed, damaged or
impaired, the Lessee shall have no obligation to repair or rebuild the Premises
provided the Lessee agrees to pay to Lessor an amount equal to the decrease in
the fair market value of the Premises resulting from the destruction, damage or
impairment to the premises.
Section 5. Utilities. Lessee shall pay all costs and expenses for any and
---------- ----------
all utilities used upon the Premises during the term of this Lease.
Section 6. Taxes. Lessee shall pay all real estate taxes on the premises
---------- ------
which initially become due and payable during the term of this Lease, but such
taxes will be prorated for any period occurring before this Lease commences or
after this Lease ends.
<PAGE>
Section 7. Insurance. During the term of this Lease, Lessee shall
---------- ----------
maintain at the Lessee's own expense the following insurance:
(a) Comprehensive liability insurance in an amount not less than
$1,000,000.
(b) Fire insurance with standard extended coverage to the extent of not
less than 80% of the replacement value of the Premises.
Section 8. Alterations. During the term of this Lease, Lessee shall have
---------- ------------
the right to make alterations, additions and improvements to the Premises at its
own expense so long as such alterations, additions and improvements to the
Premises do not have a material adverse effect on the value of the Premises.
Section 9. Termination. This Lease shall be terminated (a) upon the
---------- ------------
written agreement of Lessor and Lessee, or (b) by either party by giving at
least one year prior written notice to the other party specifying the date of
such termination, which termination may in no event be prior to December 31,
1997 or (c) the destruction of, damage or impairment to, the Premises if Lessee
elects not to repair the Premises but pays to Lessor the amount of the decrease
in the fair market value of the Premises as provided by Section 4 of this Lease.
---------
Following the termination of this Lease, Lessee shall have the right to remove
all of the property and equipment, including any property, equipment and trade
fixtures acquired or installed by Lessee with which have become affixed to the
Premises.
Section 10. Notices. All notices, requests, consents and other
----------- --------
communications hereunder shall be in writing and may be delivered personally
(including by courier) or by first class registered or certified mail, postage
prepaid, addressed to the following address or to other such addresses as may be
furnished in writing by one party to the other.
If to Lessee: If to Lessor:
Mecon Mfg. Control Devices, Inc.
Attn: Frank S. Kostis, Director Attn: Bruce D. Atkinson, President
238 River Street 228 Northeast Rd.
Springvale, ME 04083 Standish, ME 04084
with copy to:
Titcomb Marass Flaherty & Knight Hammond, Kennedy, Whitney & Company,
Attn: Len Knight Inc.
P.O. Box 311 Attn: Glenn Scolnik
Sanford, ME 04073 8800 Keystone Crossing, Suite 1048
Indianapolis, IN 46240
Section 11. Governing Law. This Lease will be governed by, and construed
----------- --------------
in accordance with, the laws of the State of Maine, without regard to such
jurisdiction's conflicts of laws principles.
<PAGE>
Section 12. Entire Agreement. This Lease constitutes the entire agreement
----------- -----------------
of the parties hereto with respect to the matters contemplated hereby and
supersedes all previous written or oral negotiations, commitments,
representations and agreements.
Section 13. Assignment; Successors and Assigns. This Lease may be
----------- ------------------------------------
assigned by Lessee or Lessor without the prior written consent of the other
party. All covenants, representations, warranties and agreements of the
parties contained herein shall be binding upon and inure to the benefit of their
respective successors and assigns.
Section 14. Execution in Counterpart. This Lease may be executed in one
----------- -------------------------
or more counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
day and year first written above.
"LESSEE" "LESSOR"
MECON MFG. CONTROL DEVICES, INC.
By: /s/ Frank S. Kostis By: /s/ Bruce D. Atkinson
------------------------------- ------------------------------
Frank S. Kostis, Director Bruce D. Atkinson, President
------------------------------- ------------------------------
Printed Name and Title Printed Name and Title
<PAGE>
NOTICE OF LEASE
THIS NOTICE OF LEASE is made this 30th day of December, 1994, for the
purpose of making a public record of the following described Lease Agreement.
DATE OF LEASE: December 30, 1994
NAME OF LESSOR: MECON MFG., having a mailing address of
NAME OF LESSEE: CONTROL DEVICES, INC., having a mailing address of 228
Northeast Rd., Standish, Maine.
DESCRIPTION OF
DEMISED PREMISES: Approximately thirty three thousand (33,000) square feet of
space in the building of Lessee, situated in Caribou, Maine,
the legal description of which is attached hereto as Exhibit
A (the "Premises").
TERM OF LEASE: The original term of the Lease shall commence on January 1,
1995 and shall continue until terminated in accordance with
Section 9 of the Lease. Section 9 of the Lease provides that
the Lease shall (a) upon the written agreement of Lessor or
Lessee, or (b) terminated by either party by giving at least
one year prior written notice to the other party the date of
such termination which termination may in no event be prior
to December 31, 1997, or (c) the destruction of, or damage or
impairment to, the Premises if the Lessee elects not to
repair the Premises but pays to Lessor the amount of the
decrease in the fair market value of the Premises as provided
in Section 4 of the Lease.
RENEWAL OR
EXTENSION TERMS: None.
THIS NOTICE OF LEASE is prepared for recording and for the purpose of making
a public record of the Lease, and it is intended that the parties shall be
subject to all of the provisions of the Lease and that nothing herein shall be
construed or deemed to alter or change any of the terms and provisions of the
Lease.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Notice of Lease as of
the day and year above written.
WITNESSETH: MECON MFG.
/s/ Frank S. Kostis
- ------------------------------------ ------------------------------------
By: Frank S. Kostis
------------------------------
Its: Director
------------------------------
CONTROL DEVICES, INC
- ------------------------------------
<PAGE>
/s/ Bruce D. Atkinson
-----------------------------------
By:
--------------------------------
Its: President
--------------------------------
STATE OF MAINE )
) SS:
COUNTY OF CUMBERLAND )
December 30, 1994
The personally appeared the above-named Frank S. Kostis, of MECON
MFG., and acknowledged the foregoing to be his free act and deed of said Mecon
Mfg.
/s/ Beverly A. Miner
------------------------------------------
Before me, Notary Public
Beverly A. Miner Printed Name: Beverly A. Miner
Notary Public, State of Indiana My Commission Expires:
My Commission Expires Sept. 02, 2001
STATE OF MAINE )
) SS:
COUNTY OF CUMBERLAND )
December 30, 1994
The personally appeared the above-named Bruce D. Atkinson of CONTROL
DEVICES, INC., and acknowledge the foregoing to be his free act and deed of
said Control Devices, Inc.
/s/ Beverly A. Miner
-------------------------------------------
Before me, Notary Public
Beverly A. Miner Printed Name: Beverly A. Miner
Notary Public, State of Indiana My Commission Expires:
My Commission Expires Sept. 02, 2001
<PAGE>
RECOGNITION AGREEMENT
---------------------
This agreement is made this 30th day of December, 1994 by and between
Control Devices, Inc., having its principal place of business in Standish, Maine
(hereinafter called "Tenant") and Mecon, hereafter called ("Mortgagee").
W I T N E S S E T H
WHEREAS, Mortgagee is the holder of a mortgage (the "Mortgage") on
property owned by Mecon Mfg. ("Landlord") situated at __________________,
___________________, Maine (the "Mortgaged Premises"), said mortgage being
--------- --------
dated ______ and recorded in the ___ County Registry of Deeds in Book ___,
Page ___; and
WHEREAS, the Tenant is about to enter into a lease agreement (the
"Lease") with Landlord pursuant to which Tenant will lease and occupy certain
premises (the "Demised Premises") which constitute a part of the Mortgaged
Premises; and
WHEREAS, Tenant wishes to be assured of continued peaceful occupancy
of the Demised Premises under the terms of the Lease and subject to the terms of
the Mortgagee as landlord under the Lease in the event of foreclosure of the
Mortgage,
NOW, THEREFORE, in consideration of the premises and of the sum of One
Dollar ($1.00) by each party in hand paid to the other, the receipt of which is
hereby acknowledged, it is hereby agreed as follows:
1. Mortgagee agrees that it will not name Tenant in any foreclosure
action involving the Mortgaged Premises, and in the event of a foreclosure,
foreclosure sale, deed in lieu of claiming by, through or under Mortgagee,
under the Mortgage, neither the Lease, nor the rights of Tenant under the Lease,
nor the rights of any subtenant or other party claiming under Tenant, shall be
disturbed but shall continue in full force and effect, subject, however, to the
provisions of the Lease concerning Tenant's default.
2. In the event that Mortgagee shall succeed to the interest of
Landlord in the Lease through foreclosure or otherwise, Tenant will attorn to
and recognize Mortgagee, its Mortgagee shall accept such attornment.
3. In the event Mortgagee shall, in accordance with the foregoing,
succeed to the interest of Landlord under the Lease, Mortgagee agrees, during
such time as it shall own the Mortgaged Premises or Landlord's interest in the
Lease, to be bound to Tenant under all of the terms, covenants and conditions of
the Lease, and Tenant shall, from and after such event, have the same remedies
against Mortgagee for the breach of any agreement contained in the Lease that
Tenant might have had under the Lease against Landlord if Mortgagee had not
succeeded to the interest of Landlord; provided, however, that the Mortgagee
--------
shall not be:
(a) liable for any act of omission of any prior or subsequent landlord
(including Landlord); or
(b) bound by any rent or additional rent which Tenant might have paid
for more than the current month to any prior landlord (including Landlord); or
<PAGE>
(c) bound by any material amendment or modification of the Lease made
without its written consent.
4. Except as otherwise provided herein, neither the rights of Tenant
under the Lease, nor the rights of any subtenant or other party claiming under
Tenant, shall be diminished or affected hereby.
5. This Agreement shall be binding upon and inure to the benefit of
Mortgagee and Tenant and their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have duly caused these presents
to be executed as of the day and year first above mentioned.
WITNESSETH: CONTROL DEVICES, INC.
- ------------------------------------ By: /s/ Bruce D. Atkinson
-------------------------------
Its: President
-------------------------------
Printed Name: Bruce D. Atkinson
-----------------------
"Tenant"
- ------------------------------------
By: /s/ Frank S. Kostis
-------------------------------
Its: Director
-------------------------------
Printed Name: Frank S. Kostis
-----------------------
"Mortgagee"
STATE OF MAINE )
) SS:
COUNTY OF CUMBERLAND ) December 30, 1994
-----------------
The personally appeared the above-named Bruce D. Atkinson of said Control
Devices, Inc. and acknowledged the foregoing to be his free act and deed and
the free act and deed of said Control Devices, Inc.
/s/ Beverly A. Miner
--------------------
Before me, Notary Public
Beverly A. Miner Printed Name: Beverly A. Miner
Notary Public, State of Indiana My Commission Expires:
<PAGE>
My Commission Expires Sept. 02, 2001
STATE OF MAINE )
) SS:
COUNTY OF CUMBERLAND ) December 30, 1994
-----------------
The personally appeared the above-named Frank S. Kostis of said
__________________, and in his said capacity, and the free act and deed of said
corporation.
/s/ Beverly A. Miner
-----------------------
Before me, Notary Public
Beverly A. Miner Printed Name: Beverly A. Miner
Notary Public, State of Indiana My Commission Expires:
My Commission Expires Sept. 02, 2001
<PAGE>
EXHIBIT 10.5
JULY 12, 1996
CONTROL DEVICES, INC.
1996 STOCK COMPENSATION PLAN
ARTICLE I
---------
GENERAL
-------
Section 1.1. Purpose. The purpose of the 1996 Stock Compensation Plan
----------- -------
(the "Plan") of Control Devices, Inc. (the "Company") is to enhance the ability
of the Company to attract and retain qualified personnel who, as a result of the
incentive and equity interest created and encouraged by the Plan, will have an
increased stake in the prosperity of the Company and an increased identity of
interest with the Company's shareholders, and will be encouraged thereby to
exert maximum effort towards the successful operation of the Company.
Section 1.2. Definitions. Whenever used herein, the following terms shall
----------- -----------
have the meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" means the Compensation Committee of the Board, which shall
consist of not less than three persons appointed by the Board from
among those Board members who are not employees of the Company or any
of its subsidiaries.
(d) "Common Shares" means the Common Shares of the Company or such other
securities into which such Common Shares may be changed pursuant to
Section 1.5 hereof.
(e) "Director Options" means options granted to non-employee directors
pursuant to Article IV of the Plan.
(f) "Fair Market Value" means, as to any day (i) the average of the
closing bid and asked price per Common Share on such day as quoted on
the Nasdaq market quotation system or any similar system of automated
dissemination of quotations if the Common Shares are so quoted, or
(ii) if the Common Shares are listed or traded on any national
securities exchange, the last sale price of the Common Shares on such
day as officially listed on the exchange, or (iii) if the Common
Shares are not quoted or traded as contemplated by (i) or (ii), then
Fair Market Value shall mean the price at which the Common Shares
would sell
<PAGE>
between a willing buyer and willing seller (neither being under
compulsion) having knowledge of all reasonable facts, as determined in
good faith by the Committee.
(g) "Incentive Stock Option" means an incentive stock option within the
meaning of Section 422 of the Code.
(h) "Non-statutory Options" means a stock option which is not an Incentive
Stock Option.
(i) "Participant" means a person selected by the Committee to participate
in the Plan pursuant to Section 1.6 hereof.
Section 1.3. Administration. The Plan shall be administered by the
----------- --------------
Committee. Members of the Committee are not eligible to be granted any options
or performance units under the Plan, except Director Options. Subject to the
foregoing and the other terms and provisions of the Plan, the Committee shall
determine the participants in the Plan and the terms and provisions of each
option or performance unit granted under the Plan, including the number of
shares subject to such options or performance units. The Committee may from
time to time prescribe rules and regulations for the administration of the Plan,
and shall decide any questions arising with respect to options or performance
units granted under the Plan. All decisions, interpretations, determinations or
actions taken by the Committee with regard to such questions shall be final and
binding upon the employees of the Company. The Committee from time to time, and
whenever requested, shall report to the Board on the administration of the Plan
and any action taken in connection therewith.
Section 1.4. Aggregate Number of Common Shares Which May be Issued. The
----------- -----------------------------------------------------
aggregate number of Common Shares which may be issued as a result of the
exercise of options granted under the Plan or as a result of attainment of
performance goals pursuant to performance units granted under the Plan, is three
hundred thousand (300,000). In the event any option expires, terminates or is
canceled for any reason prior to exercise, the shares subject to such option
shall again become available for issuance under the Plan.
Section 1.5. Adjustments. If any stock dividend is declared on the Common
----------- -----------
Shares, or if the Common Shares are subdivided, consolidated, or changed to
other securities of the Company, or in the event of any like adjustment or
change in the Company's capitalization, then in each such event, Common Shares
subject to options or performance units then in effect under the Plan, Common
Shares reserved for issuance under the Plan with respect to options or
performance units which may thereafter be granted under the Plan shall, if the
occurrence of the event would have resulted in a change in the number and/or
kind of such shares had they been outstanding, be similarly adjusted in number
and/or kind, with the nature and
2
<PAGE>
extent of such adjustments to be determined by treating such shares as being
outstanding at the time of and immediately prior to the occurrence of the event
and the purchase price to be paid for such shares subject to options then in
effect shall be appropriately changed to give effect to any such adjustment.
Section 1.6. Participants. The participants in the Plan shall be selected
----------- ------------
by the Committee from among the officers and other key employees of the Company
who are full-time employees of the Company or one of its subsidiaries (as
defined in Section 424(f) of the Code). The Committee shall take into account
the duties of the employee, the present and potential contributions of the
employee to the success of the Company, and such other factors that the
Committee, in its discretion, considers to be reasonable and appropriate in
light of the purposes of the Plan.
Section 1.7. Term of Plan. The Plan shall terminate on the earlier of
----------- ------------
(a) ten (10) years from the date of adoption of the Plan by the Board or (b)
such earlier date as the Board may determine. Options or performance units
outstanding at the date of termination of the Plan shall remain in effect until
exercised or expired.
Section 1.8. Restrictions on Transferability of Common Shares. The
----------- ------------------------------------------------
Committee may impose such restrictions as it may deem advisable on Common Shares
acquired on exercise of an option granted under the Plan or on attainment of
performance goals pursuant to performance units granted under the Plan. In
addition, unless the Common Shares so acquired are registered under the
Securities Act of 1933, the transfer of the Common Shares shall be subject to
the restrictions on transfer imposed under federal and applicable state
securities laws, and certificates representing such Common Shares shall bear a
legend to that effect.
Section 1.9. Restriction on Tandem Options. In no event may the exercise
----------- -----------------------------
of an option (whether an Incentive Stock Option or a Non-statutory Option)
granted under the Plan affect the right of a Participant to exercise any other
option granted under the Plan.
Section 1.10. Maximum Number of Common Shares Subject to Options Granted
------------ ----------------------------------------------------------
to an Individual Participant. The maximum number of Common Shares for which
- ----------------------------
options may be granted to any individual Participant during the term of the Plan
is seventy five thousand (75,000).
ARTICLE II
----------
INCENTIVE STOCK OPTIONS
-----------------------
Section 2.1. Grant of Options. Subject to the provisions of the Plan, the
----------- ----------------
Committee may grant Incentive Stock Options to purchase Common Shares to
Participants at any time and from time to time as shall be determined by the
3
<PAGE>
Committee. Subject to the provisions of the Plan, the Committee shall have
complete discretion to determine the number of shares subject to Incentive Stock
Options granted, and the terms and conditions of such Incentive Stock Options.
Section 2.2. Option Agreement. Each Incentive Option shall be evidenced
----------- ----------------
by an option agreement that shall state that the option is an Incentive Stock
Option, and specify the option price, the terms of the option, the number of
Common Shares subject to the option, and such other provisions as the Committee
shall determine. The provisions of this Plan shall be expressly incorporated in
the terms and provisions of the option agreement. In the event of any
inconsistency between the provisions of the Plan and the other provisions of the
option agreement, the provisions of the Plan shall govern.
Section 2.3. Option Price. The option price per Common Share to be paid
----------- ------------
upon the exercise of any Incentive Stock Option, as determined by the Committee,
shall be not less than Fair Market Value at the time the option is granted
provided, however, that with respect to Incentive Stock Options granted to any
- -------- -------
Participant, who at the time of grant owns shares possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Participant's employer corporation or its parent or subsidiaries under the
attribution rules set forth in Section 424(d) of the Code (a "10% Owner
Participant") the option price per Common Share shall be at least one hundred
ten percent (110%) of Fair Market Value at the time of grant.
Section 2.4. Term of Option. Unless the terms of an Incentive Stock
----------- --------------
Option provide a shorter term, or as hereinafter provided, each Incentive Stock
Option shall be exercisable no later than ten (10) years from the date it is
granted. Any Incentive Stock Option granted to a 10% Owner Participant shall be
exercisable no later than five (5) years from the date it is granted. The
Committee, in its sole discretion, will determine the vesting schedule of each
Incentive Stock Option granted under this Plan; provided, however, that no
-------- -------
Incentive Stock Option may be exercised prior to one year from the date it is
granted. Except as otherwise provided herein, no Incentive Stock Option may be
exercised unless the Participant is at the time of such exercise in the employ
of the Company or of a subsidiary thereof and shall have been continuously so
employed since the granting of the Participant's option. Military, sick leave
or other bona fide leave of absence not exceeding ninety (90) days (or longer if
the Participant's right to re-employment is guaranteed by statute or by
contract) shall not be considered an interruption of employment for purposes of
the Plan.
Section 2.5. Limitation on Granting of Options. The Committee shall not
----------- ---------------------------------
grant Incentive Stock Options to a Participant if the aggregate Fair Market
Value (determined at the time the option is granted) with respect to which
Incentive Stock Options are exercisable for the first time by the Participant
during any calendar year
4
<PAGE>
(under all option plans of the Participant's employer corporation and its parent
and subsidiary corporations) shall exceed One Hundred Thousand Dollars
($100,000).
Section 2.6. Termination of Employment. An Incentive Stock Option granted
----------- -------------------------
under the Plan may not be exercised after the Participant ceases to be employed
by the Company or a subsidiary thereof except as hereinafter provided if such
cessation of employment is on account of death, normal retirement, early
retirement, or disability. An uninterrupted transfer of employment to or
between the Company and/or any parent or subsidiary thereof shall not be
considered to be a cessation of employment.
Section 2.7. Retirement and Partial Disability of Participant. In the
----------- ------------------------------------------------
event of the normal retirement, early retirement or disability (other than
permanent and total disability within the meaning of Section 22(e)(3) of the
Code) of a Participant, an Incentive Stock Option may be exercised for a period
of three months after cessation of the employment of the Participant, or the
balance of the term of the Incentive Stock Option, whichever is shorter. The
Participant may exercise the Incentive Stock Option for the number of Common
Shares with respect to which the Incentive Stock Option has become exercisable
by its terms and any such additional number of Common Shares subject to the
Incentive Stock Option as the Committee may authorize.
Section 2.8. Death of Participant. In the event of the death of a
----------- --------------------
Participant while in the employ of the Company or a subsidiary thereof, the
Incentive Stock Options theretofore granted to the Participant shall become
immediately exercisable, whether or not theretofore exercisable, and shall be
exercisable for a period of three months after the date of death or for the
balance of the term of the Incentive Stock Option, whichever is shorter, by the
executor or administrator of the Participant's estate or by such person or
persons as shall have acquired the Participant's rights under the Incentive
Stock Option by will or by the laws of descent and distribution.
Section 2.9. Permanent and Total Disability of Participant. In the event
----------- ---------------------------------------------
the Participant becomes permanently and totally disabled (within the meaning of
Section 22(e)(3) of the Code) while in the employ of the Company or a subsidiary
thereof, the Incentive Stock Options theretofore granted to the Participant
shall become immediately exercisable, whether or not theretofore exercisable,
and shall be exercisable for a period of one year after the Participant's
cessation of employment or for the balance of the term of the Incentive Stock
Option, whichever is shorter.
Section 2.10. Nonassignability. Each Incentive Stock Option shall by its
------------ ----------------
terms provide that it is not transferable by the Participant other than by will
or the laws of descent and distribution and that it is exercisable during the
Participant's lifetime, only by the Participant or by the Participant's duly
authorized legal representative if the Participant is unable to exercise the
Incentive Stock Option as a result of the
5
<PAGE>
Participant's disability, but only if, and to the extent, permitted by Section
422 of the Code.
ARTICLE III
-----------
NON-STATUTORY OPTIONS
---------------------
Section 3.1. Grant of Options. Subject to the provisions of this Plan,
----------- ----------------
the Committee may grant Non-statutory Options to purchase Common Shares to
Participants at any time and from time to time as shall be determined by the
Committee. The Committee shall have complete discretion to determine the number
of shares subject to Non-statutory Options granted and the terms and conditions
of such Non-statutory Options.
Section 3.2. Option Agreement. Each Non-statutory Option shall be
----------- ----------------
evidenced by an option agreement that shall state that the Non-statutory Option
is not an Incentive Stock Option and shall specify the option price of the Non-
statutory Option, the number of Common Shares subject to the Non-statutory
Option, and such other provisions as the Committee shall determine. The
provisions of this Plan shall be expressly incorporated in the terms and
provisions of the option agreement. In the event of any inconsistency between
the provisions of the Plan and the other provisions of the option agreement, the
provisions of the Plan shall govern.
Section 3.3. Term of Option. No Non-statutory Option may be exercised
----------- --------------
prior to one year from the date it is granted. Unless the terms of a Non-
statutory Option provide a shorter term, each Non-statutory Option shall be
exercisable no later than ten (10) years from the date it is granted.
ARTICLE IV
----------
DIRECTOR OPTIONS
----------------
Section 4.1. Grant and Eligibility.
----------- ---------------------
(a) Initial Grant. Director Options for the purchase of one thousand
-------------
(1,000) Common Shares will be granted to each non-employee director upon
first being elected to the Board. This grant may be awarded to a non-
employee director only once.
(b) Subsequent Grants. On the date of the Company's annual meeting in
-----------------
each year, commencing with the 1997 annual meeting, Director Options for
the purchase of one thousand (1,000) Common Shares shall be granted to each
non-employee director re-elected at such meeting.
6
<PAGE>
Section 4.2. Director Option Agreement. Each Director Option shall be
----------- --------------------------
evidenced by a Director Option Agreement that shall specify the option price of
the Director Option, the term of the Director Option, the number of Common
Shares subject to the Director Option, and such other provisions as the
Committee shall determine consistent with the terms of the Plan. The provisions
of this Plan shall be expressly incorporated in the terms and provisions of the
Director Option Agreement. In the event of any inconsistency between the
provisions of this Plan and the other provisions of the Director Option
Agreement, the provisions of this Plan shall govern.
Section 4.3. Tax Status. The Director Options shall be Non-statutory
----------- ----------
Options and the Director Option Agreement shall so state.
Section 4.4. Option Price. The option price per Common Share to be paid
----------- ------------
upon exercise of a Director Option shall be Fair Market Value on the date of
grant of the Director Option.
Section 4.5. Term of Option. Each Director Option shall expire one year
----------- --------------
following the termination of the director's Board membership for any reason, but
in no event may any Director Option be exercised after the tenth anniversary of
the date of grant.
Section 4.6. Miscellaneous Provisions. Except as otherwise provided in
----------- ------------------------
this Article IV, Director Options shall be governed by the remaining provisions
of this Plan applicable to Non-statutory Options.
ARTICLE V
---------
PERFORMANCE UNITS
-----------------
Section 5.1. Performance Units. Performance units may be granted subject
----------- -----------------
to such terms and conditions as the Committee in its discretion shall determine.
Performance units may be granted either in the form of cash units, in share
units which are equal in value to one Common Share or a combination thereof.
The Committee shall establish the performance goals to be attained in respect of
the performance units, the various percentages of performance unit value to be
distributed upon attainment, in whole or in part, of the performance goals and
such other performance unit terms, conditions and restrictions as the Committee
shall deem appropriate. As soon as practicable after the termination of the
performance period, the Committee shall determine the payment, if any, which is
due on the performance unit in accordance with the terms thereof. The Committee
shall determine, among other things, whether the payment shall be made in the
form of cash or Common Shares, or a combination thereof.
7
<PAGE>
ARTICLE VI
----------
AMENDMENT AND OTHER PROVISIONS
------------------------------
Section 6.1. Method of Exercise. Exercise of an option granted under the
----------- ------------------
Plan shall be by the execution by the person entitled at the time to exercise
the option of a written notice of such exercise and delivery thereof to the
Company, which notice shall specify the number of shares being purchased. In
the case of the exercise of an option, such notice shall be accompanied by
payment in full of the option price of the Common Shares. Payment of the option
price with respect to any stock option may be made in cash, in Common Shares
valued at the Fair Market Value on the last trading day preceding the date on
which the option is exercised or in a combination of cash and Common Shares.
Upon receipt of such notice and payment, the Company will promptly issue and
deliver its certificate for the number of Common Shares being purchased pursuant
to exercise of the option. No person, estate or other entity shall have any of
the rights of a shareholder with reference to Common Shares subject to an option
until a certificate or certificates for the shares have been delivered.
Section 6.2. Amendment, Modification and Termination of the Plan. Subject
----------- ---------------------------------------------------
to Section 4.7 hereof and the last sentence of this Section 6.2, the Board may
at any time terminate, and from time to time may amend or modify the Plan;
provided, however that the approval of the shareholders of the Company shall be
- -------- -------
required to amend or modify the Plan to:
(a) materially increase the benefits accruing to Participants under the
Plan;
(b) materially increase the number of Common Shares which may be issued
under the Plan; or
(c) materially modify the requirements as to eligibility for participation
in the Plan.
No amendment, modification or termination of the Plan shall in any manner
adversely affect the rights of a Participant under any option previously granted
under the Plan, without the consent of the Participant.
Section 6.3. Rights of Employees. Nothing in this Plan limits in any way
----------- -------------------
the right of the Company or its subsidiaries to terminate any Participant's
employment at any time, nor confers upon any Participant any right to continue
in the employ of the Company or its subsidiaries. No officer or employee shall
have a right to be selected as a Participant.
8
<PAGE>
Section 6.4. Dissolution, Merger and Consolidation. Upon a dissolution or
----------- -------------------------------------
a liquidation of the Company, each Participant shall have the right to exercise
any unexercised options, whether or not theretofore exercisable, during a period
of thirty (30) days next preceding the date of such dissolution or liquidation.
In the event of a merger or consolidation in which Common Shares may be
exchanged for securities of another publicly held entity, each participant shall
be offered a firm commitment whereby such entity will tender to the Participant
new options in such entity, with terms and conditions, both as to number of
shares and otherwise, which, to the extent permitted by applicable law, will
substantially preserve to the Participant the rights and benefits of the options
outstanding hereunder. With respect to any merger or consolidation in which the
Common Shares are exchanged for (a) cash, (b) securities of an entity that is
not publicly held, or (c) a combination of (a) and (b), options then in effect
shall become immediately exercisable, whether or not theretofore exercisable,
during a period of thirty (30) days next preceding the date of consummation of
the merger or consolidation.
Section 6.5. Tax Withholding. The Company, as appropriate, shall have the
----------- ---------------
right to deduct from all payments any Federal, state or local taxes required by
law to be withheld with respect to such payments. With respect to withholding
required upon the exercise of Non-statutory Options, or upon payment in Common
Shares with respect to performance units, Participants may elect, subject to the
approval of the Committee, to satisfy the withholding required, in whole or in
part, by having the Company withhold Common Shares having a value equal to the
amount required to be withheld. The value of the shares to be withheld is to be
based on the Fair Market Value on the date that the amount of tax to be withheld
is to be determined. All elections shall be irrevocable and shall be made in
writing, signed by the Participant, and shall satisfy such other requirements as
the Committee shall deem appropriate.
Section 6.6. Requirements of Law. The granting of options or performance
----------- -------------------
units, and the issuance of Common Shares with respect to an exercise of an
option or with respect to a performance unit award, shall be subject to all
applicable laws, rules and regulations, including federal and applicable state
securities laws, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
Section 6.7. Governing Law. The Plan, and all agreements hereunder, shall
----------- -------------
be construed in accordance with and governed by the laws of the State of
Indiana.
9
<PAGE>
EXHIBIT 10.6
CONSULTANT'S AGREEMENT
This Agreement, dated and effective April 1, 1995, is made between Control
Devices, Inc., an Indiana corporation, with its principal place of business in
Standish, Maine (hereafter referred to as the "Company") and Dennis J. Hegyi,
whose address is 1708 Morton Avenue, Ann Arbor, Michigan 48104 (hereafter
referred to as the "Consultant"). Company and Consultant agree as follows:
1. Termination of 1989 Consulting Agreement. Consultant and GTE Products
----------------------------------------
Corporation, a predecessor of the Company, entered into a Consulting Agreement
dated and effective November 6, 1989 (the "1989 Consulting Agreement"). The
1989 Consulting Agreement was assigned to GTE Control Devices Incorporated and
then subsequently assigned to the Company. The Company and Consultant agree
that, except for Section 11 of the Consulting Agreement regarding "Confidential
Information" (as defined therein), which shall remain in full force and effect,
the 1989 Consulting Agreement is superseded in its entirety by this Agreement
and is now null and void and of no further force or effect.
2. Consulting Services. The Company hereby retains the Consultant to
-------------------
provide consulting services in the area of design, design modification and
marketing assistance as shall be reasonably requested by the Company including,
without limitation, such consulting services with respect to (i) any current or
prospective automotive or other sensor product of the Company; and (ii) any
Royalty Product as such term is defined in (a) the License Agreement between
Consultant and GTE Products Corporation dated November 6, 1989 (the "Solar
License Agreement") and/or (b) the three License Agreements(s) between
Consultant and Company dated April 1, 1995 (the "1995 License Agreements").
Collectively, the Solar License Agreement and the 1995 License Agreements shall
be referred to as the "License Agreements". Consultant will perform such tasks
and prepare such reports as are requested by Company and will include, but not
be limited to, work at Company's plant or plants
<PAGE>
related to the design and manufacture by Company of such sensor products and
such Royalty Products, and customer contact and visits related to Company's
actual or potential sale of such sensor products and such Royalty Products.
3. Term of Agreement. This Agreement will be for a six-year term and will
-----------------
begin on April 1, 1995 and terminate on March 31, 2001.
4. Compensation. In consideration for the services rendered under this
------------
Agreement, the Company will pay Consultant Two Hundred Fifty Dollars ($250) per
hour for each hour of consulting services. The hourly rate shall be adjusted
upward on January 1, 1996 for any increase in the Consumer Price Index from
April 1, 1995 through December 31, 1995. Thereafter, such adjusted hourly rate
shall be further adjusted upward on January 1 of each year based on the increase
in the Consumer Price Index for the immediately preceding calendar year. For
each contract year that this Consultant's Agreement is in effect, Company
guarantees Consultant a minimum of seven hundred twenty (720) consulting hours
per contract year, provided Consultant has been reasonably available to Company,
and Consultant has not breached obligations under this Agreement or the License
Agreements. The actual number of hours may be less than 720 for any given
contract year, as the number of hours, up to 720 hours per year, is at
Consultant's discretion, other provisions of this Agreement notwithstanding.
(The term "contract year" shall refer to the period from April 1 through March
31 for each of the six (6) years of this Agreement.) Consultant is not entitled
to any benefits provided by Company to its employees and shall be an independent
contractor for all purposes.
5. Expenses. The Company will reimburse Consultant for reasonable
--------
expenses incurred in the performance of his obligations under this Agreement.
Consultant will be required to provide documentation of expenses incurred and
shall submit requests for payment of expenses with documentation to Company in
accordance with billing procedures set forth in Paragraph 6. All expenses in
excess of Three Hundred Dollars ($300) and all expenses for travel shall be
approved by the
<PAGE>
President of the Company before being incurred. However, it is understood that
airfare and other travel expenses incurred by Consultant pursuant to request by
Company that such travel be undertaken, shall be deemed to be approved by said
President, without further specific authorization, provided that such airfare
and other expenses meet Company's travel policy guidelines.
6. Billing Procedures. The Consultant shall submit invoices monthly to
------------------
the Company showing, at a minimum, the expenses as per Paragraph 5. The Company
agrees to process and pay the Consultant's invoice within thirty (30) days
provided that no dispute arises. If a dispute arises, the Company will notify
the Consultant within five (5) working days from receipt of the invoice to
resolve the disputed amount.
7. Performance Standards. All work will be performed to the satisfaction
---------------------
of, and all bills shall be submitted for approval to the President of the
Company.
8. Performance Schedule. Except where otherwise specified or directed by
--------------------
the Company, the Consultant shall be free to arrange the time and manner of
performance of the consulting and advisory services to be rendered. The
Consultant is not required to report to the Company on any regular basis, but
the Consultant will be reasonably available to meet the Company's reasonable
requirements.
9. Direction and Control. Except where otherwise specified or directed by
---------------------
the Company, the Company does not intend to direct, control, or supervise the
Consultant as to the details and means by which the consulting services
contracted for are accomplished.
10. Independent Contractor. Both the Company and the Consultant agree
----------------------
that the Consultant will act as an independent contractor in the performance of
his duties under this Agreement. As such, the Consultant will not be eligible
for any benefits provided by the Company to its employees.
<PAGE>
The Consultant shall be responsible for payment of all personal taxes arising
out of the consultant's activities in accordance with this Agreement, including
by way of illustration but not limited to, personal federal and state income
taxes, personal social security taxes, unemployment insurance taxes, and any
other taxes or business license fees as required. Moreover, the Consultant
agrees to obtain all necessary insurance coverage, including by way of
illustration but not limited to, liability insurance, worker's compensation
insurance, and state disability insurance. Finally, the consultant shall comply
with all federal, state, and local laws. The Consultant shall not represent
directly or indirectly that he is a legal representative or agent of the
Company, nor shall the Consultant incur any liabilities or obligations of any
kind in the name of or on behalf of the Company other than those specifically
made or approved as part of this Agreement.
11. Assignment. The Company specifically contracts for services of the
----------
Consultant, and he may not assign, subcontract, or delegate the performance of
service under this Agreement without express written consent of the Company.
The Company may assign the Agreement (a) after obtaining written consent of
Consultant or (b) in connection with a sale, license, transfer or assignment to
a third party of the underlying subject matter of one or more License Agreement
related to the design, manufacture, and sales of Royalty Products (as defined in
such License Agreement(s)), provided such third party agrees in writing to
assume all of the rights and obligations of the Company set forth in this
Agreement and provided the Company remains fully liable to Consultant in the
event any assignee of rights in this Agreement fails to fulfill its obligations
to Consultant hereunder.
12. Confidential Information. The Consultant agrees that any information
------------------------
received by him or created by him during performance of his obligations in
accordance with this Agreement which (a) is confidential or proprietary to the
Company, (b) is confidential or proprietary to any other person or entity but in
the possession of the Company, or (c) concerns the personal, financial, or other
business affairs of the Company or any of its affiliated companies
(collectively, the "Protected Information") will be treated by the Consultant in
full confidence, will not be revealed to any persons, firms, or
<PAGE>
organizations and will not be used by Consultant for any personal benefit or for
the benefit of any third party. This obligation shall not prevent Consultant
from using or disclosing any Protected Information that is in the public domain
or available to Consultant from a source independent of the Company or from
licensing or otherwise commercializing an invention of Consultant either
declined by CDI (in accordance with the provisions of the Agreement to Grant
License referenced in Section 17 below), or for which the Company's license
rights are validly terminated (in accordance with the provisions of one or more
of the License Agreements), and in either event without use of any Protected
Information developed by CDI. This requirement of confidentiality will survive
the termination of this Agreement.
13. Intellectual Property Rights. The Company's rights to Inventions and
----------------------------
Know-how of Consultant are set forth in the License Agreements. Consultant
warrants that Consultant owns or has the right to disclose to, and authorize the
use by, the Company, all of the information, data or documents that Consultant
will provide to the Company during the term of this Consultant's Agreement.
14. Successors and Assigns. This Agreement is intended to be binding upon
----------------------
successors and assigns of the Company.
15. Effect of Prior Agreement. Except for various Secrecy and Non-
-------------------------
Disclosure Agreements, previously executed between the parties hereto, and the
License Agreements, this Agreement represents the entire agreement between the
parties with respect to the "Inventions" (as defined in the License Agreements)
and is not subject to change or modification except by written agreement signed
by both parties.
16. Termination. Company may terminate this Agreement if (a) Consultant
-----------
materially breaches a License Agreement and the Company elects to terminate such
License Agreement in accordance with the provisions of Section 7.5 thereof, or
(b) Consultant materially breaches this Consultant's Agreement and the Company
has given at least thirty (30) days prior written notice of
<PAGE>
termination and such material breach has not been cured within thirty (30) days
of receipt of such notice. Consultant may terminate this Agreement if (a)
Company materially breaches a License Agreement and Consultant elects to
terminate such License Agreement in accordance with the provisions of Section
7.1 thereof, or (b) Company materially breaches this Consultant's Agreement and
Consultant has given at least thirty (30) days prior written notice of
termination and such material breach has not been cured within thirty (30) days
of receipt of such notice.
17. New Discoveries. The parties acknowledge that, contemporaneous with
---------------
the execution and delivery of this Agreement, the parties have executed and
delivered an Agreement to Grant License.
18. Non-competition Agreement. During the term of this Agreement, the
-------------------------
Consultant shall not directly or indirectly (individually, or as an employer,
proprietor, partner, stockholder, director, consultant, agent or otherwise) own,
manage, operate, participate in, perform services for or otherwise carry on a
business which is engaged in the design, manufacture or sale of any sensor
product sold by the Company or any Royalty Product, as defined in any License
Agreement, in the United States, Canada, Mexico, Europe, Japan or anywhere else
in the world, provided, however, that nothing contained herein shall prohibit
Consultant from licensing any person or entity to make, use, sell or otherwise
dispose of any product, know-how or invention discovered by Consultant and
either offered to the Company for license (as contemplated by the Agreement to
Grant License), but declined by the Company, or for which the Company's license
rights are validly terminated (in accordance with the provisions of one or more
of the License Agreements).
Without limiting the right of Company to pursue all other legal and
equitable rights available to it for violation of this Paragraph 18 by
Consultant, it is agreed that monetary damages cannot fully compensate Company
for such a violation and that Company shall be entitled to injunctive relief to
prevent violation or continuing violation thereof. It is the intent and
understanding of each party hereto that if, in any action before any court or
agency legally empowered to enforce this Paragraph 18, any
<PAGE>
term, restriction, covenant or promise is found to be unreasonable and for that
reason unenforceable, then such term, restriction, covenant or promise shall be
deemed modified to the extent necessary to make it enforceable by such court or
agent.
19. Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of Michigan.
20. Payments. Payments for any and all monies, including expenses and
--------
fees, described in this Consultant's Agreement shall be in United States
currency and shall be made by check payable to "Dennis J. Hegyi" and forwarded
to the following address:
Dennis J. Hegyi
1708 Morton Avenue
Ann Arbor, MI 48104
or to such other address that Consultant may designate by notice in writing in
conformity with Section 21 below.
21. Notice. Any notice, request, report or payment required or permitted
------
to be given or made under this Consultant's Agreement by either party shall be
given by sending such notice by registered or certified United States mail,
return receipt requested, postage prepaid, to the address set forth below or
such other address as such party shall have specified by written notice given in
conformity herewith. Any notice given in accordance with the provisions of this
Section shall be effective on the date received, as indicated on the postal
service's return receipt, and any notice not so given shall not be valid unless
and until actually received as evidenced by competent, written records kept in
the normal course of business.
To Consultant: Dr. Dennis J. Hegyi
1708 Morton Avenue
Ann Arbor, Michigan 48104
To Company: Control Devices, Inc.
228 Northeast Road
Standish, Maine 04084
ATTN: Bruce Atkinson, President
<PAGE>
IN WITNESS WHEREOF, the parties, by their duly authorized representatives, have
executed and delivered this Agreement as of the date first written above.
_____________________________ _______________________________
Dennis J. Hegyi, Individually Bruce D. Atkinson, President,
Control Devices, Inc.
Date________________________ Date___________________________
<PAGE>
EXHIBIT 10.7
AGREEMENT TO GRANT LICENSE
This Agreement, dated and effective April 1, 1995, is made between Control
Devices, Inc., an Indiana corporation ("CDI") and Dr. Dennis J. Hegyi, a
Michigan resident ("Dr. Hegyi").
R E C I T A L S:
A. Contemporaneously with the execution and delivery of this Agreement,
CDI and Dr. Hegyi have executed and delivered a Consultant's Agreement and three
License Agreements (the "1995 License Agreements"). The Consultant's Agreement
contemplates that Dr. Hegyi will provide certain consulting services to CDI from
April 1, 1995 through March 31, 2001. The License Agreements contain grants of
licenses from Dr. Hegyi to CDI with respect to certain of Dr. Hegyi's inventions
commonly referred to as the twilight, rain, fog and solar position automotive
sensors.
B. Pursuant to the terms of a License Agreement dated November 6, 1989,
Dr. Hegyi licensed a predecessor of CDI with respect to an automotive sensor
invention of Dr. Hegyi's commonly referred to as the solar sensor. Such License
Agreement has been duly assigned to and assumed by CDI.
C. In this Agreement, CDI and Dr. Hegyi wish to memorialize their
understanding with respect to any method, apparatus, device, process, design,
system, discovery or invention developed by Dr. Hegyi prior to March 31, 2001
which involves (i) automotive component parts, including, without limitation,
sensor and sensing systems and devices but excluding any such system or device
covered by the license agreements referred to above; or (ii) automotive or non-
automotive circuit breakers or thermo-protective devices (hereafter, a "New
Invention").
NOW, THEREFORE, based on these premises, the mutual covenants contained
herein, and
<PAGE>
each act done pursuant thereto, the parties hereby agree as follows:
1. Offer of License to CDI. Provided CDI has not materially breached the
-----------------------
Consultant's Agreement and/or one or more License Agreements in a manner which
has resulted in Dr. Hegyi's initiating termination or terminating one or more of
such agreements, then in the event Dr. Hegyi discovers one or more New
Inventions prior to March 31, 2001, he shall within a reasonable time deliver to
CDI a written notice which describes all significant aspects of the New
Invention(s), and CDI shall have up to nine (9) months from delivery of such
notice to decide whether or not it wishes to receive an exclusive worldwide
license to make, use, sell or otherwise dispose of any such New Invention.
2. Rejection of Offer by CDI. In the event CDI decides that it wishes to
-------------------------
decline any offer to license described in Section 1 above, with respect to any
New Invention, CDI shall promptly deliver to Dr. Hegyi a written notice to such
effect. Upon receipt of such notice, Dr. Hegyi shall be entitled to license any
person or entity to make, use, sell or otherwise dispose of such New Invention.
3. Acceptance of Offer by CDI. In the event CDI decides that it wishes to
--------------------------
receive such a license with respect to the New Invention, CDI shall promptly
deliver to Dr. Hegyi a written notice to such effect, which notice shall be
binding and must be delivered to Dr. Hegyi prior to expiration of the nine (9)
month period described in Section 1 above. CDI and Dr. Hegyi shall then
diligently proceed to memorialize the grant of such license in a formal license
agreement which is substantially similar in form and content to the 1995 License
Agreements, except as follows:
(a) CDI shall pay Dr. Hegyi $15,000 in cash upon execution of such license
agreement;
(b) The royalty rate set forth in Section 3.1 and 3.2(a) shall be 7.5%,
not 6%.
<PAGE>
(c) CDI shall pay Dr. Hegyi $210,000 in cash upon its receipt of a "Full
Production P.O." (as defined in the 1995 License Agreements) with
respect to the New Invention; and
(d) The minimum royalty schedule set forth in Section 3.3 shall be $5,000
on January 3 of the first year following execution of the license
agreement, $10,000 on January 3 of the second year, $35,000 on January
3 of the third year, $45,000 on January 3 of the fourth year, $55,000
on January 3 of the fifth year and $65,000 on January 3rd of the sixth
year and each year thereafter during the term of the agreement.
4. Consideration. In consideration of the obligations of Dr. Hegyi
-------------
contained in this Agreement, CDI (a) has, concurrent with Dr. Hegyi's execution
of this Agreement, paid Dr. Hegyi $200,000 either via check made payable to
"Dennis J. Hegyi" or via electronic bank transfer pursuant to written
instructions by Dr. Hegyi, at Dr. Hegyi's election, and (b) delivered to Dr.
Hegyi a Stock Option in the form attached hereto as Exhibit A (the "Stock
Option"). Dr. Hegyi hereby acknowledges that he has received such payment and
Stock Option and that he understands the Stock Option, and any common shares of
CDI purchased in exercise thereof, are, and will be, "restricted securities"
within the meaning of the Securities Act of 1933, as amended, and any applicable
state securities laws.
5. Governing Law. This Agreement shall be governed by the laws of the
-------------
State of Michigan.
6. Notices. Any notice, request, report, demand, consent, payment or
-------
other communication required or permitted to be given or made under this
Agreement (including the Stock Option) by either party shall be given by sending
such notice by registered or certified United States mail, return receipt
requested, postage prepaid, to the address set forth below or such other address
as such party shall have specified by written notice given in conformity
herewith. Any notice given in accordance with the provisions of this Section
shall be effective on the date received, as indicated on the postal service's
return receipt, and any notice not so given shall not be valid unless and until
actually received as evidenced by competent, written records kept in the normal
course of business.
<PAGE>
To CDI: Control Devices, Inc.
228 Northeast Road
Standish, Maine 04084
ATTN: Bruce Atkinson, President
To Dr. Hegyi: Dr. Dennis J. Hegyi
1708 Morton Avenue
Ann Arbor, Michigan 48104
7. Successors and Assigns. This Agreement and the provisions hereof shall
----------------------
be binding upon and inure to the benefit of each of the parties hereto and their
respective successors, heirs, beneficiaries and assigns.
IN WITNESS WHEREOF, the parties, by their duly authorized representatives, have
executed and delivered this Agreement as of the date first written above.
____________________________ _______________________________
Dennis J. Hegyi Bruce D. Atkinson, President,
Control Devices, Inc.
Date________________________ Date___________________________
<PAGE>
EXHIBIT 10.8
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES ACTS. THESE SECURITIES MUST BE
ACQUIRED FOR INVESTMENT, ARE RESTRICTED AS TO TRANSFERABILITY, AND MAY NOT BE
SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT COMPLIANCE WITH THE
REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL OR STATE
SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.
OPTION TO PURCHASE 200,000 CLASS A COMMON SHARES
OF
CONTROL DEVICES, INC.
(an Indiana corporation)
Route 35
Standish, Maine 04084
1. Grant of Option. In consideration of the execution by Dr. Dennis Hegyi
---------------
("Hegyi," and collectively with his registered successors, beneficiaries, heirs
and assigns, the "Holder") of that certain Agreement to Grant License by and
between Control Devices, Inc., an Indiana corporation (the "Company") and Hegyi
dated of even date herewith, the Company hereby grants to the Holder the right
and privilege to purchase up to 200,000 Class A Common Shares (the "Common
Shares") of the Company during the period set forth in Section 2 of this Option
(the "Option Right"), at a price of Ten and 00/100 Dollars ($10.00) per Common
Share (the "Exercise Price Per Share"). The number of Common Shares purchasable
upon exercise of the Option Right (the "Subject Shares") and the Exercise Price
Per Share are subject to adjustment as provided in Section 3 of this Option.
2. Option Period. The Option Right may be exercised at the election of
-------------
the Holder, either for all of the Subject Shares or from time to time for any
part of the Subject Shares, at any time from the date hereof until the first to
occur of the following: (a) the Option Right is fully exercised; (b) the date
of the closing of the Company's transfer books with respect to any
reorganization, recapitalization, consolidation or merger of the Company with
another corporation, the sale of substantially all of the Company's assets,
dissolution, liquidation, winding-up or other transaction as a result of which
the Common Shares and any other shares or securities receivable upon exercise of
the Option Right will be wholly converted into a right to receive cash; or
(c) March 31, 2002.
3. Adjustments to Exercise Price and Subject Shares.
------------------------------------------------
(a) Stock Splits and Combinations. In case the Company shall
-----------------------------
subdivide its outstanding Common Shares into a greater number of Common
Shares, then the number of Subject Shares shall be increased in proportion
to the increase through such subdivision and the Exercise Price Per Share
shall be decreased in such proportion. In case the Company shall at any
time combine the outstanding Common Shares into a
<PAGE>
smaller number of shares, the number of Subject Shares shall be reduced and
the Exercise Price Per Share shall be increased accordingly.
(b) Adjustment for Certain Dividends and Distributions. If the
--------------------------------------------------
Company pays to holders of Common Shares a dividend or other distribution
of additional Common Shares, in each such case the Exercise Price Per Share
then in effect shall be decreased as of the time of such issuance by
multiplying such Exercise Price Per Share by a fraction (A) the numerator
of which is the total number of Common Shares issued and outstanding
immediately prior to the time of such issuance, and (B) the denominator of
which is the total number of Common Shares issued and outstanding
immediately prior to the time of such issuance plus the number of Common
Shares issuable in payment of such dividend or distribution; and the number
of Subject Shares shall be increased by multiplying the number of Subject
Shares by a fraction (X) the numerator of which is the total number of
Common Shares issued and outstanding immediately prior to the time of such
issuance plus the number of Common Shares issuable in payment of such
dividend or distribution, and (Y) the denominator of which is the total
number of Common Shares issued and outstanding immediately prior to the
time of such issuance.
(c) Adjustments for Other Dividends and Distributions. If the Company
-------------------------------------------------
makes or fixes a record date for the determination of holders of Common
Shares entitled to receive a dividend or other distribution payable in
securities of the Company other than Common Shares, in each such case
provision shall be made so that the Holder shall receive upon exercise of
the Option Right, in addition to the number of Subject Shares purchased,
the amount of securities of the Company that the Holder would have received
had the Subject Shares been purchased on the date of such event and had the
Holder thereafter, during the period from the date of such event to and
including the date of exercise of the Option Right, retained such
securities receivable by the Holder as aforesaid during such period subject
to all other adjustments called for during such period hereunder with
respect to the rights of the Holder.
(d) Reorganization, Reclassification or Merger. If any capital
------------------------------------------
reorganization or reclassification of the Common Shares, or consolidation
or merger of the Company with another corporation, or the sale of all or
substantially all of its assets to another corporation shall be effected,
then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provisions shall be made
whereby the Holder hereof shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified herein
and in lieu of the Common Shares immediately theretofore purchasable and
receivable upon the exercise of the Option Right, such shares of stock,
securities or assets as may be issued or payable with respect to or in
exchange for a number of such Common Shares immediately theretofore
purchasable and receivable upon the exercise of the Option Right had such
reorganization, reclassification, consolidation, merger, or sale not taken
place, and in any such case appropriate provisions shall be made with
respect to the rights and interests of the Holder to the end that the
provisions hereof (including without limitation provisions
2
<PAGE>
for adjustment of the Exercise Price Per Share and of the number of Subject
Shares) shall thereafter be applicable, as nearly as may be, to any shares
of stock, securities or assets thereafter deliverable upon the exercise
hereof. The Company shall not effect any such consolidation, merger, or
sale, unless prior to or simultaneously with the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall
assume by written instrument executed and mailed or delivered to the Holder
hereof at the last address of such Holder appearing on the books of the
Company, the obligation to deliver to such Holder such shares of stock,
securities, or assets as, in accordance with the foregoing provisions, such
Holder may be entitled to purchase.
(e) Tax Adjustments. The Company in addition to the other adjustments
---------------
provided for herein shall adjust the Exercise Price Per Share and the
number and kind of the Subject Shares, if, and to the extent that it
determines and confirms by opinion of outside counsel that such an
adjustment is necessary to avoid treatment of any transaction as a taxable
constructive distribution of stock under Section 305 of the Internal
Revenue Code of 1986, as amended, and the Treasury Regulations issued
thereunder, or any successors to such provisions.
(f) Other Adjustments. If the Company makes or fixes a record date
-----------------
for the determination of holders of Common Shares entitled to receive a
dividend or other distribution payable in property (including cash, but
excluding any cash dividend that is (i) paid out of the earnings or surplus
of the Company legally available therefor and is permitted to be
distributed under all agreements, documents and instruments by which the
Company is bound, and (ii) made pursuant to the Company's normal dividend
policy as publicly announced by the Company and approved by the board of
directors of the Company in the ordinary course of business), then
provision shall be made whereby the Holder shall receive upon exercise of
the Option Right, in addition to the number of Subject Shares purchased,
the amount of such property that the Holder would have received had the
Subject Shares been purchased prior to the date of such event.
(g) Public Offering. Upon the closing of the initial public offering
---------------
of the Common Shares by the Company at a public offering price less than
the then current Exercise Price Per Share, the Exercise Price Per Share
will be adjusted to equal such public offering price, and thereafter shall
be adjusted from time to time as provided in paragraphs (a) through (f) of
this Section 3.
(h) Officer's Certificate as to Adjustments. In each case of an
---------------------------------------
adjustment in the Exercise Price Per Share and/or the number and/or kind of
the Subject Shares, the Company, at its expense, will have its principal
financial officer compute such adjustment in accordance with the terms
hereof and prepare a certificate setting forth such adjustment and showing
in detail the facts upon which the adjustment is based, including, without
limitation, a statement of (A) the consideration received or to be received
by the Company for any additional Common Shares issued or sold or deemed to
have been
3
<PAGE>
issued or sold, (B) the number of Common Shares outstanding or deemed to be
outstanding, and (C) the Exercise Price Per Share and/or the number and/or
kind of the Subject Shares as adjusted. The Company will mail a copy of
each such certificate to the Holder.
4. No Fractional Shares. No fractional Common Shares or securities
--------------------
representing Common Shares will be issued upon exercise of the Option Right.
Any fractional interest in a Common Share resulting from such exercise will be
paid in cash based on the Market Price of Common Shares. "Market Price" as used
herein shall mean (a) the closing price on the day before the date of exercise
of the Common Shares on any registered national securities exchange or the
national market system of a registered national securities association, if the
Common Shares are traded on such an exchange or system, (b) the average of the
bid and ask price on the over-the-counter market at the close of business on the
day before the date of exercise, or (c) if there is no market for the Common
Shares, the fair value of the Common Shares determined by the Board of Directors
in its sole discretion.
5. Notices of Record Date. In case (a) the Company takes a record of the
----------------------
holders of the Common Shares (or other shares or securities at the time
receivable upon exercise of the Option Right for the purpose of entitling them
to receive any dividend or other distribution, or any right to subscribe for or
purchase any shares of any class or any other securities, or to receive any
other right; or (b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of all
or substantially all of the assets of the Company to another corporation; or (c)
of any voluntary dissolution, liquidation or winding-up of the Company; then,
and in each such case, the Company will mail or cause to be mailed to the Holder
a notice specifying, as the case may be, (x) the date on which a record is to be
taken for the purpose of such dividend, distribution or right, and stating the
amount and character of such dividend, distribution or right, or (y) the date on
which such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Shares (or such other
shares or securities at the time receivable upon exercise of the Option Right)
will be entitled to exchange their Common Shares (or such other shares or
securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at least 20
days prior to the date specified therein.
6. Transfer Taxes. The Company will not be required to pay any tax
--------------
imposed in connection with any transfer involved in the issuance of a
certificate for Common Shares or a new Option in any name other than the
registered Holder hereof, and in such case, the Company will not be required to
issue and deliver any certificate or new Option until such tax is paid.
7. Method of Exercise. The Option Right may be exercised by the Holder
------------------
by delivering to the Company (a) written notice of exercise, specifying the
number of Subject Shares being purchased, (b) this Option, and (c) a certified
or cashier's check for an amount
4
<PAGE>
equal to the Exercise Price Per Share times the number of Subject Shares being
purchased. The Company shall thereupon issue and deliver to the Holder a
certificate or certificates representing the Subject Shares purchased, and such
Subject Shares shall be fully paid and nonassessable. In the event the Option
Right is exercised for fewer than all of the Subject Shares, the Company shall
issue and deliver to the Holder a new Option for the remaining number of Subject
Shares, on the same terms and conditions provided for herein.
8. Reservation of Common Shares. The Company shall at all times keep
----------------------------
reserved out of its authorized but unissued Common Shares for issuance upon
exercise of the Option Right a number of Common Shares equal to the number of
Subject Shares from time to time.
IN WITNESS WHEREOF, the Company has caused this Option to be executed by its
officer thereunto duly authorized as of the 1st day of April, 1995.
CONTROL DEVICES, INC.
By:____________________________
_______________________________
Printed Name and Title
<PAGE>
EXHIBIT 10.9
AGREEMENT
---------
This Agreement, dated and effective April 1, 1995, is entered into by and
between Dennis J. Hegyi, an individual having a residence at 1708 Morton
Avenue, Ann Arbor, Michigan 48104 ("Hegyi") and Control Devices, Inc., an
Indiana corporation having its principal place of business at Route 35,
Standish, Maine 04084 ("CDI").
RECITALS:
A. Effective the date hereof, Hegyi and CDI have entered into a
Consultant's Agreement, an Agreement to Grant License, and three License
Agreements with respect to certain products commonly known as the twilight,
solar position, rain and fog sensors. Such license agreements, together with
the license agreement between the parties hereto dated November 6, 1989, which
covers the product commonly known as the solar sensor, are collectively referred
to herein as the "License Agreements".
B. CDI and Hegyi have considered and in the future may consider combining
more than one of such sensor products, which individually are defined as Royalty
Product(s) in the applicable License Agreements, into one product (a
"Combination Product").
C. CDI and Hegyi wish to confirm in this agreement that only one royalty
under Article III of the applicable License Agreements is imposed on the sale of
any Combination Product.
NOW, THEREFORE, based on these premises, the mutual covenants contained
herein, and each act done pursuant thereto, the parties hereby agree as follows:
1. Definitions. Unless otherwise indicated, each defined term used herein
-----------
shall have the meaning set forth in the License Agreements.
2. Royalty Rate on Combination Products. CDI's obligation to pay Hegyi a
------------------------------------
royalty under Article III of the License Agreements is imposed only once with
respect to the Net Selling Price of any individual unit of Royalty Product
included in any Combination Product regardless of the number of Valid Claims or
Licensed Patents or the amount of Know-How covering such Combination Product or
the number of sensor products included in such Combination Product; provided,
--------
however, that, for purposes of determination of the royalty payments due under
- ------- ----
the License Agreements, whenever the term "Royalty Products" may apply to a
Combination Product for which more than one royalty rate under the various
Article III provisions of the applicable License Agreements may apply, then the
highest applicable individual rate shall be utilized.
3. Successors and Assigns. This Agreement and the provisions hereof shall
----------------------
be binding upon and inure to the benefit of each of the parties hereto and their
respective successors, heirs, beneficiaries and assigns.
IN WITNESS WHEREOF, the parties, by their authorized representatives, have
executed and delivered this Agreement as of the date first above written.
<PAGE>
CONTROL DEVICES, INC.
By:________________________________
_________________________________ ___________________________________
DENNIS J. HEGYI Printed Name, Title
Date:____________________________ Date:______________________________
2
<PAGE>
EXHIBIT 10.10
LICENSE AGREEMENT
(Rain Sensor
and Fog Sensor)
between
CONTROL DEVICES, INC.
and
DENNIS J. HEGYI
<PAGE>
This License Agreement, made and entered into this 3rd day of April, 1995 by and
between DENNIS J. HEGYI (HEGYI), an individual having a residence at 1708 Morton
Avenue, Ann Arbor, Michigan 48104, and CONTROL DEVICES, INC. (CONTROL DEVICES),
an Indiana corporation, having a place of business at Route 35, Standish,
Maine 04084.
Whereas HEGYI represents that he has the sole right to grant licenses under
the Invention (as hereinafter defined) and under patents that might issue
thereon; and
Whereas HEGYI is willing to grant an exclusive license of the Invention to
CONTROL DEVICES based on the conditions hereinafter set forth; and
Whereas CONTROL DEVICES is willing to acquire an exclusive worldwide
license to commercialize such Invention;
Now, therefore, in consideration of the foregoing and the rights and
obligations hereinafter set forth, the receipt and sufficiency of which is
hereby acknowledged, the parties agree as follows:
ARTICLE I. DEFINITIONS
Section 1. When used in this License Agreement, the following terms shall
have the following meanings for all purposes of this License Agreement.
Section 1.1 "Invention" means the method and/or apparatus which (i) was
discovered by HEGYI, (ii) pertains to a sensor capable of detecting the presence
of: (a) water droplets on exterior glass or other transparent or translucent
surfaces due to rain or other forms of precipitation (all hereinafter referred
to as "Rain"), and/or (b) water droplets on glass or other transparent or
translucent surfaces due to condensed moisture (hereinafter referred to as
"Fog"), and/or (c) smoke particles, and (iii) consists of a modulated light
sources, a light sensor which receives light scattered from the water
2
<PAGE>
droplets, condensed moisture, and/or smoke particles and which may also have a
phase sensitive detector connected to the light sensor, the output of which is
sensitive to water droplets, condensed moisture and/or smoke particles.
Invention further includes any methods, processes, electrical circuits, devices,
apparatuses, designs, equipment, and/or structures for such a system or for use
in connection therewith.
Section 1.2 "Improvements" mean any modification, amendment, or
enhancement of the Invention.
Section 1.3 "Licensed Patent(s)" means any and all letters patent owned by
HEGYI claiming the Invention or Improvements that may issue or have been issued
including any and all renewals, divisions, continuations, continuations-in-part,
reissues, substitutions, confirmations, registrations, revalidations, revisions,
extensions, or additions of or to any of the aforesaid patents and patent
applications.
Section 1.4 "Valid Claim(s)" means any claim(s) in an unexpired patent
included within the applicable Licensed Patents which claim has not been held
unenforceable, unpatentable or invalid by a decision of a court or other
governmental agency of competent jurisdiction, unappealable or unappealed within
the time allowed for appeal, and which has not been admitted to be invalid or
unenforceable through reissue or disclaimer. If in any country there should be
two or more such decisions conflicting with respect to the validity of the same
claim, the decision of the higher or highest tribunal shall thereafter control;
however, should the tribunals be of equal rank, then the decision or decisions
upholding the claim shall prevail.
Section 1.5 "Know-How" means and includes all discoveries, inventions,
improvements, technical information, trade secrets, prototypes, models,
experience, work products, documentation, reports and data, and all results from
experiments, testing development and demonstrations, and any other data, written
or unwritten, including all such information and knowledge derived from work and
services performed prior to the date of this License Agreement by HEGYI, all of
which relate to the Invention and/or Improvements, at least some of such Know-
How having been disclosed to CONTROL DEVICES and/or its predecessor GTE Control
Devices pursuant to written agreements of confidentiality.
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<PAGE>
Section 1.6 "Affiliate(s)" of CONTROL DEVICES means any partnership,
organization, association, company, corporation, individual or other entity
which is controlled, directly or indirectly, by CONTROL DEVICES or wherein
CONTROL DEVICES, directly or indirectly, owns more than fifty percent (50%) of
the equity or voting stock. Except as the context may otherwise require, for
the purposes of this License Agreement, the term CONTROL DEVICES shall mean and
include the Affiliates of CONTROL DEVICES.
Section 1.7 "Royalty Product(s)" includes any process, method, substance,
equipment, mechanism, device or other property, or combination thereof, the
manufacture, use or Sale of which would, but for this License Agreement,
infringe one or more Valid Claims, or any process, method, substance, equipment,
mechanism, device or other property, or combination thereof which incorporates,
or the manufacture, use or Sale of which utilizes, Know-How.
Section 1.8 "Net Selling Price" means CONTROL DEVICES' invoice price,
being the price billed exclusive of taxes, such as sales, use, or other added
taxes less a documented deduction under normal business practices for
transportation, freight, insurance, promotions, discounts, and duty if such
deductions are applicable. If in any transaction a Royalty Product is Sold
without a separately identifiable Net Selling Price (either because such sale is
part of a larger transaction including additional equipment and/or services, or
for any other reason), then for purposes of this License Agreement, the Selling
Price shall mean the established current Net Selling Price for equivalent
quantities of Royalty Products when Sold and invoiced separately, but if no Net
Selling Price has been established, the Net Selling Price shall be deemed to be
the fair market price.
Section 1.9 "Sold" (together with conjugate terms "Sell," "Sale," "Sales,"
"Selling," etc.) means generally transferred by CONTROL DEVICES or any Affiliate
or sublicensee of CONTROL DEVICES for value in an arm's length transaction to a
transferee other than an Affiliate or sublicensee of CONTROL DEVICES, and shall
include without limitation, Royalty Products which are rented, leased, consigned
or given, except salesperson samples provided without charge. Royalty Products
shall be considered Sold when billed out; or, if not billed out, then when
shipped, mailed, or otherwise
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<PAGE>
delivered, or when paid for before delivery. However, upon expiration or
termination of this License Agreement, all Royalty Products shipped or otherwise
delivered on or prior to the date of such expiration or termination, which have
not been billed out or otherwise disposed of, shall be considered Sold and
therefore subject to royalties hereunder. A lease, a consignment, a transfer to
a place of use or a delivery to another, regardless of the basis of
compensation, if any, is an example of a disposition to be treated as a Sale and
subject to royalties. The scrapping as junk so as not to be used for the normal
contemplated or intended purpose thereof, or the mere routine manufacturing and
testing thereof, is an example of a disposition which, in itself, is not subject
to royalties. Royalties paid hereunder on License Products returned to CONTROL
DEVICES for which credit is allowed by CONTROL DEVICES shall be entitled to be
deducted from royalties due for the period in which credit is allowed.
Section 1.10 "Consultant's Agreement" means the six (6) year agreement
between the parties hereto which covers HEGYI's consulting services on behalf of
CONTROL DEVICES, effective April 1, 1995.
Section 1.11 (a) "Rain Sensor Purchase Order Milestone" means any purchase
order or similar agreement or combination of such agreements from automotive
OEMs and/or supplier(s) thereto covering Royalty Product(s), wherein the effect
of such agreement or combination of agreements is to cause the cumulative,
projected volume of Sales, over the life of this Agreement, of Royalty
Product(s) intended or used for the detection of Rain (or actual volume of such
Sales, whichever comes first), as computed on the basis of the purchasers'
projected volumes contained in such agreement or combination of agreements, to
equal or exceed one million United States dollars (US $1,000,000).
(b) "Fog Sensor Purchase Order Milestone" means any purchase order or
similar agreement or combination of such agreements from automotive OEMs and/or
supplier(s) thereto covering Royalty Product(s), wherein the effect of such
agreement or combination of agreements is to cause the cumulative, projected
volume of Sales, over the life of this Agreement, of Royalty Product(s) intended
or used for the detection of Fog (or actual volume of such Sales, whichever
comes first), as computed on the basis of the purchasers' projected volumes
contained in such agreement or combination of agreements, to equal or exceed one
million United States dollars (US $1,000,000).
5
<PAGE>
ARTICLE II. LICENSE GRANT
Section 2.1 HEGYI grants CONTROL DEVICES a worldwide exclusive license under
the Licensed Patents and/or Know-How to make, use, Sell or otherwise dispose of
Royalty Product(s).
Section 2.2 The exclusive license granted herein includes the right to
sublicense provided that CONTROL DEVICES notifies HEGYI regarding any
sublicense, reports to HEGYI regarding any sublicense, reports to HEGYI the
Sales made under such sublicense, accounts for royalties on such Sales and pays
royalties thereon to HEGYI in the same manner as provided herein for Sales by
CONTROL DEVICES, as though such Sales were made by CONTROL DEVICES itself.
Section 2.3 Except as provided in Article VII herein, the exclusive license
granted to CONTROL DEVICES precludes HEGYI from making, having made, using,
selling or otherwise disposing of Royalty Products.
ARTICLE III. PAYMENTS
Section 3.1 CONTROL DEVICES agrees to pay HEGYI royalties on Sales by
CONTROL DEVICES, Affiliates and sublicensees anywhere in the world at a rate
equal to six percent (6%) of the Net Selling Price of Royalty Products covered
by one or more Valid Claims; and
Section 3.2 (a) As to Royalty Products not covered by one or more Valid
Claims, CONTROL DEVICES agrees to pay HEGYI royalties on Sales by CONTROL
DEVICES, Affiliates, and sublicensees in accordance with the following schedule,
except as described in Paragraph (b) below:
(i) Six percent (6%) of the Net Selling Price for the three years beginning
January 1, following the first Sale of such Royalty Products in commercial
quantities (e.g., for Royalty Products incorporating Rain sensors, beginning the
January 1 following the first Sale of Rain sensor Royalty Products in commercial
quantities, and for Royalty Products incorporating Fog sensors, beginning the
January 1 following the first Sale of Fog sensor Royalty Products in commercial
quantities);
6
<PAGE>
(ii) Three percent (3%) of the Net Selling Price for next three years
beginning January 1; and
(iii) One percent (1%) of the Net Selling Price for the final three years
beginning January 1, after which CONTROL DEVICES shall have a paid-up royalty-
free license on such Royalty Products not covered by one or more Valid Claims.
Such paid-up license shall become non-exclusive if and at such time as any
license to CONTROL DEVICES under Licensed Patents is terminated.
(b) As to Royalty Products not covered by one or more Valid Claims, if
CONTROL DEVICES, including its Affiliates and sublicenses, is the sole source
supplier for any particular model product, then for the portion of Sales of
Royalty Products for which CONTROL DEVICES, including its Affiliates and
sublicenses, is the sole source supplier of Rain and/or Fog sensors used on a
particular model product, CONTROL DEVICES will extend its obligations to HEGYI
under Paragraph (a) above for an additional three (3) years by replacing the
three (3) year term contained in Subparagraph (ii) of said Paragraph (a) with a
six (6) year term.
Section 3.3 For Royalty Product(s) intended or used for the detection of
Rain, CONTROL DEVICES agrees to pay HEGYI an annual minimum royalty of five
thousand dollars ($5,000) in calendar year 1996, ten thousand dollars ($10,000)
in calendar year 1997, thirty-five thousand dollars ($35,000) in calendar year
1998, forty-five thousand dollars ($45,000) in calendar year 1999, fifty-five
thousand dollars ($55,000) in calendar year 2000, and sixty-five thousand
dollars ($65,000) in calendar year 2001 and each year thereafter during the
life of this License Agreement. These monies are to be paid on or before
January 3rd of each year, with the monies so paid acting as an advance against
royalties based on the Sale of Royalty Product(s) intended or used for the
detection of Rain and which royalties are otherwise to be paid to HEGYI under
Sections 3.1 and 3.2 above during that calendar year only in which said minimum
royalty payment is paid and applicable; so that CONTROL DEVICES shall be allowed
to credit the full amount of each such minimum royalty payment against the
royalties which are based on the Sale of Royalty Product(s) intended or used for
the detection of Rain and which would otherwise be paid to HEGYI under Sections
3.1 and 3.2 of this License Agreement during the calendar year in which such
minimum royalty payment is made, with no carryforward of excess credit against
royalties to be paid in other years; and any royalties to be paid to HEGYI
during any calendar year which are in excess of that year's minimum royalty
payment shall be paid as otherwise required under
7
<PAGE>
this License Agreement.
Section 3.4 In addition to the minimum royalties described above, for
Royalty Product(s) intended or used for the detection of Fog, CONTROL DEVICES
agrees to pay HEGYI an annual minimum royalty of five thousand dollars ($5,000)
in calendar year 1997, ten thousand dollars ($10,000) in calendar year 1998,
thirty-five thousand dollars ($35,000) in calendar year 1999, forty-five
thousand dollars ($45,000) in calendar year 2000, fifty-five thousand dollars
($55,000) in calendar year 2001, and sixty-five thousand dollars ($65,000) in
calendar year 2002 and each year thereafter during the life of this License
Agreement. These monies are to be paid on or before January 3rd of each year,
with the monies so paid acting as an advance against royalties based on the Sale
of Royalty Product(s) intended or used for the detection of Fog and which
royalties are otherwise to be paid to HEGYI under Sections 3.1 and 3.2 above
during that calendar year only in which said minimum royalty payment is paid and
applicable; so that CONTROL DEVICES shall be allowed to credit the full amount
of each such minimum royalty payment against the royalties which are based on
the Sale of Royalty Product(s) intended or used for the detection of Fog and
which would otherwise be paid to HEGYI under Sections 3.1 and 3.2 of this
License Agreement during the calendar year in which such minimum royalty payment
is made, with no carryforward of excess credit against royalties to be paid in
other years; and any royalties to be paid to HEGYI during any calendar year
which are in excess of that year's minimum royalty payment shall be paid as
otherwise required under this License Agreement. It is understood that
royalties credited against the minimum payments of Section 3.3 above cannot also
be credited against the minimum payments of this Section 3.4.
Section 3.5 CONTROL DEVICES shall pay HEGYI two hundred and twenty-five
thousand dollars ($225,000) within fifteen (15) business days of the reaching of
any agreement (or the completion of any Sale, whichever comes first) resulting
in initial achievement of the milestone defined above as the Rain Sensor
Purchase Order Milestone.
Section 3.6 In addition to the payment described in Section 3.5 above,
CONTROL DEVICES shall pay HEGYI two hundred and twenty-five thousand dollars
($225,000) within fifteen (15) business days of the reaching of any agreement
(or the completion of any Sale, whichever comes first) resulting in initial
achievement of the milestone defined above as the Fog Sensor Purchase Order
Milestone. It is
8
<PAGE>
understood that any payment made in satisfaction of CONTROL DEVICES' obligation
under Section 3.5 above cannot also be used in satisfaction of the payment
required under this Section 3.6.
Section 3.7 As partial consideration for HEGYI's entering into this License
Agreement, CONTROL DEVICES shall enter into the Consultant's Agreement and shall
perform and maintain all of its obligations contained therein for the full term
of said agreement.
Section 3.8 The obligation to pay HEGYI a royalty under this Article III is
imposed only once with respect to the Net Selling Price of any individual unit
of Royalty Product regardless of the number of Valid Claims or Licensed Patents
or the amount of Know-How covering the same or the number of sensors included in
the same; however, for purposes of determination of payments due hereunder,
whenever the term "Royalty Product" may apply to a property for which more than
one royalty rate under this Article III may apply, then the highest applicable
rate shall be utilized.
ARTICLE IV. RECORDS AND ACCOUNTING
Section 4.1 CONTROL DEVICES shall maintain accurate records in sufficient
detail and form to enable the royalties hereunder to be determined. CONTROL
DEVICES shall require all Affiliates and sublicensees, regardless of tier, to
keep true and accurate records and books of account containing data reasonably
required for the computation and verification of royalty payments. Such records
shall include such other accounting and business documents as may, under
recognized accounting practices, contain information bearing on the amount of
royalties payable hereunder, and shall show all Royalty Products manufactured,
sold, put into use, or otherwise disposed of by CONTROL DEVICES on which
royalties are payable under Article III hereof. CONTROL DEVICES shall be
required to keep such records for a period of six (6) years after each
respective quarterly reporting period referred to in Section 4.2.
Section 4.2 CONTROL DEVICES shall render to HEGYI quarterly reports or
abstracts from such records (in detail showing products Sold, prices at which
Sold and royalty due) together with copies of customer invoices sent during each
quarter within forty-five (45) days after each March 31, June 30, September 30,
and December 31 of each calendar year, irrespective of whether any Royalty
Products are
9
<PAGE>
manufactured, Sold, put into use, or otherwise disposed of by CONTROL DEVICES,
or any of its Affiliates, or sublicensees. Each quarterly report shall state
the amount of royalties due. Such quarterly reports shall specifically identify
all taxes or other deductions which are excluded from said Net Selling Price and
which are not itemized in an invoice. HEGYI shall keep information from such
reports or abstracts confidential and shall disclose such information only to
the extent required for tax or other similar purposes or as may be required by
law.
Section 4.3 Simultaneously with the making of each such report, CONTROL
DEVICES agrees to pay HEGYI the royalty or minimum payments specified under
Article III hereof, which is shown to be due and payable by such report.
Section 4.4 Payments for any and all royalties and fees described in this
License Agreement shall be in United States currency and shall be made by check
payable to "Dennis J. Hegyi" and forwarded to the following address:
Dennis J. Hegyi
1708 Morton Avenue
Ann Arbor, MI 48104
or to such other address that HEGYI may designate by notice in writing in
conformity with Article XIX below. Quarterly reports shall be mailed to the
same address. It is contemplated hereby that payments due under this License
Agreement for Sales in foreign countries may be treated differently (pursuant to
notice to CONTROL DEVICES by HEGYI) than payments for Sales in the United
States. Monetary conversions, from a currency in which a Sale is made into
another currency, shall be made at the official exchange rate for royalty
remittances in force in the country involved on the last business date of the
quarterly period. If there is no official exchange rate, the conversion shall
be made at the rate for such remittance on that date as certified by Citibank
N.A. of New York.
Section 4.5 In the event that no Royalty Products are Sold during any period
for which a report is required hereunder, a report to that effect shall
nevertheless be rendered to HEGYI for such period.
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<PAGE>
Section 4.6 CONTROL DEVICES covenants that it will employ a system of
product identification that will permit royalty calculations to be verified upon
subsequent review by HEGYI or his auditors.
Section 4.7 CONTROL DEVICES agrees to permit its relevant records to be
examined upon reasonable notice during business hours by an independent
certified public accountant at HEGYI's expense, provided that (i) such
accountant agrees to maintain the confidentiality of such information and to
sign an agreement with CONTROL DEVICES to that effect if so requested by CONTROL
DEVICES, and (ii) CONTROL DEVICES has agreed to the auditor or auditors in
advance of the audit. If the audit reveals that CONTROL DEVICES payments to
HEGYI have been less than ninety-seven percent (97%) of the amount owed to HEGYI
during the period of audit, CONTROL DEVICES shall pay the costs of the audit up
to a maximum limit of five thousand dollars ($5,000).
ARTICLE V. COMMERCIALIZATION
Section 5.1 CONTROL DEVICES agrees to use reasonable efforts to
commercialize the Invention. In the event that CONTROL DEVICES fails to use
such reasonable efforts, the liquidated damages for such failure shall be
limited to forty-seven thousand five hundred dollars ($47,500). CONTROL DEVICES
shall not be liable for any other damages, consequential or otherwise, related
to its obligation to commercialize the Invention.
ARTICLE VI. CONSTRUCTION
Section 6.1 Nothing in this License Agreement shall be construed as:
(a) A warranty or representation by HEGYI as to the validity or scope of
any patent rights;
(b) An agreement to bring or prosecute actions or suit against third
parties for patent infringements; or
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<PAGE>
(c) An agreement by HEGYI to indemnify CONTROL DEVICES or otherwise hold
CONTROL DEVICES harmless, for any liability incurred regarding the manufacture,
use, or sale of the Royalty Products, including, without limitation, attorneys'
fees and costs incurred in defending claims based on warranty, product
liability, infringement of the proprietary or intellectual property rights of
others, or any other claim.
ARTICLE VII. TERMINATION
Section 7.1 In the event CONTROL DEVICES fails to perform any of its
obligations hereunder, including but not limited to its obligations under the
Consultant's Agreement, and such failure to perform constitutes a material
breach of its obligations, HEGYI may notify CONTROL DEVICES in writing of such
default and HEGYI shall have the option of treating this License Agreement as in
full force and effect and of taking proper steps to enforce compliance and to
recover any royalties and other sums due and payable hereunder and/or under the
Consultant's Agreement, or of terminating this License Agreement and the license
granted hereunder; provided, that in the case where HEGYI elects to terminate
this License Agreement, he shall first send CONTROL DEVICES notice of his
election to terminate this License Agreement together with a statement as to the
grounds upon which the termination is based. If within a period of thirty (30)
days after such notice CONTROL DEVICES shall have cured such failure to perform
in accordance with the provisions of this License Agreement, then the notice
shall become null and void and of no effect; otherwise, the notice shall remain
effective and this License Agreement shall cease and terminate at the expiration
of such period.
Section 7.2 Unless otherwise terminated as herein provided, CONTROL DEVICES'
obligation to pay royalties on Royalty Products shall end when the last such
obligation under Article III herein expires.
Section 7.3 In the event of any termination of this License Agreement, and
except as provided herein to the contrary, all rights and obligations of the
parties hereunder shall cease with respect thereto, and (i) CONTROL DEVICES
shall continue to be liable for all royalties and other sums accruing hereunder
up to the day of such termination; and (ii) CONTROL DEVICES shall render a final
report
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and royalty payment and permit a final audit in accordance with Sections 4.6 and
4.7.
Section 7.4 Upon early termination in accordance with Section 7.1 of this
License Agreement for any cause, (i) HEGYI may purchase, with CONTROL DEVICES'
consent, any CONTROL DEVICE'S rights related to the Invention that were
developed in the commercialization of the Invention up to the date of such
termination, (ii) upon HEGYI's request, CONTROL DEVICES shall transfer to HEGYI
all HEGYI owned drawings, plans, models, prototypes and other material related
to the Invention, and (iii) CONTROL DEVICES shall be permitted to complete any
contractual or other legal obligations to third parties regarding the supply of
product or spare parts until such time as HEGYI or another person has
effectively assumed such obligations.
Section 7.5 In the event HEGYI fails to perform any of his obligations
hereunder, CONTROL DEVICES may notify HEGYI in writing of such default,
including a notice of termination and a statement of reasons for such
termination. The notice of termination shall be served upon HEGYI at least
thirty (30) days before a termination date established by CONTROL DEVICES.
Immediately upon service of such notice of termination, HEGYI shall have the
right to begin negotiations with others for the manufacture, sale, and use of
the Royalty Products. If within a period of thirty (30) days after such notice,
HEGYI shall have cured such failure to perform in accordance with the provisions
of this License Agreement, then the notice shall become null and void and of no
effect; otherwise, the notice shall remain effective and this License Agreement
shall cease and terminate at the expiration of such period.
Section 7.6 CONTROL DEVICES may terminate the License Agreement for any
reason by providing HEGYI with thirty (30) days advanced written notice and a
payment of forty-seven thousand five hundred dollars ($47,500) at the time of
termination; provided however, such termination payment shall be reduced in
amount as set forth hereafter. If Sales for the twelve-month period immediately
preceding the date of the termination notice total less than $1.1 million
dollars ("Actual Sales"), the payment to HEGYI shall be reduced to an amount
computed as follows:
(1) $1.1 million minus Actual Sales = X
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(2) X/$1 million times $47,500 = Y
(3) $47,500 minus Y = termination pay.
Section 7.7 CONTROL DEVICES may effect a partial termination of the License
Agreement for any reason by otherwise terminating in accordance with Section 7.6
above, except that the thirty (30) day advance written notice of Section 7.6
shall contain an election by CONTROL DEVICES to retain all rights and all
obligations under the License Agreement with respect to Royalty Products
intended or used for the detection of one or the other of either Rain or Fog,
but not both. In this event: (i) the grant of rights otherwise contained in
the License Agreement shall become limited either to the making, using, Selling
or otherwise disposing of and sublicensing of Rain sensors or to the making,
using, Selling or otherwise disposing of and sublicensing of Fog sensors, in
accordance with CONTROL DEVICES' written election, but not to both, and (ii)
CONTROL DEVICES, including Affiliates and sublicensees, shall cease making,
using, Selling or otherwise disposing of or sublicensing any non-elected sensors
(i.e., sensors other than either the elected Rain sensor or Fog sensor) which
include or are themselves Royalty Products under this License Agreement, and
(iii) CONTROL DEVICES' obligations to pay minimum royalties under the License
Agreement shall be limited, pursuant to CONTROL DEVICES' election, to payment of
said minimum royalties applicable to either Rain sensors or Fog sensors, but not
both, and (iv) in effecting the partial termination under this Section 7.7, the
computation of Sales used to arrive at "Actual Sales" for the twelve month
period described in Section 7.6 above shall not include Sales of Royalty
Products which include only the elected sensors (i.e., either Rain sensors or
Fog sensors as elected by CONTROL DEVICES for its continuing license rights
under this Section 7.7), and (v) all other terms and conditions of the License
Agreement shall remain in effect but shall be limited as necessary to effect the
intentions of the parties hereunder to restrict the field of use under the
License Agreement to either Rain sensors or Fog sensors, but not both.
ARTICLE VIII. PROSECUTION OF PATENT APPLICATIONS
Section 8.1 HEGYI shall diligently prosecute any and all patent applications
claiming Inventions and/or Improvements which he elects to file and shall pay
all fees due to prevent such applications or
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any issued patents from being abandoned or forfeited. Within thirty (30) days
of its receipt of an invoice from HEGYI, CONTROL DEVICES shall reimburse HEGYI
for all such reasonable costs incurred prior to the date of this License
Agreement for prosecuting patent applications in Japan, South Korea, West
Germany, the United States, France, Great Britain, and Italy. Within thirty
(30) days of its receipt of an invoice from HEGYI, CONTROL DEVICES shall pay for
all such reasonable future costs in such countries, provided that CONTROL
DEVICES has approved them in advance of being incurred. CONTROL DEVICES shall
not unreasonably withhold such approval.
Section 8.2 In the event CONTROL DEVICES requests that HEGYI file any patent
application claiming Inventions and/or Improvements in any country and HEGYI
elects not to file, HEGYI agrees to do so at CONTROL DEVICES' expense. Should
HEGYI decide he wishes to terminate prosecution or otherwise intends to abandon
any patent applications claiming Inventions and/or Improvements, HEGYI shall
notify CONTROL DEVICES of such intention to abandon or forfeit at least sixty
(60) days prior to the time at which the application or patent would become
abandoned or forfeited. In such event, CONTROL DEVICES shall have the option to
continue prosecution or take whatever action is necessary to prevent the
application or patent from becoming abandoned or forfeited, and CONTROL DEVICES
shall have all rights of ownership to such application or patent.
ARTICLE IX. INFRINGEMENT
Section 9.1 CONTROL DEVICES is empowered, at its sole option:
(a) To bring suit in its own name or, if required by law, jointly with HEGYI,
at CONTROL DEVICES' own expense and on CONTROL DEVICES' own behalf, for
infringement of the Licensed Patents;
(b) In any such suit, to enjoin infringement and to collect for CONTROL
DEVICES' benefit all damages, profits, and awards of whatever nature recoverable
for such infringement; and
(c) To settle any claim or suit for infringement of the Licensed Patents.
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Notwithstanding any other provision of this License Agreement, in any such
suit CONTROL DEVICES is entitled to recover CONTROL DEVICES' expenses before
HEGYI is entitled to any royalty payments. HEGYI shall be entitled to royalty
payments for such infringement but such payments shall be limited to twenty-five
percent (25%) of any excess of CONTROL DEVICES' recoveries over CONTROL DEVICES'
expenses.
Section 9.2 In the event HEGYI shall bring to the attention of CONTROL
DEVICES any unlicensed infringement of the Licensed Patents and shall furnish
CONTROL DEVICES with a written opinion by a registered patent attorney that such
infringement exists, and CONTROL DEVICES shall not, within three (3) months:
(a) secure cessation of the infringement; or
(b) enter suit against the infringer; or
(c) provide evidence of the pendency of a bona fide negotiation for the
acceptance by the infringer of a sublicense under the Licensed Patents;
then HEGYI shall thereafter have the right, at his sole option, to terminate the
exclusive license granted herein by notifying CONTROL DEVICES of such
termination in writing. Upon termination of CONTROL DEVICES' exclusive license,
CONTROL DEVICES shall retain a license on the same terms as set forth in this
License Agreement except that (1) the license shall be non-exclusive and HEGYI
shall have the right to license third parties under the Licensed Patents, (2)
CONTROL DEVICES' license shall be limited to making and selling Royalty Products
for customers to whom CONTROL DEVICES is contractually obligated to sell Royalty
Products as of the date of termination or to whom CONTROL DEVICES has previously
Sold commercial quantities of Royalty Products, and (3) CONTROL DEVICES shall
not thereafter be able to grant any further sublicenses.
Upon such termination, HEGYI may at his option file suit for the infringement,
and any such suit shall be at HEGYI's own expense, and HEGYI shall collect for
his benefit all damages, profits, and awards of whatever nature which are
recoverable for such infringement. Provided that CONTROL
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DEVICES has no legitimate reason to refrain from cooperation, CONTROL DEVICES
agrees to cooperate with HEGYI in such suit by (1) assigning to HEGYI CONTROL
DEVICES' damage claim for past damages incurred up to the time of termination,
(2) providing HEGYI with information and documents reasonably needed by HEGYI to
prosecute such lawsuit, and (3) making CONTROL DEVICES employees reasonably
available to HEGYI as witnesses (or other similar uses) up to a maximum of
fifteen (15) workdays. CONTROL DEVICES shall participate in any settlement,
verdict, or finding in favor of HEGYI as follows:
(1) actual costs other than legal fees incurred by HEGYI and CONTROL DEVICES
shall be returned to both parties in full, or prorated equally if costs cannot
be reimbursed in full, then
(2) the remainder shall de divided in proportion to the time spent by each
party, except that HEGYI's time shall be multiplied by two (2) to reflect the
higher cost for his time.
ARTICLE X. SUCCESSORS AND ASSIGNS
Section 10.1 This License Agreement is intended to be binding upon the
successors and assigns of CONTROL DEVICES and HEGYI, and their respective
Affiliates. Neither CONTROL DEVICES nor HEGYI may assign this License Agreement
without the consent of the other, except that CONTROL DEVICES may assign this
License Agreement together with the sale or transfer of the business to which
this License Agreement relates.
ARTICLE XI. APPLICABLE LAW
Section 11.1 This License Agreement shall be constructed, interpreted, and
governed by the laws of Michigan.
ARTICLE XII. EFFECT OF PRIOR AGREEMENTS
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Section 12.1 This License Agreement embodies all understandings and
agreements between the parties concerning the subject matter hereof and the
license granted, and supersedes and takes precedence over any previous or
contemporaneous understandings or agreements, oral or written, between the
parties hereto, but shall not supersede the Secrecy and Non-Disclosure Agreement
covering the Invention and previously executed between the parties hereto,
except that CONTROL DEVICES may disclose information as may be necessary to
effect the purposes of this License Agreement.
ARTICLE XIII. WAIVER OF BREACH
Section 13.1 The failure by either party to exercise a right or enforce an
obligation hereunder shall not be construed to be a waiver of same by either
party with respect to future performance.
ARTICLE XIV. SEVERABILITY
Section 14.1 If any portion of this License Agreement shall be declared void
or unenforceable by any court or administrative body of competent jurisdiction,
to the extent that such portion is not material to the underlying intent of the
agreement, such portion shall be deemed severable from the remainder of this
License Agreement, which remainder shall continue in all respects valid and
enforceable. The parties mutually agree to cooperate in any revision of this
contract which may be necessary to meet the requirements of the law.
ARTICLE XV. FORCE MAJEURE
Section 15.1 Neither party shall be under any liability hereunder to the
other party on account of any loss, damage, or delay caused by the elements,
embargoes, failures of carriers, acts of God or the public enemy, or compliance
with any law, regulation or other governmental order, whether
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or not valid, as long as the delay in performance under this License Agreement
is not greater than the period that the above-mentioned actions or events cause
disruption.
ARTICLE XVI. INDEMNITY
Section 16.1 CONTROL DEVICES hereby indemnifies and agrees to require all
Affiliates and sublicensees to indemnify HEGYI against any and all claims in the
nature of product liability, warranty, and infringement of proprietary or
intellectual property rights of others, related to Royalty Products Sold, used
or disposed of by CONTROL DEVICES, its Affiliates or sublicensees. Said
indemnification includes, but is not limited to, claims for damages, attorneys'
fees, or costs. Said indemnification shall not include claims based on any
warranty provided by HEGYI. If any claim within the scope of CONTROL DEVICES'
indemnification obligation shall be made against HEGYI involving Royalty
Products, HEGYI shall inform CONTROL DEVICES thereof and HEGYI shall cooperate
with CONTROL DEVICES and its attorneys or insurer in a disposition of any such
matters whenever reasonably requested to do so. CONTROL DEVICES shall assume
full responsibility for defense of any such action for the benefit of itself and
HEGYI.
ARTICLE XVII. PRODUCT MARKING
Section 17.1 CONTROL DEVICES agrees to mark its products with appropriate
patent notice.
ARTICLE XVIII. ENTIRE AGREEMENT AND AMENDMENTS
Section 18.1 This License Agreement contains the entire understanding of the
parties with respect to the matter contained herein. The parties hereto may,
from time to time during the continuance of this License Agreement, modify, vary
or alter any of the provisions of this License Agreement, but only by an
instrument duly executed by both parties hereto.
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ARTICLE XIX. NOTICES
Section 19.1 Any notice, request, report or payment required or permitted to
be given or made under this License Agreement by either Party shall be given by
sending such notice by registered or certified United States mail, return
receipt requested, postage prepaid, to the address set forth below or such other
address as such Party shall have specified by written notice given in conformity
herewith. Any notice given in accordance with the provisions of this Section
shall be effective on the date received, as indicated on the postal service's
return receipt, and any notice not so given shall not be valid unless and until
actually received as evidenced by competent, written records kept in the normal
course of business.
To HEGYI: Dr. Dennis J. Hegyi
1708 Morton Avenue
Ann Arbor, Michigan 48104
To CONTROL DEVICES: Control Devices, Inc.
228 Northeast Road
Standish, Maine 04084
ATTN: Bruce Atkinson, President
ARTICLE XX. BANKRUPTCY
Section 20.1 If during the term of this Agreement, CONTROL DEVICES shall
make an assignment for the benefit of creditors, or if proceedings in voluntary
or involuntary bankruptcy shall be instituted on behalf of or against CONTROL
DEVICES, or if a receiver or trustee shall be appointed for the property of
CONTROL DEVICES, HEGYI may, at his option, terminate this Agreement and revoke
the license herein granted by written notice to CONTROL DEVICES.
IN WITNESS WHEREOF, the parties, by their duly authorized representatives, have
executed and delivered this Agreement as of the date first written above.
____________________________ ______________________________
Dennis J. Hegyi Bruce D. Atkinson, President,
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Control Devices, Inc.
Date________________________ Date___________________________
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EXHIBIT 10.11
LICENSE AGREEMENT
(Solar Position Sensor)
between
CONTROL DEVICES, INC.
and
DENNIS J. HEGYI
<PAGE>
This License Agreement, made and entered into this 3rd day of April, 1995 by and
between DENNIS J. HEGYI (HEGYI), an individual having a residence at 1708 Morton
Avenue, Ann Arbor, Michigan 48104, and CONTROL DEVICES, INC. (CONTROL DEVICES),
an Indiana corporation, having a place of business at Route 35, Standish, Maine
04084.
Whereas HEGYI represents that he has the sole right to grant licenses under
the Invention (as hereinafter defined) and under patents that have issued or
might issue thereon; and
Whereas HEGYI is willing to grant an exclusive license of the Invention to
CONTROL DEVICES based on the conditions hereinafter set forth; and
Whereas CONTROL DEVICES is willing to acquire an exclusive worldwide
license to commercialize such Invention;
Now, therefore, in consideration of the foregoing and the rights and
obligations hereinafter set forth, the receipt and sufficiency of which is
hereby acknowledged, the parties agree as follows:
ARTICLE I. DEFINITIONS
Section 1. When used in this License Agreement, the following terms shall
have the following meanings for all purposes of this License Agreement.
Section 1.1 "Invention" means the method and/or apparatus which (i) was
discovered by HEGYI, (ii) pertains to a sensor which can determine the solar
flux as well as the elevation and azimuth of the sun relative to the sensor, and
(iii) consists of a plurality of light sensors with a light mask located above
the light sensors and which may also contain a diffuser located between the
light mask and the light sensors. Invention further includes any methods,
processes, electrical circuits, devices, apparatuses, designs, equipment,
and/or structures for such a system or for use in connection therewith.
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Section 1.2 "Improvements" mean any modification, amendment, or
enhancement of the Invention.
Section 1.3 "Licensed Patent(s)" means any and all letters patent owned by
HEGYI claiming the Invention or Improvements that may issue or have been issued
including any and all renewals, divisions, continuations, continuations-in-part,
reissues, substitutions, confirmations, registrations, revalidations, revisions,
extensions, or additions of or to any of the aforesaid patents and patent
applications.
Section 1.4 "Valid Claim(s)" means any claim(s) in an unexpired patent
included within the applicable Licensed Patents which claim has not been held
unenforceable, unpatentable or invalid by a decision of a court or other
governmental agency of competent jurisdiction, unappealable or unappealed within
the time allowed for appeal, and which has not been admitted to be invalid or
unenforceable through reissue or disclaimer. If in any country there should be
two or more such decisions conflicting with respect to the validity of the same
claim, the decision of the higher or highest tribunal shall thereafter control;
however, should the tribunals be of equal rank, then the decision or decisions
upholding the claim shall prevail.
Section 1.5 "Know-How" means and includes all discoveries, inventions,
improvements, technical information, trade secrets, prototypes, models,
experience, work products, documentation, reports and data, and all results from
experiments, testing development and demonstrations, and any other data, written
or unwritten, including all such information and knowledge derived from work and
services performed prior to the date of this License Agreement by HEGYI, all of
which relate to the Invention and/or Improvements, at least some of such Know-
How having been disclosed to CONTROL DEVICES and/or its predecessor GTE Control
Devices pursuant to written agreements of confidentiality.
Section 1.6 "Affiliate(s)" of CONTROL DEVICES means any partnership,
organization, association, company, corporation, individual or other entity
which is controlled, directly or indirectly, by CONTROL DEVICES or wherein
CONTROL DEVICES, directly or indirectly, owns more than fifty percent (50%) of
the equity or voting stock. Except as the context may otherwise require, for
the
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purposes of this License Agreement, the term CONTROL DEVICES shall mean and
include the Affiliates of CONTROL DEVICES.
Section 1.7 "Royalty Product(s)" includes any process, method, substance,
equipment, mechanism, device or other property, or combination thereof, the
manufacture, use or Sale of which would, but for this License Agreement,
infringe one or more Valid Claims, or any process, method, substance, equipment,
mechanism, device or other property, or combination thereof which incorporates,
or the manufacture, use or Sale of which utilizes, Know-How.
Section 1.8 "Net Selling Price" means CONTROL DEVICES' invoice price,
being the price billed exclusive of taxes, such as sales, use, or other added
taxes less a documented deduction under normal business practices for
transportation, freight, insurance, promotions, discounts, and duty if such
deductions are applicable. If in any transaction a Royalty Product is Sold
without a separately identifiable Net Selling Price (either because such sale is
part of a larger transaction including additional equipment and/or services, or
for any other reason), then for purposes of this License Agreement, the Selling
Price shall mean the established current Net Selling Price for equivalent
quantities of Royalty Products when Sold and invoiced separately, but if no Net
Selling Price has been established, the Net Selling Price shall be deemed to be
the fair market price.
Section 1.9 "Sold" (together with conjugate terms "Sell," "Sale," "Sales,"
"Selling," etc.) means generally transferred by CONTROL DEVICES or any Affiliate
or sublicensee of CONTROL DEVICES for value in an arm's length transaction to a
transferee other than an Affiliate or sublicensee of CONTROL DEVICES, and shall
include without limitation, Royalty Products which are rented, leased, consigned
or given, except salesperson samples provided without charge. Royalty Products
shall be considered Sold when billed out; or, if not billed out, then when
shipped, mailed, or otherwise delivered, or when paid for before delivery.
However, upon expiration or termination of this License Agreement, all Royalty
Products shipped or otherwise delivered on or prior to the date of such
expiration or termination, which have not been billed out or otherwise disposed
of, shall be considered Sold and therefore subject to royalties hereunder. A
lease, a consignment, a transfer to a place of use or a delivery to another,
regardless of the basis of compensation, if any, is an example of a disposition
to be treated as a Sale and subject to royalties. The scrapping as junk so as
not to be used for the normal
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contemplated or intended purpose thereof, or the mere routine manufacturing and
testing thereof, is an example of a disposition which, in itself, is not subject
to royalties. Royalties paid hereunder on License Products returned to CONTROL
DEVICES for which credit is allowed by CONTROL DEVICES shall be entitled to be
deducted from royalties due for the period in which credit is allowed.
Section 1.10 "Consultant's Agreement" means the six (6) year agreement
between the parties hereto which covers HEGYI's consulting services on behalf of
CONTROL DEVICES, effective April 1, 1995.
Section 1.11 "Purchase Order Milestone" means any purchase order or
similar agreement or combination of such agreements from automotive OEMs and/or
supplier(s) thereto covering Royalty Product(s), wherein the effect of such
agreement or combination of agreements is to cause the cumulative, projected
volume of Sales, over the life of this Agreement, of Royalty Product(s) (or
actual volume of such Sales, whichever comes first), as computed on the basis of
the purchasers' projected volumes contained in such agreement or combination of
agreements, to equal or exceed one million United States dollars (US
$1,000,000).
ARTICLE II. LICENSE GRANT
Section 2.1 HEGYI grants CONTROL DEVICES a worldwide exclusive license
under the Licensed Patents and/or Know-How to make, use, Sell or otherwise
dispose of Royalty Product(s).
Section 2.2 The exclusive license granted herein includes the right to
sublicense provided that CONTROL DEVICES notifies HEGYI regarding any
sublicense, reports to HEGYI regarding any sublicense, reports to HEGYI the
Sales made under such sublicense, accounts for royalties on such Sales and pays
royalties thereon to HEGYI in the same manner as provided herein for Sales by
CONTROL DEVICES, as though such Sales were made by CONTROL DEVICES itself.
Section 2.3 Except as provided in Article VII herein, the exclusive license
granted to CONTROL DEVICES precludes HEGYI from making, having made, using,
selling or otherwise disposing of
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Royalty Products.
ARTICLE III. PAYMENTS
Section 3.1 CONTROL DEVICES agrees to pay HEGYI royalties on Sales by
CONTROL DEVICES, Affiliates and sublicensees anywhere in the world at a rate
equal to six percent (6%) of the Net Selling Price of Royalty Products covered
by one or more Valid Claims; and
Section 3.2 (a) As to Royalty Products not covered by one or more Valid
Claims, CONTROL DEVICES agrees to pay HEGYI royalties on Sales by CONTROL
DEVICES, Affiliates, and sublicensees in accordance with the following schedule,
except as described in Paragraph (b) below:
(i) Six percent (6%) of the Net Selling Price for the three years beginning
January 1, following the first sale of Royalty Products in commercial
quantities;
(ii) Three percent (3%) of the Net Selling Price for next three years
beginning January 1; and
(iii) One percent (1%) of the Net Selling Price for the final three years
beginning January 1, after which CONTROL DEVICES shall have a paid-up royalty-
free license on such Royalty Products not covered by one or more Valid Claims.
Such paid-up license shall become non-exclusive if and at such time as any
license to CONTROL DEVICES under Licensed Patents is terminated.
(b) As to Royalty Products not covered by one or more Valid Claims,
if CONTROL DEVICES, including its Affiliates and sublicenses, is the sole source
supplier for any particular model product, then for the portion of Sales of
Royalty Products for which CONTROL DEVICES, including its Affiliates and
sublicenses, is the sole source supplier of solar position sensors used on a
particular model product, CONTROL DEVICES will extend its obligations to HEGYI
under Paragraph (a) above for an additional three (3) years by replacing the
three (3) year term contained in Subparagraph (ii) of said Paragraph (a) with a
six (6) year term.
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Section 3.3 CONTROL DEVICES agrees to pay HEGYI an annual minimum royalty
of five thousand dollars ($5,000) in calendar year 1996, ten thousand dollars
($10,000) in calendar year 1997, thirty-five thousand dollars ($35,000) in
calendar year 1998, forty-five thousand dollars ($45,000) in calendar year 1999,
fifty-five thousand dollars ($55,000) in calendar year 2000, and sixty-five
thousand dollars ($65,000) in calendar year 2001 and each year thereafter during
the life of this License Agreement. These monies are to be paid on or before
January 3rd of each year, with the monies so paid acting as an advance against
royalties otherwise to be paid to HEGYI under Sections 3.1 and 3.2 above during
that calendar year only in which said minimum royalty payment is paid and
applicable; so that CONTROL DEVICES shall be allowed to credit the full amount
of each minimum royalty payment against the royalties which would otherwise be
paid to HEGYI under Sections 3.1 and 3.2 of this License Agreement during the
calendar year in which such minimum royalty payment is made, with no
carryforward of excess credit against royalties to be paid in other years; and
any royalties to be paid to HEGYI during any calendar year which are in excess
of that year's minimum royalty payment shall be paid as otherwise required under
this License Agreement.
Section 3.4 CONTROL DEVICES shall pay HEGYI one hundred and twenty five
thousand dollars ($125,000) within fifteen (15) business days of the reaching of
any agreement (or the completion of any Sale, whichever comes first) resulting
in initial achievement of the milestone defined above as the Purchase Order
Milestone.
Section 3.5 As partial consideration for HEGYI's entering into this
License Agreement, CONTROL DEVICES shall enter into the Consultant's Agreement
and shall perform and maintain all of its obligations contained therein for the
full term of said agreement.
ARTICLE IV. RECORDS AND ACCOUNTING
Section 4.1 CONTROL DEVICES shall maintain accurate records in sufficient
detail and form to enable the royalties hereunder to be determined. CONTROL
DEVICES shall require all Affiliates and sublicensees, regardless of tier, to
keep true and accurate records and books of account containing data reasonably
required for the computation and verification of royalty payments. Such records
shall include
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<PAGE>
such other accounting and business documents as may, under recognized accounting
practices, contain information bearing on the amount of royalties payable
hereunder, and shall show all Royalty Products manufactured, sold, put into use,
or otherwise disposed of by CONTROL DEVICES on which royalties are payable under
Article III hereof. CONTROL DEVICES shall be required to keep such records for
a period of six (6) years after each respective quarterly reporting period
referred to in Section 4.2.
Section 4.2 CONTROL DEVICES shall render to HEGYI quarterly reports or
abstracts from such records (in detail showing products Sold, prices at which
Sold and royalty due) together with copies of customer invoices sent during each
quarter within forty-five (45) days after each March 31, June 30, September 30,
and December 31 of each calendar year, irrespective of whether any Royalty
Products are manufactured, Sold, put into use, or otherwise disposed of by
CONTROL DEVICES, or any of its Affiliates, or sublicensees. Each quarterly
report shall state the amount of royalties due. Such quarterly reports shall
specifically identify all taxes or other deductions which are excluded from said
Net Selling Price and which are not itemized in an invoice. HEGYI shall keep
information from such reports or abstracts confidential and shall disclose such
information only to the extent required for tax or other similar purposes or as
may be required by law.
Section 4.3 Simultaneously with the making of each such report, CONTROL
DEVICES agrees to pay HEGYI the royalty or minimum payments specified under
Article III hereof, which is shown to be due and payable by such report.
Section 4.4 Payments for any and all royalties and fees described in this
License Agreement shall be in United States currency and shall be made by check
payable to "Dennis J. Hegyi" and forwarded to the following address:
Dennis J. Hegyi
1708 Morton Avenue
Ann Arbor, MI 48104
or to such other address that HEGYI may designate by notice in writing in
conformity with Article XIX below. Quarterly reports shall be mailed to the
same address. It is contemplated hereby that payments
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<PAGE>
due under this License Agreement for Sales in foreign countries may be treated
differently (pursuant to notice to CONTROL DEVICES by HEGYI) than payments for
Sales in the United States. Monetary conversions, from a currency in which a
Sale is made into another currency, shall be made at the official exchange rate
for royalty remittances in force in the country involved on the last business
date of the quarterly period. If there is no official exchange rate, the
conversion shall be made at the rate for such remittance on that date as
certified by Citibank N.A. of New York.
Section 4.5 In the event that no Royalty Products are Sold during any
period for which a report is required hereunder, a report to that effect shall
nevertheless be rendered to HEGYI for such period.
Section 4.6 CONTROL DEVICES covenants that it will employ a system of
product identification that will permit royalty calculations to be verified upon
subsequent review by HEGYI or his auditors.
Section 4.7 CONTROL DEVICES agrees to permit its relevant records to be
examined upon reasonable notice during business hours by an independent
certified public accountant at HEGYI's expense, provided that (i) such
accountant agrees to maintain the confidentiality of such information and to
sign an agreement with CONTROL DEVICES to that effect if so requested by CONTROL
DEVICES, and (ii) CONTROL DEVICES has agreed to the auditor or auditors in
advance of the audit. If the audit reveals that CONTROL DEVICES payments to
HEGYI have been less than ninety-seven percent (97%) of the amount owed to HEGYI
during the period of audit, CONTROL DEVICES shall pay the costs of the audit up
to a maximum limit of five thousand dollars ($5,000)
ARTICLE V. COMMERCIALIZATION
Section 5.1 CONTROL DEVICES agrees to use reasonable efforts to
commercialize the Invention. In the event that CONTROL DEVICES fails to use
such reasonable efforts, the liquidated damages for such failure shall be
limited to forty-seven thousand five hundred dollars ($47,500). CONTROL DEVICES
shall not be liable for any other damages, consequential or otherwise, related
to its obligation to commercialize the Invention.
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<PAGE>
ARTICLE VI. CONSTRUCTION
Section 6.1 Nothing in this License Agreement shall be construed as:
(a) A warranty or representation by HEGYI as to the validity or scope
of any patent rights;
(b) An agreement to bring or prosecute actions or suit against third
parties for patent infringements; or
(c) An agreement by HEGYI to indemnify CONTROL DEVICES or otherwise
hold CONTROL DEVICES harmless, for any liability incurred regarding the
manufacture, use, or sale of the Royalty Products, including, without
limitation, attorneys' fees and costs incurred in defending claims based on
warranty, product liability, infringement of the proprietary or intellectual
property rights of others, or any other claim.
ARTICLE VII. TERMINATION
Section 7.1 In the event CONTROL DEVICES fails to perform any of its
obligations hereunder, including but not limited to its obligations under the
Consultant's Agreement, and such failure to perform constitutes a material
breach of its obligations, HEGYI may notify CONTROL DEVICES in writing of such
default and HEGYI shall have the option of treating this License Agreement as in
full force and effect and of taking proper steps to enforce compliance and to
recover any royalties and other sums due and payable hereunder and/or under the
Consultant's Agreement, or of terminating this License Agreement and the license
granted hereunder; provided, that in the case where HEGYI elects to terminate
this License Agreement, he shall first send CONTROL DEVICES notice of his
election to terminate this License Agreement together with a statement as to the
grounds upon which the termination is based. If within a period of thirty (30)
days after such notice CONTROL DEVICES shall have cured such failure to perform
in accordance with the provisions of this License Agreement, then the notice
shall become null and void and of no effect; otherwise, the notice shall remain
effective and this License Agreement shall cease and terminate at the expiration
of such period.
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Section 7.2 Unless otherwise terminated as herein provided, CONTROL
DEVICES' obligation to pay royalties on Royalty Products shall end when the last
such obligation under Article III herein expires.
Section 7.3 In the event of any termination of this License Agreement,
and except as provided herein to the contrary, all rights and obligations of the
parties hereunder shall cease with respect thereto, and (i) CONTROL DEVICES
shall continue to be liable for all royalties and other sums accruing hereunder
up to the day of such termination; and (ii) CONTROL DEVICES shall render a final
report and royalty payment and permit a final audit in accordance with Sections
4.6 and 4.7.
Section 7.4 Upon early termination in accordance with Section 7.1 of this
License Agreement for any cause, (i) HEGYI may purchase, with CONTROL DEVICES'
consent, any CONTROL DEVICE'S rights related to the Invention that were
developed in the commercialization of the Invention up to the date of such
termination, (ii) upon HEGYI's request, CONTROL DEVICES shall transfer to HEGYI
all HEGYI owned drawings, plans, models, prototypes and other material related
to the Invention, and (iii) CONTROL DEVICES shall be permitted to complete any
contractual or other legal obligations to third parties regarding the supply of
product or spare parts until such time as HEGYI or another person has
effectively assumed such obligations.
Section 7.5 In the event HEGYI fails to perform any of his obligations
hereunder, CONTROL DEVICES may notify HEGYI in writing of such default,
including a notice of termination and a statement of reasons for such
termination. The notice of termination shall be served upon HEGYI at least
thirty (30) days before a termination date established by CONTROL DEVICES.
Immediately upon service of such notice of termination, HEGYI shall have the
right to begin negotiations with others for the manufacture, sale, and use of
the Royalty Products. If within a period of thirty (30) days after such notice,
HEGYI shall have cured such failure to perform in accordance with the provisions
of this License Agreement, then the notice shall become null and void and of no
effect; otherwise, the notice shall remain effective and this License Agreement
shall cease and terminate at the expiration of such period.
Section 7.6 CONTROL DEVICES may terminate the License Agreement for any
reason by
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providing HEGYI with thirty (30) days advanced written notice and a payment of
forty-seven thousand five hundred dollars ($47,500) at the time of termination;
provided however, such termination payment shall be reduced in amount as set
forth hereafter. If Sales for the twelve-month period immediately preceding the
date of the termination notice total less than $1.1 million dollars ("Actual
Sales"), the payment to HEGYI shall be reduced to an amount computed as follows:
(1) $1.1 million minus Actual Sales = X
(2) X/$1 million times $47,500 = Y
(3) $47,500 minus Y = termination pay.
ARTICLE VIII. PROSECUTION OF PATENT APPLICATIONS
Section 8.1 HEGYI shall diligently prosecute any and all patent
applications claiming Inventions and/or Improvements which he elects to file and
shall pay all fees due to prevent such applications or any issued patents from
being abandoned or forfeited. Within thirty (30) days of its receipt of an
invoice from HEGYI, CONTROL DEVICES shall reimburse HEGYI for all such
reasonable costs incurred prior to the date of this License Agreement for
prosecuting patent applications in Japan, South Korea, West Germany, the United
States, France, Great Britain, and Italy. Within thirty (30) days of its receipt
of an invoice from HEGYI, CONTROL DEVICES shall pay for all such reasonable
future costs in such countries, provided that CONTROL DEVICES has approved them
in advance of being incurred. CONTROL DEVICES shall not unreasonably withhold
such approval.
Section 8.2 In the event CONTROL DEVICES requests that HEGYI file any
patent application claiming Inventions and/or Improvements in any country and
HEGYI elects not to file, HEGYI agrees to do so at CONTROL DEVICES' expense.
Should HEGYI decide he wishes to terminate prosecution or otherwise intends to
abandon any patent applications claiming Inventions and/or Improvements, HEGYI
shall notify CONTROL DEVICES of such intention to abandon or forfeit at least
sixty (60) days prior to the time at which the application or patent would
become abandoned or forfeited. In such
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event, CONTROL DEVICES shall have the option to continue prosecution or take
whatever action is necessary to prevent the application or patent from becoming
abandoned or forfeited, and CONTROL DEVICES shall have all rights of ownership
to such application or patent.
ARTICLE IX. INFRINGEMENT
Section 9.1 CONTROL DEVICES is empowered, at its sole option:
(a) To bring suit in its own name or, if required by law, jointly with
HEGYI, at CONTROL DEVICES' own expense and on CONTROL DEVICES' own behalf, for
infringement of the Licensed Patents;
(b) In any such suit, to enjoin infringement and to collect for CONTROL
DEVICES' benefit all damages, profits, and awards of whatever nature recoverable
for such infringement; and
(c) To settle any claim or suit for infringement of the Licensed Patents.
Notwithstanding any other provision of this License Agreement, in any such
suit CONTROL DEVICES is entitled to recover CONTROL DEVICES' expenses before
HEGYI is entitled to any royalty payments. HEGYI shall be entitled to royalty
payments for such infringement but such payments shall be limited to twenty-five
percent (25%) of any excess of CONTROL DEVICES' recoveries over CONTROL
DEVICES' expenses.
Section 9.2 In the event HEGYI shall bring to the attention of CONTROL
DEVICES any unlicensed infringement of the Licensed Patents and shall furnish
CONTROL DEVICES with a written opinion by a registered patent attorney that such
infringement exists, and CONTROL DEVICES shall not, within three (3) months:
(a) secure cessation of the infringement; or
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(b) enter suit against the infringer; or
(c) provide evidence of the pendency of a bona fide negotiation for the
acceptance by the infringer of a sublicense under the Licensed Patents;
then HEGYI shall thereafter have the right, at his sole option, to terminate the
exclusive license granted herein by notifying CONTROL DEVICES of such
termination in writing. Upon termination of CONTROL DEVICES' exclusive license,
CONTROL DEVICES shall retain a license on the same terms as set forth in this
License Agreement except that (1) the license shall be non-exclusive and HEGYI
shall have the right to license third parties under the Licensed Patents, (2)
CONTROL DEVICES' license shall be limited to making and selling Royalty Products
for customers to whom CONTROL DEVICES is contractually obligated to sell Royalty
Products as of the date of termination or to whom CONTROL DEVICES has previously
Sold commercial quantities of Royalty Products, and (3) CONTROL DEVICES shall
not thereafter be able to grant any further sublicenses.
Upon such termination, HEGYI may at his option file suit for the
infringement, and any such suit shall be at HEGYI's own expense, and HEGYI shall
collect for his benefit all damages, profits, and awards of whatever nature
which are recoverable for such infringement. Provided that CONTROL DEVICES has
no legitimate reason to refrain from cooperation, CONTROL DEVICES agrees to
cooperate with HEGYI in such suit by (1) assigning to HEGYI CONTROL DEVICES'
damage claim for past damages incurred up to the time of termination, (2)
providing HEGYI with information and documents reasonably needed by HEGYI to
prosecute such lawsuit, and (3) making CONTROL DEVICES employees reasonably
available to HEGYI as witnesses (or other similar uses) up to a maximum of
fifteen (15) workdays. CONTROL DEVICES shall participate in any settlement,
verdict, or finding in favor of HEGYI as follows:
(1) actual costs other than legal fees incurred by HEGYI and CONTROL
DEVICES shall be returned to both parties in full, or prorated equally if costs
cannot be reimbursed in full, then
(2) the remainder shall de divided in proportion to the time spent by each
party, except that HEGYI's time shall be multiplied by two (2) to reflect the
higher cost for his time.
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ARTICLE X. SUCCESSORS AND ASSIGNS
Section 10.1 This License Agreement is intended to be binding upon the
successors and assigns of CONTROL DEVICES and HEGYI, and their respective
Affiliates. Neither CONTROL DEVICES nor HEGYI may assign this License Agreement
without the consent of the other, except that CONTROL DEVICES may assign this
License Agreement together with the sale or transfer of the business to which
this License Agreement relates.
ARTICLE XI. APPLICABLE LAW
Section 11.1 This License Agreement shall be constructed, interpreted,
and governed by the laws of Michigan.
ARTICLE XII. EFFECT OF PRIOR AGREEMENTS
Section 12.1 This License Agreement embodies all understandings and
agreements between the parties concerning the subject matter hereof and the
license granted, and supersedes and takes precedence over any previous or
contemporaneous understandings or agreements, oral or written, between the
parties hereto, but shall not supersede the Secrecy and Non-Disclosure Agreement
covering the Invention and previously executed between the parties hereto,
except that CONTROL DEVICES may disclose information as may be necessary to
effect the purposes of this License Agreement.
ARTICLE XIII. WAIVER OF BREACH
Section 13.1 The failure by either party to exercise a right or enforce an
obligation hereunder shall not be construed to be a waiver of same by either
party with respect to future
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performance.
ARTICLE XIV. SEVERABILITY
Section 14.1 If any portion of this License Agreement shall be declared
void or unenforceable by any court or administrative body of competent
jurisdiction, to the extent that such portion is not material to the underlying
intent of the agreement, such portion shall be deemed severable from the
remainder of this License Agreement, which remainder shall continue in all
respects valid and enforceable. The parties mutually agree to cooperate in any
revision of this contract which may be necessary to meet the requirements of the
law.
ARTICLE XV. FORCE MAJEURE
Section 15.1 Neither party shall be under any liability hereunder to the
other party on account of any loss, damage, or delay caused by the elements,
embargoes, failures of carriers, acts of God or the public enemy, or compliance
with any law, regulation or other governmental order, whether or not valid, as
long as the delay in performance under this License Agreement is not greater
than the period that the above-mentioned actions or events cause disruption.
ARTICLE XVI. INDEMNITY
Section 16.1 CONTROL DEVICES hereby indemnifies and agrees to require all
Affiliates and sublicensees to indemnify HEGYI against any and all claims in the
nature of product liability, warranty, and infringement of proprietary or
intellectual property rights of others, related to Royalty Products Sold, used
or disposed of by CONTROL DEVICES, its Affiliates or sublicensees. Said
indemnification includes, but is not limited to, claims for damages, attorneys'
fees, or costs. Said indemnification shall not include claims based on any
warranty provided by HEGYI. If any claim
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within the scope of CONTROL DEVICES' indemnification obligation shall be made
against HEGYI involving Royalty Products, HEGYI shall inform CONTROL DEVICES
thereof and HEGYI shall cooperate with CONTROL DEVICES and its attorneys or
insurer in a disposition of any such matters whenever reasonably requested to do
so. CONTROL DEVICES shall assume full responsibility for defense of any such
action for the benefit of itself and HEGYI.
ARTICLE XVII. PRODUCT MARKING
Section 17.1 CONTROL DEVICES agrees to mark its products with appropriate
patent notice.
ARTICLE XVIII. ENTIRE AGREEMENT AND AMENDMENTS
Section 18.1 This License Agreement contains the entire understanding of
the parties with respect to the matter contained herein. The parties hereto may,
from time to time during the continuance of this License Agreement, modify, vary
or alter any of the provisions of this License Agreement, but only by an
instrument duly executed by both parties hereto.
ARTICLE XIX. NOTICES
Section 19.1 Any notice, request, report or payment required or permitted
to be given or made under this License Agreement by either Party shall be given
by sending such notice by registered or certified United States mail, return
receipt requested, postage prepaid, to the address set forth below or such other
address as such Party shall have specified by written notice given in conformity
herewith. Any notice given in accordance with the provisions of this Section
shall be effective on the date received, as indicated on the postal service's
return receipt, and any notice not so given shall not be valid unless and until
actually received as evidenced by competent, written records kept in the normal
course of business.
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To HEGYI: Dr. Dennis J. Hegyi
1708 Morton Avenue
Ann Arbor, Michigan 48104
To CONTROL DEVICES: Control Devices, Inc.
228 Northeast Road
Standish, Maine 04084
ATTN: Bruce Atkinson, President
ARTICLE XX. BANKRUPTCY
Section 20.1 If during the term of this Agreement, CONTROL DEVICES shall
make an assignment for the benefit of creditors, or if proceedings in voluntary
or involuntary bankruptcy shall be instituted on behalf of or against CONTROL
DEVICES, or if a receiver or trustee shall be appointed for the property of
CONTROL DEVICES, HEGYI may, at his option, terminate this Agreement and revoke
the license herein granted by written notice to CONTROL DEVICES.
IN WITNESS WHEREOF, the parties, by their duly authorized representatives, have
executed and delivered this Agreement as of the date first written above.
__________________________ _________________________________
Dennis J. Hegyi Bruce D. Atkinson, President,
Control Devices, Inc.
Date______________________ Date_____________________________
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EXHIBIT 10.12
LICENSE AGREEMENT
(Twilight Sensor)
between
CONTROL DEVICES, INC.
and
DENNIS J. HEGYI
<PAGE>
This License Agreement, made and entered into this 3rd day of April, 1995 by and
between DENNIS J. HEGYI (HEGYI), an individual having a residence at 1708 Morton
Avenue, Ann Arbor, Michigan 48104, and CONTROL DEVICES, INC. (CONTROL DEVICES),
an Indiana corporation, having a place of business at Route 35, Standish, Maine
04084.
Whereas HEGYI has developed a system consisting of, without limitation, a light
detector and a diffuser which has an overall spectral response like that of the
human eye that may be used to control the headlights of vehicles, e.g., a type
of twilight sensor, and has developed designs and related know-how to sense
ambient light levels; and
Whereas HEGYI represents that he has the sole right to grant licenses under
the Invention (as hereinafter defined) and under patents that have issued or
might issue thereon; and
Whereas HEGYI is willing to grant an exclusive license of the Invention to
CONTROL DEVICES based on the conditions hereinafter set forth; and
Whereas CONTROL DEVICES is willing to acquire an exclusive worldwide
license to commercialize such Invention;
Now, therefore, in consideration of the foregoing and the rights and
obligations hereinafter set forth, the receipt and sufficiency of which is
hereby acknowledged, the parties agree as follows:
ARTICLE I. DEFINITIONS
Section 1. When used in this License Agreement, the following terms shall
have the following meanings for all purposes of this License Agreement.
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Section 1.1 "Invention" means the method and apparatus which (i) was
discovered by HEGYI, (ii) pertains to a diffuser with a characteristic spectral
response which controls the spectrum of radiation that is incident on a
photodetector, and (iii) the electrical signal from the photodetector is
characteristic of the response of the human eye to light. Invention further
includes any methods, processes, electrical circuits, devices, apparatuses,
designs, equipment, and/or structures for such a system or for use in connection
therewith.
Section 1.2 "Improvements" mean any modification, amendment, or
enhancement of the Invention.
Section 1.3 "Licensed Patent(s)" means any and all letters patent owned by
HEGYI claiming the Invention or Improvements that may issue or have been issued
including any and all renewals, divisions, continuations, continuations-in-part,
reissues, substitutions, confirmations, registrations, revalidations, revisions,
extensions, or additions of or to any of the aforesaid patents and patent
applications.
Section 1.4 "Valid Claim(s)" means any claim(s) in an unexpired patent
included within the applicable Licensed Patents which claim has not been held
unenforceable, unpatentable or invalid by a decision of a court or other
governmental agency of competent jurisdiction, unappealable or unappealed within
the time allowed for appeal, and which has not been admitted to be invalid or
unenforceable through reissue or disclaimer. If in any country there should be
two or more such decisions conflicting with respect to the validity of the same
claim, the decision of the higher or highest tribunal shall thereafter control;
however, should the tribunals be of equal rank, then the decision or decisions
upholding the claim shall prevail.
Section 1.5 "Know-How" means and includes all discoveries, inventions,
improvements, technical information, trade secrets, prototypes, models,
experience, work products, documentation, reports and data, and all results from
experiments, testing development and demonstrations, and any other data, written
or unwritten, including all such information and knowledge derived from work and
services performed prior to the date of this License Agreement by HEGYI, all of
which relate to the Invention and/or Improvements, at least some of such Know-
How having been disclosed to CONTROL
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DEVICES and/or its predecessor GTE Control Devices pursuant to written
agreements of confidentiality.
Section 1.6 "Affiliate(s)" of CONTROL DEVICES means any partnership,
organization, association, company, corporation, individual or other entity
which is controlled, directly or indirectly, by CONTROL DEVICES or wherein
CONTROL DEVICES, directly or indirectly, owns more than fifty percent (50%) of
the equity or voting stock. Except as the context may otherwise require, for
the purposes of this License Agreement, the term CONTROL DEVICES shall mean and
include the Affiliates of CONTROL DEVICES.
Section 1.7 "Royalty Product(s)" includes any process, method, substance,
equipment, mechanism, device or other property, or combination thereof, the
manufacture, use or Sale of which would, but for this License Agreement,
infringe one or more Valid Claims, or any process, method, substance, equipment,
mechanism, device or other property, or combination thereof which incorporates,
or the manufacture, use or Sale of which utilizes, Know-How.
Section 1.8 "Net Selling Price" means CONTROL DEVICES' invoice price,
being the price billed exclusive of taxes, such as sales, use, or other added
taxes less a documented deduction under normal business practices for
transportation, freight, insurance, promotions, discounts, and duty if such
deductions are applicable. If in any transaction a Royalty Product is Sold
without a separately identifiable Net Selling Price (either because such sale is
part of a larger transaction including additional equipment and/or services, or
for any other reason), then for purposes of this License Agreement, the Selling
Price shall mean the established current Net Selling Price for equivalent
quantities of Royalty Products when Sold and invoiced separately, but if no Net
Selling Price has been established, the Net Selling Price shall be deemed to be
the fair market price.
Section 1.9 "Sold" (together with conjugate terms "Sell," "Sale," "Sales,"
"Selling," etc.) means generally transferred by CONTROL DEVICES or any Affiliate
or sublicensee of CONTROL DEVICES for value in an arm's length transaction to a
transferee other than an Affiliate or sublicensee of CONTROL DEVICES, and shall
include without limitation, Royalty Products which are rented, leased, consigned
or given, except salesperson samples provided without charge. Royalty Products
shall be considered Sold when billed out; or, if not billed out, then when
shipped, mailed, or otherwise
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delivered, or when paid for before delivery. However, upon expiration or
termination of this License Agreement, all Royalty Products shipped or otherwise
delivered on or prior to the date of such expiration or termination, which have
not been billed out or otherwise disposed of, shall be considered Sold and
therefore subject to royalties hereunder. A lease, a consignment, a transfer to
a place of use or a delivery to another, regardless of the basis of
compensation, if any, is an example of a disposition to be treated as a Sale and
subject to royalties. The scrapping as junk so as not to be used for the normal
contemplated or intended purpose thereof, or the mere routine manufacturing and
testing thereof, is an example of a disposition which, in itself, is not subject
to royalties. Royalties paid hereunder on License Products returned to CONTROL
DEVICES for which credit is allowed by CONTROL DEVICES shall be entitled to be
deducted from royalties due for the period in which credit is allowed.
Section 1.10 "Consultant's Agreement" means the six (6) year agreement
between the parties hereto which covers HEGYI's consulting services on behalf of
CONTROL DEVICES, effective April 1, 1995.
Section 1.11 "Purchase Order Milestone" means any purchase order or
similar agreement or combination of such agreements from automotive OEMs and/or
supplier(s) thereto covering Royalty Product(s), wherein the effect of such
agreement or combination of agreements is to cause the cumulative, projected
volume of Sales, over the life of this Agreement, of Royalty Product(s) (or
actual volume of such Sales, whichever comes first), as computed on the basis of
the purchasers' projected volumes contained in such agreement or combination of
agreements, to equal or exceed one million United States dollars (US
$1,000,000).
ARTICLE II. LICENSE GRANT
Section 2.1 HEGYI grants CONTROL DEVICES a worldwide exclusive license
under the Licensed Patents and/or Know-How to make, use, Sell or otherwise
dispose of Royalty Product(s).
Section 2.2 The exclusive license granted herein includes the right to
sublicense provided that CONTROL DEVICES notifies HEGYI regarding any
sublicense, reports to HEGYI regarding any
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<PAGE>
sublicense, reports to HEGYI the Sales made under such sublicense, accounts for
royalties on such Sales and pays royalties thereon to HEGYI in the same manner
as provided herein for Sales by CONTROL DEVICES, as though such Sales were made
by CONTROL DEVICES itself.
Section 2.3 Except as provided in Article VII herein, the exclusive license
granted to CONTROL DEVICES precludes HEGYI from making, having made, using,
selling or otherwise disposing of Royalty Products.
ARTICLE III. PAYMENTS
Section 3.1 CONTROL DEVICES agrees to pay HEGYI royalties on Sales by
CONTROL DEVICES, Affiliates and sublicensees anywhere in the world at a rate
equal to five percent (5%) of the Net Selling Price of Royalty Products covered
by one or more Valid Claims; and
Section 3.2 (a) As to Royalty Products not covered by one or more Valid
Claims, CONTROL DEVICES agrees to pay HEGYI royalties on Sales by CONTROL
DEVICES, Affiliates, and sublicensees in accordance with the following
schedule, except as described in Paragraph (b) below:
(i) Five percent (5%) of the Net Selling Price for the three years
beginning January 1, following the first sale of Royalty Products in commercial
quantities;
(ii) Three percent (3%) of the Net Selling Price for next three years
beginning January 1; and
(iii) One percent (1%) of the Net Selling Price for the final three years
beginning January 1, after which CONTROL DEVICES shall have a paid-up royalty-
free license on such Royalty Products not covered by one or more Valid Claims.
Such paid-up license shall become non-exclusive if and at such time as any
license to CONTROL DEVICES under Licensed Patents is terminated.
(b) As to Royalty Products not covered by one or more Valid Claims, if
CONTROL DEVICES, including its Affiliates and sublicenses, is the sole source
supplier for any particular model
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<PAGE>
product, then for the portion of Sales of Royalty Products for which CONTROL
DEVICES, including its Affiliates and sublicenses, is the sole source supplier
of twilight type sensors used on a particular model product, CONTROL DEVICES
will extend its obligations to HEGYI under Paragraph (a) above for an additional
three (3) years by replacing the three (3) year term contained in Subparagraph
(ii) of said Paragraph (a) with a six (6) year term.
Section 3.3 CONTROL DEVICES agrees to pay HEGYI an annual minimum royalty
of five thousand dollars ($5,000) in calendar year 1996, ten thousand dollars
($10,000) in calendar year 1997, thirty-five thousand dollars ($35,000) in
calendar year 1998, forty-five thousand dollars ($45,000) in calendar year 1999,
fifty-five thousand dollars ($55,000) in calendar year 2000, and sixty-five
thousand dollars ($65,000) in calendar year 2001 and each year thereafter during
the life of this License Agreement. These monies are to be paid on or before
January 3rd of each year, with the monies so paid acting as an advance against
royalties otherwise to be paid to HEGYI under Sections 3.1 and 3.2 above during
that calendar year only in which said minimum royalty payment is paid and
applicable; so that CONTROL DEVICES shall be allowed to credit the full amount
of each minimum royalty payment against the royalties which would otherwise be
paid to HEGYI under Sections 3.1 and 3.2 of this License Agreement during the
calendar year in which such minimum royalty payment is made, with no
carryforward of excess credit against royalties to be paid in other years; and
any royalties to be paid to HEGYI during any calendar year which are in excess
of that year's minimum royalty payment shall be paid as otherwise required under
this License Agreement.
Section 3.4 CONTROL DEVICES shall pay HEGYI two hundred and twenty-five
thousand dollars ($225,000) within fifteen (15) business days of the reaching of
any agreement (or the completion of any Sale, whichever comes first) resulting
in initial achievement of the milestone defined above as the Purchase Order
Milestone.
Section 3.5 As partial consideration for HEGYI's entering into this
License Agreement, CONTROL DEVICES shall enter into the Consultant's Agreement
and shall perform and maintain all of its obligations contained therein for the
full term of said agreement.
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<PAGE>
ARTICLE IV. RECORDS AND ACCOUNTING
Section 4.1 CONTROL DEVICES shall maintain accurate records in sufficient
detail and form to enable the royalties hereunder to be determined. CONTROL
DEVICES shall require all Affiliates and sublicensees, regardless of tier, to
keep true and accurate records and books of account containing data reasonably
required for the computation and verification of royalty payments. Such records
shall include such other accounting and business documents as may, under
recognized accounting practices, contain information bearing on the amount of
royalties payable hereunder, and shall show all Royalty Products manufactured,
sold, put into use, or otherwise disposed of by CONTROL DEVICES on which
royalties are payable under Article III hereof. CONTROL DEVICES shall be
required to keep such records for a period of six (6) years after each
respective quarterly reporting period referred to in Section 4.2.
Section 4.2 CONTROL DEVICES shall render to HEGYI quarterly reports or
abstracts from such records (in detail showing products Sold, prices at which
Sold and royalty due) together with copies of customer invoices sent during each
quarter within forty-five (45) days after each March 31, June 30, September 30,
and December 31 of each calendar year, irrespective of whether any Royalty
Products are manufactured, Sold, put into use, or otherwise disposed of by
CONTROL DEVICES, or any of its Affiliates, or sublicensees. Each quarterly
report shall state the amount of royalties due. Such quarterly reports shall
specifically identify all taxes or other deductions which are excluded from said
Net Selling Price and which are not itemized in an invoice. HEGYI shall keep
information from such reports or abstracts confidential and shall disclose such
information only to the extent required for tax or other similar purposes or as
may be required by law.
Section 4.3 Simultaneously with the making of each such report, CONTROL
DEVICES agrees to pay HEGYI the royalty or minimum payments specified under
Article III hereof, which is shown to be due and payable by such report.
Section 4.4 Payments for any and all royalties and fees described in this
License Agreement shall be in United States currency and shall be made by check
payable to "Dennis J. Hegyi" and forwarded to the following address:
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<PAGE>
Dennis J. Hegyi
1708 Morton Avenue
Ann Arbor, MI 48104
or to such other address that HEGYI may designate by notice in writing in
conformity with Article XIX below. Quarterly reports shall be mailed to the
same address. It is contemplated hereby that payments due under this License
Agreement for Sales in foreign countries may be treated differently (pursuant to
notice to CONTROL DEVICES by HEGYI) than payments for Sales in the United
States. Monetary conversions, from a currency in which a Sale is made into
another currency, shall be made at the official exchange rate for royalty
remittances in force in the country involved on the last business date of the
quarterly period. If there is no official exchange rate, the conversion shall
be made at the rate for such remittance on that date as certified by Citibank
N.A. of New York.
Section 4.5 In the event that no Royalty Products are Sold during any
period for which a report is required hereunder, a report to that effect shall
nevertheless be rendered to HEGYI for such period.
Section 4.6 CONTROL DEVICES covenants that it will employ a system of
product identification that will permit royalty calculations to be verified upon
subsequent review by HEGYI or his auditors.
Section 4.7 CONTROL DEVICES agrees to permit its relevant records to be
examined upon reasonable notice during business hours by an independent
certified public accountant at HEGYI's expense, provided that (i) such
accountant agrees to maintain the confidentiality of such information and to
sign an agreement with CONTROL DEVICES to that effect if so requested by CONTROL
DEVICES, and (ii) CONTROL DEVICES has agreed to the auditor or auditors in
advance of the audit. If the audit reveals that CONTROL DEVICES payments to
HEGYI have been less than ninety-seven percent (97%) of the amount owed to HEGYI
during the period of audit, CONTROL DEVICES shall pay the costs of the audit up
to a maximum limit of five thousand dollars ($5,000)
ARTICLE V. COMMERCIALIZATION
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<PAGE>
Section 5.1 CONTROL DEVICES agrees to use reasonable efforts to
commercialize the Invention. In the event that CONTROL DEVICES fails to use such
reasonable efforts, the liquidated damages for such failure shall be limited to
forty-seven thousand five hundred dollars ($47,500). CONTROL DEVICES shall not
be liable for any other damages, consequential or otherwise, related to its
obligation to commercialize the Invention.
ARTICLE VI. CONSTRUCTION
Section 6.1 Nothing in this License Agreement shall be construed as:
(a) A warranty or representation by HEGYI as to the validity or scope
of any patent rights;
(b) An agreement to bring or prosecute actions or suit against third
parties for patent infringements; or
(c) An agreement by HEGYI to indemnify CONTROL DEVICES or otherwise
hold CONTROL DEVICES harmless, for any liability incurred regarding the
manufacture, use, or sale of the Royalty Products, including, without
limitation, attorneys' fees and costs incurred in defending claims based on
warranty, product liability, infringement of the proprietary or intellectual
property rights of others, or any other claim.
ARTICLE VII. TERMINATION
Section 7.1 In the event CONTROL DEVICES fails to perform any of its
obligations hereunder, including but not limited to its obligations under the
Consultant's Agreement, and such failure to perform constitutes a material
breach of its obligations, HEGYI may notify CONTROL DEVICES in writing of such
default and HEGYI shall have the option of treating this License Agreement as in
full force and effect and of taking proper steps to enforce compliance and to
recover any royalties and other sums due and payable hereunder and/or under the
Consultant's Agreement, or of terminating this
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<PAGE>
License Agreement and the license granted hereunder; provided, that in the case
where HEGYI elects to terminate this License Agreement, he shall first send
CONTROL DEVICES notice of his election to terminate this License Agreement
together with a statement as to the grounds upon which the termination is based.
If within a period of thirty (30) days after such notice CONTROL DEVICES shall
have cured such failure to perform in accordance with the provisions of this
License Agreement, then the notice shall become null and void and of no effect;
otherwise, the notice shall remain effective and this License Agreement shall
cease and terminate at the expiration of such period.
Section 7.2 Unless otherwise terminated as herein provided, CONTROL
DEVICES' obligation to pay royalties on Royalty Products shall end when the last
such obligation under Article III herein expires.
Section 7.3 In the event of any termination of this License Agreement,
and except as provided herein to the contrary, all rights and obligations of the
parties hereunder shall cease with respect thereto, and (i) CONTROL DEVICES
shall continue to be liable for all royalties and other sums accruing hereunder
up to the day of such termination; and (ii) CONTROL DEVICES shall render a final
report and royalty payment and permit a final audit in accordance with Sections
4.6 and 4.7.
Section 7.4 Upon early termination in accordance with Section 7.1 of this
License Agreement for any cause, (i) HEGYI may purchase, with CONTROL DEVICES'
consent, any CONTROL DEVICE'S rights related to the Invention that were
developed in the commercialization of the Invention up to the date of such
termination, (ii) upon HEGYI's request, CONTROL DEVICES shall transfer to HEGYI
all HEGYI owned drawings, plans, models, prototypes and other material related
to the Invention, and (iii) CONTROL DEVICES shall be permitted to complete any
contractual or other legal obligations to third parties regarding the supply of
product or spare parts until such time as HEGYI or another person has
effectively assumed such obligations.
Section 7.5 In the event HEGYI fails to perform any of his obligations
hereunder, CONTROL DEVICES may notify HEGYI in writing of such default,
including a notice of termination and a statement of reasons for such
termination. The notice of termination shall be served upon HEGYI at least
thirty (30) days before a termination date established by CONTROL DEVICES.
Immediately upon
11
<PAGE>
service of such notice of termination, HEGYI shall have the right to begin
negotiations with others for the manufacture, sale, and use of the Royalty
Products. If within a period of thirty (30) days after such notice, HEGYI shall
have cured such failure to perform in accordance with the provisions of this
License Agreement, then the notice shall become null and void and of no effect;
otherwise, the notice shall remain effective and this License Agreement shall
cease and terminate at the expiration of such period.
Section 7.6 CONTROL DEVICES may terminate the License Agreement for any
reason by providing HEGYI with thirty (30) days advanced written notice and a
payment of forty-seven thousand five hundred dollars ($47,500) at the time of
termination; provided however, such termination payment shall be reduced in
amount as set forth hereafter. If Sales for the twelve-month period immediately
preceding the date of the termination notice total less than $1.1 million
dollars ("Actual Sales"), the payment to HEGYI shall be reduced to an amount
computed as follows:
(1) $1.1 million minus Actual Sales = X
(2) X/$1 million times $47,500 = Y
(3) $47,500 minus Y = termination pay.
ARTICLE VIII. PROSECUTION OF PATENT APPLICATIONS
Section 8.1 HEGYI shall diligently prosecute any and all patent
applications claiming Inventions and/or Improvements which he elects to file and
shall pay all fees due to prevent such applications or any issued patents from
being abandoned or forfeited. Within thirty (30) days of its receipt of an
invoice from HEGYI, CONTROL DEVICES shall reimburse HEGYI for all such
reasonable costs incurred prior to the date of this License Agreement for
prosecuting patent applications in Japan, South Korea, West Germany, the United
States, France, Great Britain, and Italy. Within thirty (30) days of its receipt
of an invoice from HEGYI, CONTROL DEVICES shall pay for all such reasonable
future costs in such countries, provided that CONTROL DEVICES has approved them
in advance of being incurred.
12
<PAGE>
CONTROL DEVICES shall not unreasonably withhold such approval.
Section 8.2 In the event CONTROL DEVICES requests that HEGYI file any
patent application claiming Inventions and/or Improvements in any country and
HEGYI elects not to file, HEGYI agrees to do so at CONTROL DEVICES' expense.
Should HEGYI decide he wishes to terminate prosecution or otherwise intends to
abandon any patent applications claiming Inventions and/or Improvements, HEGYI
shall notify CONTROL DEVICES of such intention to abandon or forfeit at least
sixty (60) days prior to the time at which the application or patent would
become abandoned or forfeited. In such event, CONTROL DEVICES shall have the
option to continue prosecution or take whatever action is necessary to prevent
the application or patent from becoming abandoned or forfeited, and CONTROL
DEVICES shall have all rights of ownership to such application or patent.
ARTICLE IX. INFRINGEMENT
Section 9.1 CONTROL DEVICES is empowered, at its sole option:
(a) To bring suit in its own name or, if required by law, jointly with
HEGYI, at CONTROL DEVICES' own expense and on CONTROL DEVICES' own behalf, for
infringement of the Licensed Patents;
(b) In any such suit, to enjoin infringement and to collect for CONTROL
DEVICES' benefit all damages, profits, and awards of whatever nature recoverable
for such infringement; and
(c) To settle any claim or suit for infringement of the Licensed Patents.
Notwithstanding any other provision of this License Agreement, in any such
suit CONTROL DEVICES is entitled to recover CONTROL DEVICES' expenses before
HEGYI is entitled to any royalty payments. HEGYI shall be entitled to royalty
payments for such infringement but such payments shall be limited to twenty-five
percent (25%) of any excess of CONTROL DEVICES' recoveries over CONTROL DEVICES'
expenses.
13
<PAGE>
Section 9.2 In the event HEGYI shall bring to the attention of CONTROL
DEVICES any unlicensed infringement of the Licensed Patents and shall furnish
CONTROL DEVICES with a written opinion by a registered patent attorney that such
infringement exists, and CONTROL DEVICES shall not, within three (3) months:
(a) secure cessation of the infringement; or
(b) enter suit against the infringer; or
(c) provide evidence of the pendency of a bona fide negotiation for the
acceptance by the infringer of a sublicense under the Licensed Patents;
then HEGYI shall thereafter have the right, at his sole option, to terminate the
exclusive license granted herein by notifying CONTROL DEVICES of such
termination in writing. Upon termination of CONTROL DEVICES' exclusive license,
CONTROL DEVICES shall retain a license on the same terms as set forth in this
License Agreement except that (1) the license shall be non-exclusive and HEGYI
shall have the right to license third parties under the Licensed Patents, (2)
CONTROL DEVICES' license shall be limited to making and selling Royalty Products
for customers to whom CONTROL DEVICES is contractually obligated to sell Royalty
Products as of the date of termination or to whom CONTROL DEVICES has previously
Sold commercial quantities of Royalty Products, and (3) CONTROL DEVICES shall
not thereafter be able to grant any further sublicenses.
Upon such termination, HEGYI may at his option file suit for the
infringement, and any such suit shall be at HEGYI's own expense, and HEGYI shall
collect for his benefit all damages, profits, and awards of whatever nature
which are recoverable for such infringement. Provided that CONTROL DEVICES has
no legitimate reason to refrain from cooperation, CONTROL DEVICES agrees to
cooperate with HEGYI in such suit by (1) assigning to HEGYI CONTROL DEVICES'
damage claim for past damages incurred up to the time of termination, (2)
providing HEGYI with information and documents reasonably needed by HEGYI to
prosecute such lawsuit, and (3) making CONTROL DEVICES employees reasonably
available to HEGYI as witnesses (or other similar uses) up to a maximum of
fifteen (15) workdays. CONTROL DEVICES shall participate in any settlement,
verdict,
14
<PAGE>
or finding in favor of HEGYI as follows:
(1) actual costs other than legal fees incurred by HEGYI and CONTROL
DEVICES shall be returned to both parties in full, or prorated equally if costs
cannot be reimbursed in full, then
(2) the remainder shall de divided in proportion to the time spent by each
party, except that HEGYI's time shall be multiplied by two (2) to reflect the
higher cost for his time.
ARTICLE X. SUCCESSORS AND ASSIGNS
Section 10.1 This License Agreement is intended to be binding upon the
successors and assigns of CONTROL DEVICES and HEGYI, and their respective
Affiliates. Neither CONTROL DEVICES nor HEGYI may assign this License Agreement
without the consent of the other, except that CONTROL DEVICES may assign this
License Agreement together with the sale or transfer of the business to which
this License Agreement relates.
ARTICLE XI. APPLICABLE LAW
Section 11.1 This License Agreement shall be constructed, interpreted,
and governed by the laws of Michigan.
ARTICLE XII. EFFECT OF PRIOR AGREEMENTS
Section 12.1 This License Agreement embodies all understandings and
agreements between the parties concerning the subject matter hereof and the
license granted, and supersedes and takes precedence over any previous or
contemporaneous understandings or agreements, oral or written, between the
parties hereto, but shall not supersede the Secrecy and Non-Disclosure Agreement
executed on January 23, 1991 except that CONTROL DEVICES may disclose
information as may be necessary to
15
<PAGE>
effect the purposes of this License Agreement.
ARTICLE XIII. WAIVER OF BREACH
Section 13.1 The failure by either party to exercise a right or enforce
an obligation hereunder shall not be construed to be a waiver of same by either
party with respect to future performance.
ARTICLE XIV. SEVERABILITY
Section 14.1 If any portion of this License Agreement shall be declared
void or unenforceable by any court or administrative body of competent
jurisdiction, to the extent that such portion is not material to the underlying
intent of the agreement, such portion shall be deemed severable from the
remainder of this License Agreement, which remainder shall continue in all
respects valid and enforceable. The parties mutually agree to cooperate in any
revision of this contract which may be necessary to meet the requirements of the
law.
ARTICLE XV. FORCE MAJEURE
Section 15.1 Neither party shall be under any liability hereunder to the
other party on account of any loss, damage, or delay caused by the elements,
embargoes, failures of carriers, acts of God or the public enemy, or compliance
with any law, regulation or other governmental order, whether or not valid, as
long as the delay in performance under this License Agreement is not greater
than the period that the above-mentioned actions or events cause disruption.
ARTICLE XVI. INDEMNITY
16
<PAGE>
Section 16.1 CONTROL DEVICES hereby indemnifies and agrees to require all
Affiliates and sublicensees to indemnify HEGYI against any and all claims in the
nature of product liability, warranty, and infringement of proprietary or
intellectual property rights of others, related to Royalty Products Sold, used
or disposed of by CONTROL DEVICES, its Affiliates or sublicensees. Said
indemnification includes, but is not limited to, claims for damages, attorneys'
fees, or costs. Said indemnification shall not include claims based on any
warranty provided by HEGYI. If any claim within the scope of CONTROL DEVICES'
indemnification obligation shall be made against HEGYI involving Royalty
Products, HEGYI shall inform CONTROL DEVICES thereof and HEGYI shall cooperate
with CONTROL DEVICES and its attorneys or insurer in a disposition of any such
matters whenever reasonably requested to do so. CONTROL DEVICES shall assume
full responsibility for defense of any such action for the benefit of itself and
HEGYI.
ARTICLE XVII. PRODUCT MARKING
Section 17.1 CONTROL DEVICES agrees to mark its products with appropriate
patent notice.
ARTICLE XVIII. ENTIRE AGREEMENT AND AMENDMENTS
Section 18.1 This License Agreement contains the entire understanding of
the parties with respect to the matter contained herein. The parties hereto may,
from time to time during the continuance of this License Agreement, modify, vary
or alter any of the provisions of this License Agreement, but only by an
instrument duly executed by both parties hereto.
ARTICLE XIX. NOTICES
Section 19.1 Any notice, request, report or payment required or permitted
to be given or made under this License Agreement by either Party shall be given
by sending such notice by registered
17
<PAGE>
or certified United States mail, return receipt requested, postage prepaid, to
the address set forth below or such other address as such Party shall have
specified by written notice given in conformity herewith. Any notice given in
accordance with the provisions of this Section shall be effective on the date
received, as indicated on the postal service's return receipt, and any notice
not so given shall not be valid unless and until actually received as evidenced
by competent, written records kept in the normal course of business.
To HEGYI: Dr. Dennis J. Hegyi
1708 Morton Avenue
Ann Arbor, Michigan 48104
To CONTROL DEVICES: Control Devices, Inc.
228 Northeast Road
Standish, Maine 04084
ATTN: Bruce Atkinson, President
ARTICLE XX. BANKRUPTCY
Section 20.1 If during the term of this Agreement, CONTROL DEVICES shall
make an assignment for the benefit of creditors, or if proceedings in voluntary
or involuntary bankruptcy shall be instituted on behalf of or against CONTROL
DEVICES, or if a receiver or trustee shall be appointed for the property of
CONTROL DEVICES, HEGYI may, at his option, terminate this Agreement and revoke
the license herein granted by written notice to CONTROL DEVICES.
IN WITNESS WHEREOF, the parties, by their duly authorized representatives, have
executed and delivered this Agreement as of the date first written above.
____________________________ _______________________________
Dennis J. Hegyi Bruce D. Atkinson, President,
Control Devices, Inc.
Date________________________ Date___________________________
18
<PAGE>
EXHIBIT 10.13
STOCK PURCHASE AGREEMENT
By and Among
Control Devices, Inc.,
an Indiana corporation,
and
Antonio Alvarez-Mendez, Jacqueline Chambrelan,
Regina Combes, Raymond Fraysse, Michel Hauser-Kauffmann
Alain Lebatard and Bernard Viret,
all of whom are residents of France
Dated as of March 29, 1996
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<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is made and entered into as of the 29 day of
March, 1996, by and among Control Devices, Inc., an Indiana corporation with its
principal place of business at 228 Northeast Road, Standish, Maine, USA 04084
("Purchaser"), and Antonio Alvarez-Mendez residing at 8 Square Charton, 92200
Neuilly S/Seine, France ("Alvarez"), Jacqueline Chambrelan residing at 45 bld de
la Saussaye, 92200 Neuilly S/Seine, France ("Chambrelan"), Regina Combes
residing at 185 avenue Aristide Briand, 94230 Cachan, France ("Combes"), Raymond
Fraysse residing at 30 rue des Sapins, 94100 St Maur Des Fosses, France
("Fraysse"), Michel Hauser-Kauffmann residing at 9 rue Meynadier, 75019 Paris,
France ("Hauser-Kauffman"), Alain Lebatard residing at 48 rue de Mouzaia, 75019
Paris, France ("Lebatard"), Bernard Viret residing at 28 avenue de la
Republique, 94700 Maisons-Alfort, France ("Viret"), (collectively, the
"Sellers").
RECITALS:
A. Sellers collectively own all of the issued and outstanding Shares (as
defined below) of Realisations et Diffusion pour l'Industrie, a French societe
anonyme a Directoire (Directorate) with a capital of Seven Million French Francs
(FF 7,000,000) having its registered offices at ZAC de Villepinte, 5 a 7 Allee
Louis Breguet, 93420 Villepinte, France registered at The Registry of Commerce
of Bobigny, under the No. B712 042 803 (the "Company"),
B. The Company, directly and through its wholly-owned subsidiaries, is
engaged in the design, development, manufacture and distribution throughout
Western Europe of electrical components, including (i) thermal protectors and
sensors, thermal fuses and circuit breakers for the automotive industry and
appliance OEM's; (ii) passive components, such as fuses, capacitors and
connectors; and (iii) fuses, terminals and small electrical accessories, sound,
CB and GMS accessories for the automotive aftermarket, wholesalers and
automobile centers (the "Business").
C. Purchaser desires to acquire, and Sellers desire to sell, the Shares to
Purchaser, subject to and in accordance with the terms, conditions and covenants
set forth herein.
NOW, THEREFORE, in consideration of these premises, the mutual covenants
contained herein and each act done pursuant thereto, Purchaser and Sellers agree
as follows:
Article 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
herein specified, unless the context otherwise requires:
1.1 "Accessible Records" shall have the meaning given such term in
------------------
Section 9.7 of this Agreement.
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<PAGE>
1.2 "Act" shall mean the Securities Act of 1933 (15 United States
---
Code (S)(S)77a et seq.).
1.3 "Accountants" shall mean Arthur Andersen, LLP and its affiliates.
-----------
1.4 "Affiliate" shall mean as to any Person, any other Person which
---------
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (including,
with its correlative meanings, "controlled by" and "under common control with")
------------- -------------------------
shall mean possession, directly or indirectly, of power to direct or influence
the direction of the management or policies (whether as a director, officer or
employee, through the ownership of securities or other ownership interests, by
contract or otherwise).
1.5 "Agreement" shall mean this Stock Purchase Agreement, together with
---------
all Exhibits and Schedules referred to herein, as the same may be amended or
supplemented at any time and from time to time after the date hereof.
1.6 "Alvarez" shall mean Antonio Alvarez-Mendez.
-------
1.7 "Assets" shall have the meaning set forth in Section 3.9(a) of this
------
Agreement.
1.8 "Audited Balance Sheet" shall mean the audited balance sheet of the
----------------------
Company as of December 31, 1995 included within the Year-End Financial
Statements for the year ended December 31, 1995 delivered to Purchaser.
1.9 "Benefit Plans" shall have the meaning set forth in Section 3.21(c)
-------------
of this Agreement.
1.10 "Business" shall have the meaning given such term in the Recitals to
--------
this Agreement.
1.11 "Cash Portion" shall have the meaning set forth in Section 2.2(a) of
------------
this Agreement.
1.12 "Chambrelan" shall mean Jacqueline Chambrelan.
----------
1.13 "Claim" shall mean any and all claims, demands, causes of action,
-----
suits, judicial and administrative proceedings, losses, judgments, decrees,
debts, damages, liabilities, costs, attorneys fees, and any other expenses
incurred, assessed, asserted or sustained by or against the Company.
1.14 "Closing" shall have the meaning set forth in Section 2.3 of this
-------
Agreement.
1.15 "Closing Date" shall mean the date on which the Closing occurs.
------------
1.16 "Combes" shall mean Regina Combes.
------
1.17 "Company" shall mean Realisations et Diffusion pour l'Industrie, a
-------
French societe anonyme a Directoire (Directorate).
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<PAGE>
1.18 "Converted Common Shares" shall mean the Class A Common Shares of
-----------------------
Purchaser (or any other class of shares into or for which the outstanding Class
A Common Shares of Purchases shall have been converted or exchanged) that are
issued to a Seller by Purchaser upon the conversion of a Seller's Convertible
Note.
1.19 "Convertible Notes" shall have the meaning set forth in
-----------------
Section 2.2(b)(ii) of this Agreement.
1.20 "Court" shall have the meaning set forth in Section 9.2 of this
-----
Agreement.
1.21 "Debt Portion" shall have the meaning set forth in Section 2.2(b)of
------------
this Agreement.
1.22 "Environmental Law(s)" shall mean the applicable statutes, laws,
--------------------
ordinances, rules, orders, decrees and regulations of France and any other
country in which the Company has owned or leased real estate, each as may have
been amended, and all other statutes, laws, ordinances, rules, orders, decrees
and regulations governing the generation, use, collection, discharge, storage,
or disposal of Hazardous Materials and all laws and regulations with regard to
record keeping, notification and reporting requirements respecting Hazardous
Materials.
1.23 "Financial Statements" shall mean collectively the Year-End Financial
--------------------
Statements and the Interim Financial Statements.
1.24 "Fraysse" shall mean Raymond Fraysse.
-------
1.25 "GAAP" shall mean generally accepted accounting principles in France
----
consistently applied.
1.26 "Government" shall mean (or in the case of "Governmental" shall refer
---------- ------------
to):
(a) the government of France or any foreign country in which the Company
conducts or has conducted business in the one year period prior to the date of
this Agreement;
(b) the government of any state, province, county, municipality, city,
town or district of France or any foreign country; and any multi-county
district; and
(c) any ministry, agency, department, authority, commission,
administration, corporation, bank, court, magistrate, tribunal, arbitrator,
instrumentality or political subdivision of, or within the geographical
jurisdiction of, any government described in the foregoing clauses (a) and (b).
1.27 "Hazardous Materials" shall have the meaning set forth in
-------------------
Section 3.15(a) of this Agreement.
1.28 "Hauser-Kauffmann" shall mean Michel Hauser-Kauffmann.
----------------
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<PAGE>
1.29 "Indemnifiable Losses" and "Indemnifiable Loss" shall have the
--------------------
meaning given such terms in Section 8.1(a) of this Agreement.
1.30 "Indemnitee" shall have the meaning given such term in Section 8.3 of
----------
this Agreement.
1.31 "Indemnitor" shall have the meaning given such term in Section 8.3 of
----------
this Agreement.
1.32 "Interim Financial Statements" shall mean the balance sheets of the
----------------------------
Company as of September 30, 1995 and December 31, 1995 and the related
statements of income, retained earnings and cash flows for the periods then
ended prepared by the Company solely for the Purchaser and heretofore delivered
to Purchaser.
1.33 "IPO" shall mean an initial public offering of the Class A Common
---
Shares of Purchaser.
1.34 "Knowledge," "Known" or "Knows" when modifying any representation or
-----------------------------
warranty of a party shall mean that: (a) the knowledge of any one Seller is
conclusively deemed to include the knowledge of all Sellers and the Company; and
(b) the knowledge of the Company is conclusively deemed to include the knowledge
of each Seller and all directors and officers of the Company. An individual
will be deemed to have "knowledge" or "know" of a particular fact or other
matter if: (i) such individual is actually aware of such fact or other matter,
or (ii) a prudent individual could be expected to discover or otherwise become
aware of such fact or other matter in the course of conducting a reasonably
comprehensive investigation concerning the existence of such fact or other
matter.
1.35 "Law" shall mean any of the following of, or issued by, any
---
Government, in effect on or prior to the date hereof, including any amendment,
modification or supplementation of any of the following from time to time
subsequent to the original enactment, adoption, issuance, announcement,
promulgation or granting thereof and prior to the date hereof: any statute, law,
act, ordinance, code, rule, or regulation or any writ, injunction, award,
decree, judgment or order of any Government.
1.36 "Leased Real Estate" shall have the meaning given such term in
------------------
Section 3.10(a) of this Agreement.
1.37 "Lebatard" shall mean Alain Lebatard.
--------
1.38 "Liability" of any Person shall mean and include:
---------
(a) any right against such Person to payment, whether or not such right
is reduced to judgment, liquidated, unliquidated, fixed, known or unknown,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured
or unsecured;
(b) any right against such Person to an equitable remedy for breach of
performance, whether or not such right to any equitable remedy is reduced to
judgment, fixed, known or unknown, contingent, matured, unmatured, disputed,
undisputed, secured or unsecured; and
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<PAGE>
(c) any obligation of such Person for the performance of any covenant or
agreement (whether for the payment of money or otherwise).
1.39 "Liens" shall mean any lien, encroachment, easement, encumbrance,
-----
mortgage, hypothecation, pledge, conditional sales contract, equity charge, or
other similar conflicting ownership or security interest in favor of any person,
other than the Permitted Liens.
1.40 "Non-Convertible Notes" shall have the meaning set forth in
---------------------
Section 2.2(b)(i) of this Agreement.
1.41 "Notice Party" shall have the meaning set forth in Section 9.3(a) of
------------
this Agreement.
1.42 "Operating Agreement(s)" shall have the meaning set forth in
----------------------
Section 3.13 of this Agreement.
1.43 "Other Equity Interests" shall have the meaning set forth in
----------------------
Section 3.1(d) of this Agreement.
1.44 "Permissible Dividend Payment" shall mean dividends in the aggregate
----------------------------
amount of Four Hundred Eighty Thousand French Francs (FF 480,000) which shall
bedeclared by the Company for the benefit of the Sellers and shall be due and
payable to Sellers after the Closing in accordance with the provisions of
Section 7.4 of this Agreement.
1.45 "Permitted Liens" shall mean (a) Liens for Taxes not yet delinquent
---------------
or the validity of which are being contested in good faith by appropriate
actions and which are described on Schedule 3.8, (b) the rights of third parties
------------
under the Real Estate Leases and the tangible personal property leases, (c) all
easements, covenants, restrictions and other encumbrances of record which do not
destroy marketability of title, materially detract from the value or materially
interfere with the present use of any Real Estate, and (d) the Liens set forth
on Schedule 3.9(a), which are accepted by Purchaser as of the date of this
---------------
Agreement.
1.46 "Person" shall mean any corporation, partnership, limited liability
------
company, limited liability partnership, joint venture, trust, unincorporated
association or organization, business, enterprise, or other entity; any
individual; and any Government.
1.47 "Proprietary Rights" shall have the meaning set forth in
------------------
Section 3.18(a) of this Agreement.
1.48 "Purchaser" shall mean Control Devices, Inc., an Indiana corporation.
---------
1.49 "Purchaser's Counsels' Opinions" shall have the meaning given such
------------------------------
term in Section 2.3(c)(v) of this Agreement.
1.50 "Purchase Price" shall have the meaning set forth in Section 2.2 of
--------------
this Agreement.
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<PAGE>
1.51 "RDI Companies" shall have the meaning set forth in Section 3.1(d) of
-------------
this Agreement.
1.52 "Real Estate" shall have the meaning given such term in
-----------
Section 3.10(a) of this Agreement.
1.53 "Regulation S" shall mean Regulation S (Rules 901 to 904) under the
------------
Act.
1.54 "Securities" shall mean, collectively, the Converted Common Shares,
----------
the Convertible Notes, and the Non-Convertible Notes.
1.55 "Sellers" shall mean Alvarez, Chambrelan, Combes, Fraysse, Hauser-
-------
Kauffmann, Lebatard, and Viret.
1.56 "Sellers' Designee" shall mean Hauser-Kauffmann, whose address for
-----------------
purposes of this Agreement shall be as set forth in Section 9.3 of this
Agreement.
1.57 "Sellers' Counsel's Opinion" shall have the meaning given such term
--------------------------
in Section 2.3(b)(vi) of this Agreement.
1.58 "Shares" shall have the meaning set forth in Section 3.1(a) of this
------
Agreement.
1.59 "Subordinated Notes" shall mean, collectively, the Non-Convertible
------------------
Notes and the Convertible Notes.
1.60 "Tax" or "Taxes" shall mean all taxes (including, without limitation,
--------------
company tax, professional tax, value added tax, social security, and other
employee charges and other fiscal and parafiscal charges), interest, penalties,
assessments or deficiencies imposed by or due to any Governmental taxing
authority.
1.61 "Tax Code" shall mean the French Code General des Impots, as amended,
--------
and the rules and regulations promulgated thereunder.
1.62 "Viret" shall mean Bernard Viret.
-----
1.63 "Year-End Debt Level" shall mean the long term indebtedness in the
-------------------
amount of Six Million Seven Hundred Thirty-Five Thousand Sixty French Francs
(FF 6,735,060), the short term indebtedness in the amount of One Million Five
Hundred Thirty-One Thousand Two Hundred Sixty-Five French Francs (FF 1,531,265)
and the receivable financing indebtedness in the amount of Sixteen Million Seven
Hundred Eight Thousand French Francs (FF 16,708,000) incurred by the Company as
of December 31, 1995 in the aggregate amount of Twenty Four Million, Nine
Hundred Seventy Four Thousand, Three Hundred Twenty Five French Francs
(FF 24,974,325).
1.64 "Year-End Financial Statements" shall mean the balance sheets of the
-----------------------------
Company for the years ended December 31, 1993, 1994 and 1995 , and the related
statements of income, retained
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<PAGE>
earnings, and cash flows for the years then ended, together with appropriate
notes to such financial statements, audited by Guyon, Varona & Autres.
Article 2
PURCHASE AND SALE
2.1 Purchase and Sale of Shares. On the terms and subject to the
---------------------------
conditions and covenants set forth in this Agreement, Sellers hereby agree to
sell, assign, convey, transfer and deliver to Purchaser simultaneously with the
execution and delivery hereof, and Purchaser hereby agrees to purchase from
Sellers, free and clear of any and all Liens, all of the Shares, subject to the
rights of Sellers to the Permissible Dividend Payment.
2.2 Amount and Manner of Payment of Purchase Price. As full payment for
----------------------------------------------
the transfer and delivery of the Shares, Purchaser shall pay to Sellers (the
"Purchase Price") as follows:
(a) Thirty-Five Million French Francs (FF 35,000,000) (the "Cash Portion")
by wire transfer to Sellers of immediately available funds to such accounts as
Sellers have designated in writing to Purchaser, confirmation of the initiation
of such wire transfers to be delivered to Sellers simultaneously with the
execution and delivery hereof.
(b) Two Million US Dollars ($2,000,000) (the "Debt Portion") by delivery
on the date hereof to Sellers of subordinated promissory notes as follows:
(i) Chambrelan, Fraysse, and Viret shall receive non-convertible
notes substantially in the form of Exhibit A (the "Non-Convertible Notes"); and
---------
(ii) Alvarez, Combes, Lebatard and Hauser-Kauffmann shall receive
convertible notes substantially in the form of Exhibit B (the "Convertible
---------
Notes").
(c) The Cash Portion and the Debt Portion of the Purchase Price shall be
allocated among the Sellers as provided in Schedule 2.2.
------------
2.3 Closing.
-------
(a) The Closing. The purchase and sale of the Shares (the "Closing")
-----------
shall be held at 8:00 a.m. (local time) at the law offices of Hughes, Hubbard &
Reed on March 29, 1996, or as soon as practicable after all conditions set forth
in Article 5 have been satisfied or duly waived by Purchaser and all conditions
set forth in Article 6 have been satisfied or duly waived by Sellers.
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<PAGE>
(b) Deliveries by Sellers. At the Closing, Sellers shall deliver, or
---------------------
cause to have been delivered, to Purchaser the following:
(i) Sellers shall execute and deliver to Purchaser the share
transfer instruments (ordres de mouvements) necessary to permit the transfer of
the Shares to Purchaser;
(ii) Seller shall execute and deliver to Purchaser the Share
Assignment Agreement (which is intended to be recorded at the tax office), in
form and substance reasonably satisfactory to counsel for Purchaser;
(iii) the certificates of performance of Sellers required by
Section 5.2;
(iv) a copy, certified as accurate by the Chairman of the
Company's Supervisory Board, of the minutes of the Supervisory Board meeting
referred to in Section 5.3;
(v) a copy, certified as accurate by the Chairman of the
Company's Supervisory Board, of the consultation with the works council required
by Article L 432-1, paragraph 3, of the French Labor Code;
(vi) an opinion of Veil Armfelt Jourde, counsel for Sellers,
dated the date of the Closing, and in form and substance reasonably satisfactory
to counsel for Purchaser ("Sellers' Counsel's Opinion");
(vii) the Articles of Incorporation (statuts) of the Company,
certified by the Chairman of the Supervisory Board as of the Closing Date;
(viii) a certificate from the French Commercial Registry for the
Company, dated no more than ten (10) days prior to the Closing;
(ix) the duly executed releases contemplated by Section 5.6;
(x) the amendments to the employment agreements for Hauser-
Kauffmann and Lebatard;
(xi) undated letters of resignation executed by each of the
current members of the Supervisory Board and the Directorate, pursuant to which
each such member resigns as Supervisory Board or Directorate member, but not as
employee; and
(xii) the certificate of the Chairman of the Company contemplated
by Section. 5.7.
(c) Deliveries by Purchaser. At the Closing, Purchaser shall deliver to
-----------------------
Sellers the following:
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<PAGE>
(i) Confirmations that wire transfers have been initiated for the
Cash Portion of the Purchase Price due at the Closing in accordance with
Section 2.2;
(ii) the Subordinated Notes due at the Closing in accordance with
Section 2.2;
(iii) the certificate of performance of Purchaser required by
Section 6.2;
(iv) the certificate of the Secretary or Assistant Secretary of
Purchaser certifying the resolutions of the Board of Directors of Purchaser, as
required by Section 6.3;
(v) the opinions, dated the date of the Closing and in form and
substance reasonably satisfactory to counsel for Sellers, of Sommer & Barnard,
PC, special counsel for Purchaser, and Hughes, Hubbard & Reed, French counsel
for Purchaser (collectively, such counsel opinions the "Purchaser's Counsels'
Opinions) and
(vi) a certificate of existence for Purchaser issued by the
Secretary of State of the State of Indiana, dated no more than ten (10) days
prior to Closing.
2.4 Further Assurances. The parties hereto shall use all reasonable and
------------------
best efforts to comply with all legal requirements imposed on them with respect
to the transactions contemplated by this Agreement. Each party agrees to execute
and deliver any and all further agreements, documents or instruments necessary
to effectuate this Agreement and the transactions referred to herein,
contemplated hereby or reasonably requested by the other party to perfect or
evidence its rights hereunder. Each party hereto will use all reasonable and
best efforts to effect an orderly transfer of the Shares and to complete the
transactions contemplated by this Agreement as of March 29, 1996.
2.5 Sales and Transfer Taxes. Any transfer or other tax or duty owing on
------------------------
account of the transfer of the Shares to Purchaser set forth on Schedule 2.5
------------
shall be paid by Purchaser, and any other transfer tax or duty or foreign,
federal or local income or other tax owing on account of Sellers gain or loss or
other income realized by Sellers on the sale of the Shares shall be paid by
Sellers.
Article 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
As an inducement to Purchaser to enter into this Agreement and to consummate the
transactions contemplated hereby, Sellers, and each of them, jointly and
severally represent and warrant to Purchaser and agree as follows:
3.1 Organization and Capital Structure of the Company.
-------------------------------------------------
(a) The Company is a societe anonyme a Directoire (Directorate) duly
organized and validly existing under the laws of France, which is the only
jurisdiction in which the leasing of the
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<PAGE>
Company's properties or the conduct of the Business requires such qualification,
and no other country has demanded, requested or otherwise indicated that the
Company is required so to qualify. The Company has its registered office at ZAC
de Villepinte, 5 a 7 Allee Louis Breguet, 93420 Villepinte, France and is
registered at The Registry of Commerce of Bobigny, under No. B 712 042 803. The
Company has a share capital of FF 7,000,000 divided into 70,000 shares, FF 100
par value, all of which are issued and outstanding ("Shares").
(b) All of the Shares have been duly and validly issued, and are fully
paid and non-assessable. Schedule 3.1(b) contains the name of the owners and the
---------------
number and percentage of outstanding Shares owned, directly or indirectly, of
record or beneficially by Sellers. No shares of capital stock of the Company
other than those Shares listed on Schedule 3.1 are issued or outstanding. There
------------
are no agreements, arrangements, options, warrants, calls, rights or commitments
of any character relating to the issuance, sale, purchase or redemption of any
shares of capital stock, options, or securities of any kind, of the Company and
all of the Shares are free and clear of any claims, encumbrances, or other
rights whatsoever of third parties, other than the transfer restriction
contained in Article 11 of the Articles of Incorporation (statuts) of the
Company.
(c) Complete and correct copies of the Articles of Incorporation
(statuts), and all restatements and amendments thereto and of the K-bis, as
amended to date, for the Company have heretofore been delivered to Purchaser.
(d) Except for its interests in the RDI Companies and the Other Equity
Interests, the Company does not have any subsidiaries and does not, directly or
indirectly, own any voting securities or other equity interests in any Person
and no Affiliate of a Seller owns, directly or indirectly, any voting securities
or other equity interests in any Person that is engaged in business similar to
the Business. Except as set forth in Schedule 3.19, there are no written or
-------------
unwritten agreements or understanding between the Company and any RDI Company or
between the Company and any Other Equity Interest. Schedule 3.1(d) contains the
--------------
(i) the name, jurisdiction of incorporation or organization, authorized shares
or other equity capital and percentage of outstanding shares or other equity
interests of each entity owned, directly or indirectly, of record or
beneficially by the Company, including without limitation, (A) any entity in
which the Company's interest is equal to or exceeds twenty percent (20%) of the
outstanding shares or other equity interests (the "RDI Companies"), and (B) any
entity in which the Company's interest is less than twenty percent (20%) of the
outstanding shares or other equity interests (the "Other Equity Interests"), and
(ii) to the Knowledge of Sellers, the name of the owners and the number and
percentage of outstanding shares or other equity interests of each of such
entities listed on Schedule 3.1(d) owned of record or beneficially by any other
--------------
Person. The outstanding capital stock of each of the RDI Companies which is
owned by the Company is validly issued, fully paid and nonassessable. There are
no agreements, arrangements, options, warrants, calls, rights or commitments of
any character relating to the issuance, sale, purchase or redemption of any
capital stock or equity interests of any of the RDI Companies or the Other
Equity Interests. All shares of capital stock or equity interests of the RDI
Companies listed on Schedule 3.1(d) are owned, free and clear of any Liens,
--------------
except as set forth on Schedule 3.1(d).
--------------
-10-
<PAGE>
3.2 Authority.
---------
(a) Each Seller has full right, capacity, power and authority to execute
and deliver this Agreement and the Share Assignment Agreement, to transfer the
Shares and consummate the other transactions contemplated hereby and to comply
with and perform the terms, conditions and provisions hereof. None of the
Sellers requires the consent of his or her spouse or of any other Person (other
than the Supervisory Board of the Company in accordance with Article 11 of the
Articles of Incorporation (statuts)) in order to transfer the Shares to
Purchaser. The execution, delivery and performance of this Agreement by the
Company has been duly authorized and approved by all requisite corporate action
of the Company and does not require any further authorization or consent.
(b) The execution, delivery and performance of this Agreement, the
consummation of the transactions contemplated hereby, the compliance with or
fulfillment of the terms and provisions hereof or of any other agreement or
instrument contemplated hereby, and the continuance of the Business by Purchaser
after the Closing, (i) shall result in the transfer to Purchaser of full and
valid title to the Shares, free and clear of any Liens, Claims, other
encumbrances of any kind and of any restrictions of any kind on the
transferability of the Shares other than the transfer restriction contained in
Article 11 of the Articles of Incorporation (statuts); and (ii) do not and will
not (A) conflict with or result in a breach of any of the provisions of the
Certificate or Articles of Incorporation (statuts) or the K-bis of the Company,
(B) contravene any Law, (C) contravene any order, writ, award, judgment, decree
or other determination which affects or binds any Seller, the Company, or any of
Company's properties, (D) conflict with, result in a breach of, constitute a
default under, or give rise to a right of termination under any contract,
agreement, note, deed of trust, mortgage, trust, lease, Governmental or other
license, permit or other authorization, or any other instrument or restriction
to which any Seller or the Company is a party or by which any of their
respective properties may be affected or bound, or (E) except for the
administrative declaration to be filed with the French Ministry of Economy and
as set forth in Schedule 3.2(b), require any Seller or the Company to obtain the
---------------
approval, consent or authorization of, or to make any declaration, filing or
registration with, any judicial authority, third party or any Governmental
authority which has not been obtained in writing prior to the date of this
Agreement.
(c) This Agreement is the legal, valid and binding agreement of each
Seller and is enforceable against each Seller in accordance with its terms.
3.3 Financial Statements.
--------------------
(a) The Year-End Financial Statements (i) are correct and complete;
(ii) present fairly the financial position and results of operations of the
Business as of the statement dates and for the periods indicated, and (iii) have
been prepared in accordance with GAAP consistently applied throughout and among
the periods indicated except as set forth in the annexes of such Year-End
Financial Statements. The Interim Financial Statements (A) are correct and
complete; (B) present fairly the financial position and results of operations of
the Business as of the statement dates and for the periods indicated, and
(C) have been prepared in accordance with GAAP consistently applied throughout
and among the periods indicated and are consistent with the Year-End
-11-
<PAGE>
Financial Statements subject to normal, recurring year-end adjustments (in
accordance with GAAP in the ordinary course of business of the Company and
consistent with prior year-end adjustments).
(b) Except as set forth in Schedule 3.3(b), the Company has fully paid or
---------------
made adequate reserves in its Year-End Financial Statements for all taxes,
social security obligations, accrued vacation pay, salaries, severance pay,
damages and interest, penalties, and other liabilities of any kind for which it
is or may become liable, in respect of its operations through December 31, 1995.
(c) All properties material to the operations of the Business are
reflected on the Financial Statements in the manner and the extent required by
GAAP. Except as set forth in Schedule 3.3(c), the Company is not subject to any
---------------
Liability which is not shown or which is in excess of amounts shown or reserved
for in the Year-End Financial Statements, other than liabilities which have
been reasonably incurred after December 31, 1995 in the ordinary course of
business of the Company consistent (in nature, terms and amounts) with the past
practices of the Company.
(d) The RDI Companies, jointly, have no Liabilities other than Liabilities
for indebtedness to their lenders in the aggregate amount of Seven Hundred
Twenty Thousand French Francs (FF 720,000).
3.4 Accounts Receivable. The accounts receivable of the Company as set
-------------------
forth on the Audited Balance Sheet or arising since the date thereof are valid,
have arisen solely out of bona fide sales and deliveries of goods, performance
of services and other business transactions in the ordinary course of the
Business consistent with the past practices of the Company, are not subject to
valid defenses, set-offs or counterclaims, and are collectible within twelve
(12) months after billing at the full recorded amount thereof less any allowance
for bad debts (creances douteuses) recorded on the Audited Balance Sheet. The
allowance for bad debts (creances douteuses) recorded on the Audited Balance
Sheet has been determined in accordance with GAAP consistent with the past
practices of the Company. Schedule 3.4 sets forth accounts which have come to
------------
the Knowledge of Sellers since December 31, 1995 which may become uncollectible.
3.5 Inventory. All inventory of the Company reflected in the Audited
---------
Balance Sheet or acquired since December 31, 1995 and all of the inventory of
the RDI Companies was acquired and has been maintained in the ordinary course of
the Business, is of good and merchantable quality, and consists of a quality,
quantity and condition usable, leasable or saleable in the ordinary course of
the Business at a price at least equal to the value at which they are recorded.
For purposes of this Agreements, lines of inventory as identified by part
numbers of the Company or of a RDI Company shall not be deemed "usable,
leaseable or saleable" if (a) such lines of inventory have been maintained for a
period of two years or more, (b) no sales from such lines have taken place
during the two year period prior to the date of this Agreement and (c) the value
of such inventory in the aggregate exceeds the amount of the reserve established
for obsolete inventory as reflected in the Audited Balance Sheet. The Company is
not under any liability or obligation with respect to the return of inventory in
the possession of wholesalers, retailers or other customers, other than in the
ordinary course of business with respect to inventory utilized in the automotive
aftermarket. All inventory of the Company is located at the locations set forth
in Schedule 3.5 and at no other location.
------------
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<PAGE>
3.6 Absence of Certain Changes or Events. Except as expressly
------------------------------------
contemplated by this Agreement or as set forth on Schedule 3.6, since
------------
December 31, 1995 there has not been any (a) material change in the condition
(financial or otherwise), operations (present or prospective), business (present
or prospective), properties, assets or liabilities of the Company other than
reasonable changes incurred in the ordinary course of business, and such
reasonable changes in the ordinary course of business have not adversely
affected the Business; (b) transaction by the Company other than in the ordinary
course of business as conducted on that date; (c) destruction, damage to or loss
of any asset of the Company (whether or not covered by insurance) that
materially and adversely affects the financial condition, business or prospects
of the Company; (d) change in accounting methods, principles or practices
(including, without limitation, any change in depreciation or amortization
policies or rates) of the Company; (e) declaration, setting aside or payment of
a dividend or other distribution in respect of the capital stock of the Company,
or any direct or indirect redemption, purchase or other acquisition by the
Company of any of its shares of capital stock; (f) issuance or sale by the
Company of any stock, bonds or other corporate securities or any grant of any
option, warrant or other right to subscribe for or to purchase any of its
capital stock; (g) incurrence by the Company of any indebtedness, or acceptance
of any other liability or obligation other than in the ordinary course of its
business; (h) action taken that has resulted or reasonably would be expected to
result in any asset of the Company being mortgaged, pledged or subjected to any
Lien; (i) sale, transfer or other disposition of any asset of the Company other
than in the ordinary course of business; (j) action taken by the Company that
has resulted or will result in it becoming a party to any joint venture,
consortium or partnership arrangement or agreement; (k) increase in the salary
or other compensation payable or to become payable by the Company to its current
or former officers or directors, or the declaration, payment or commitment or
obligation of any kind for payment by the Company of a bonus, increased benefit
under any insurance, pension or employee benefit plan or other additional
compensation to any such Person, other than normal merit increases pursuant to
the general practices of the Company in effect as of December 31, 1995;
(l) amendment or termination of any material contract, agreement or license to
which the Company is a party other than in the ordinary course of business;
(m) entry or commitment by the Company to enter into any transaction not in the
ordinary course of its business; (n) resignation or termination of employment of
any of the officers or the following key employees of the Company: Lebatard,
Hauser-Kauffmann, Viret, Alvarez or Combes, or any impending or threatened
resignation or resignations or termination or terminations of employment that
would have a material adverse effect on the operations of the Company (present
operations or prospective operations Known to Sellers) or the Business (present
operations or prospective operations Known to Sellers); (o) labor trouble or any
Known impending or threatened labor trouble affecting or which might affect the
operations of the Company; (p) other change in the assets, liabilities,
property, prospects, business or financial condition or operations of the
Company which would have an adverse effect on the value of the Business and/or
the Shares; or (q) agreement or commitment by the Company to do any of the
things described in clauses (a) through (m) of this Section 3.6.
3.7 Debt for Borrowed Moneys.
------------------------
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<PAGE>
(a) Except as set forth in Schedule 3.7(a), there are no (i) contracts,
--------------
agreements or instruments pursuant to which the Company is indebted or liable to
any Person for borrowed money or for the deferred purchase price of any property
in excess of One Hundred Thousand French Francs (FF 100,000), (ii) capitalized
leases pursuant to which the Company leases real or personal property which
provides for annual payments in excess of One Hundred Thousand French Francs
(FF 100,000), (iii) mortgages, security agreements, guaranties, or pledge
agreements to which the Company is a party or by which it or any of its
properties is subject or encumbered, and (iv) prepayment premium or penalty
payments due with respect to the payment of any indebtedness prior to its
maturity date upon a default or otherwise. Complete and accurate copies of all
contracts, agreements and instruments set forth in Schedule 3.7 have been
------------
delivered to Purchaser by Sellers.
(b) The long term indebtedness, the short term indebtedness and the
receivable financing indebtedness of the Company as of the date of this
Agreement does not exceed the amount reflected for each such type of
indebtedness included within the Year-End Debt Level. The amount of the
receivable financing indebtedness on the date of this Agreement does not exceed
forty percent (40%) of the amount of the gross accounts receivable of the
Company as of the date hereof.
3.8 Taxes. The Company has filed all French or other tax returns and
-----
related information (including, without limitation, information returns)
required to be filed on or before the date hereof, have prepared and filed all
such tax returns in accordance with the applicable Law and have paid in full, or
established an adequate reserve for, all Taxes thereon which are due or may
hereafter become due pursuant to such returns or pursuant to any assessment
which has or will become payable or otherwise, subject to any extension granted
for the filing of any return or for the payment of any tax, interest, penalty,
assessment or deficiency. All such returns are true and correct. Sellers have
delivered to Purchaser true and complete copies of all returns referred to in
the preceding sentences of this Section 3.8 (including any amendments thereof)
for the taxable years 1992, 1993 and 1994 for the Company and for 1994 for the
RDI Companies. All monies required to be collected or withheld by the Company
for Taxes (including, but not limited to income taxes, social security, other
payroll taxes, and any liability of the Company with respect to payments made to
any shareholders whether as managers (gerants), shareholders or otherwise), have
been collected or withheld, and either paid to the appropriate Governmental
agencies, set aside in accounts for such purpose, or accrued, reserved against
and entered upon the books of the Company, and the Company is not and will not
become liable for any Taxes for failure to comply with any of the foregoing. No
deficiencies for Taxes have been claimed, proposed or assessed against the
Company and no return for Taxes has been audited or examined by any taxing or
other Governmental authority during the three-year period prior to the date
hereof. Except as set forth in Schedule 3.8, there is no audit, investigation,
------------
claim or assessment pending or, to the Knowledge of Sellers, threatened against
the Company for any alleged deficiency in any Tax. There are no waivers or
extensions of statutory periods of limitation in effect with respect to any
Taxes of the Company. Except as set forth in Schedule 3.8, there are no Tax-
------------
sharing agreements or similar arrangements with respect to or involving the
Company. The Company is not, and following the Closing will not be, liable for
any amounts pursuant to any such agreement or arrangement.
-14-
<PAGE>
3.9 Marketability and Condition of Assets and Legality of Use.
---------------------------------------------------------
(a) Except for property leased or licensed by the Company, the Company
has, or will have at the Closing, valid and exclusive ownership to all assets
and properties used in the Business, including, without limitation, those
reflected on the Audited Balance Sheet (except as since sold or otherwise
disposed of in the ordinary course of business or as otherwise specifically
permitted by this Agreement) (the "Assets") free and clear of any and all Liens
other than the Permitted Liens. The Assets, the leased personal property and
Leased Real Estate constitute all of the assets necessary to continue the
operations of the Business by the Company after the Closing as it has been
conducted prior to the date of this Agreement. All of the Assets are in good and
operable condition, normal wear and tear excepted.
(b) Except as set forth in Schedule 3.9(b), (i) the Assets, the leased
---------------
personal property and the Leased Real Estate and their uses conform to all
applicable Laws (including, without limitation, electrical, building, zoning,
fire and occupational health and safety requirements), and (ii) no notice of any
violation of any such Law has been received by Sellers or the Company.
3.10 Real Property.
-------------
(a) All real property (including, without limitation, all interests in
and rights to real property) and improvements located thereon which are owned
(the "Real Estate") or leased (the "Leased Real Estate") by the Company and all
Real Estate which the Company leases, as lessor, to any other Person are
identified in Schedule 3.10(a). A complete and accurate copy of each lease for
----------------
Leased Real Estate and each lease pursuant to which the Company leases Real
Estate, as lessor, to any other Person has heretofore been delivered to
Purchaser by Sellers.
(b) Except as set forth in Schedule 3.10(b), the Company has a valid and
exclusive ownership interest in the Real Estate, free and clear of any Lien
other than the Permitted Liens. All permits, authorizations and certificates
required for the construction, occupancy and use of the Real Estate and the
Leased Real Estate have been obtained in compliance with the Law, and remain in
full force and effect. There are no building, zoning or use violations existing
with respect to any Real Estate. Without limiting the generality of the
foregoing, the Company has either obtained a certificate of conformity with
regard to all construction work performed on the Real Estate or has filed the
necessary application for such certificate and the Sellers Know of no reason why
such certificate shall not be issued. There is no provision, by the local
planning commission or otherwise, which restricts the use of, or otherwise
reduces the value of the Real Estate or the Leased Real Estate. There does not
exist on the date hereof any pending or proposed (i) condemnation of all or any
part of the Real Estate or the Leased Real Estate; (ii) special assessment for
work relating to all or any part of the Real Estate or the Leased Real Estate or
(iii) conduct or activity which will interfere with the use of or access to the
Real Estate or the Leased Real Estate. The buildings and any other improvements
located on the Real Estate and the Leased Real Estate are all in good and
operable condition. The Company has the right to quiet enjoyment of the Leased
Real Estate. The leasehold interests of the Company in and to the Leased Real
Estate are not subject to or subordinate to any Lien. None of the owners of the
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<PAGE>
Leased Real Estate has indicated its intention to cancel or not to renew the
terms of any lease for any of the Leased Real Estate. The Real Estate and the
Leased Real Estate constitute all of the real property used by the Company to
conduct the Business.
3.11 Personal Property and Personal Property Leases.
----------------------------------------------
(a) All of the tangible personal property owned or leased by the Company
is located at the locations set forth in Schedule 3.11(a) and at no other
----------------
location.
(b) Except as set forth in Schedule 3.11(b), there are no leases or
----------------
agreements under which the Company (i) is lessee of, (ii) is primarily or
secondarily liable, or (iii) holds or operates, any personal property owned by
any third party and used in the Business, which lease or agreement provides for
annual payments in excess of One Hundred Thousand French Francs (FF 100,000). A
complete and accurate copy of each such lease and agreement has heretofore been
delivered to Purchaser by Sellers. None of the owners of equipment leased
pursuant to a lease set forth in Schedule 3.11(b) has indicated its intention to
----------------
cancel or to not renew the terms of such lease.
3.12 Other Contracts. Except as set forth in Schedule 3.12,
--------------- -------------
there are no contracts, agreements or understandings of any type
or kind (other than those described in other Schedules to this Agreement to
which the Company is a party which (a) provides for payments or other
consideration on the part of the Company in excess of Two Hundred Thousand
French Francs (FF 200,000), or (b) imposes any restrictions on the present or
future activities of the Company, including, without limitation, any:
(i) manufacturer representative, distribution, sales, agency, advertising
contract, subcontract, or any similar independent contractor relationship;
(ii) guaranty (caution) of any obligations of customers or others; (iii) any
other contract, agreement or understandings with any customers outside the
ordinary course of business; or (iv) contract with any customer containing any
covenant not to compete or other similar restriction. A complete and accurate
copy of each such contract, agreement and understanding listed in Schedule 3.12
-------------
has been heretofore delivered to Purchaser by Sellers.
3.13 Status of Leases and Contracts. Except as set forth in Schedule 3.2,
------------------------------ ------------
each lease, instrument, agreement, understanding or contract described in
Sections 3.7, 3.10, 3.11, 3.12 or 3.18 (collectively the "Operating Agreements")
will continue in full force and effect after the Closing without breaching the
terms thereof or resulting in the forfeiture or impairment of any rights
thereunder and without the consent, approval or act of, or the making of any
filing with, any other Person. The Company has fulfilled and performed its
obligations under each Operating Agreements, and is not in breach or default
under, and is not alleged to be in breach or default under, any of such
Operating Agreements. To the Knowledge of Sellers, no other party to any of
such leases, instruments, agreements, understandings or contracts has breached
or defaulted thereunder. No event has occurred which with the passage of time or
the giving of notice, or both, would constitute such a default or breach by the
Company, or by any other Person. To the Knowledge of Sellers, no Operating
Agreement relates to, or was entered into as a result of, an illegal or illicit
transaction including, without limitation, an anti-competitive agreement, a
bribe, illegal commission, kickback or other illegal or illicit act.
-16-
<PAGE>
3.14 Compliance With Laws. Except as set forth in Schedule 3.14, (a) the
-------------------- -------------
Company is not in violation of any applicable building, health and safety or
other similar Law, regulation or requirement of or agreement with any
Governmental authority having jurisdiction; (b) the Company has complied with
and is in compliance with all Laws applicable to them, the Assets, and/or the
Business, and there does not exist any valid basis for any claim of default
under or violation of any Law, except such defaults or violations or such basis
for any claims of such defaults or violations, if any, which in the aggregate do
not and will not materially affect the Company, the Assets, the Business, or the
prospects of the Company; and (c) the Company has complied with all applicable
Laws relating to prices, wages, hours, occupational health and safety, equal
opportunity in employment, collective bargaining and all applicable Laws
relating to the giving of notice with respect to the transactions contemplated
by this Agreement.
3.15 Environmental Laws.
------------------
(a) Except as set forth in Schedule 3.15(a), neither the Company nor, to
----------------
the Knowledge of Sellers, any other Person acting in the name of or on behalf of
the Company or at its request has generated, utilized, stored, transported,
treated, recycled, disposed of, caused to be disposed of or otherwise handled in
any way any petroleum or petroleum products, chemical substances or waste
materials or other substance which could cause harm to the environment or
endanger the health or well-being of any person, in any way whatsoever
(hereinafter collectively referred to as "Hazardous Materials,"), in, on,
beneath or about any of the real property currently or formerly used or occupied
by the Company, except for inventories of such Hazardous Materials generated or
used by the Company in the ordinary course of business in compliance with
applicable Environmental Law (which inventories or Hazardous Materials, if any,
have been and are stored so that there has been no release of any such Hazardous
Materials into the environment).
(b) Except as described on Schedule 3.15(b), there are no locations where
----------------
any Hazardous Materials have been stored, transported, treated, recycled or
disposed of, whether by the Company or any other Person acting in the name of or
on behalf of the Company or at its request.
(c) The Company has not received any notice from any Government Authority
or other Person advising the Company that it is or may be liable for damages or
fines or directly or indirectly liable for costs with respect to any harm or
injury or threatened harm or injury resulting from any Hazardous Materials.
(d) Except as described on Schedule 3.15(d), to the Knowledge of Sellers,
----------------
the Company has not received any notice advising the Company that it is or may
be liable for damages or injuries to such employee or Person attributable to any
Hazardous Materials.
(e) The Company complies and has always complied with all applicable
Environmental Laws, including, but not limited to any regulations relating to
product registration, pollution control and environmental contamination.
Without limiting the generality of the foregoing, the Company has obtained all
permits and authorizations and filed all notices which are required under such
regulations and necessary to conduct the Business. The Company complies and has
always complied with the terms of any such authorizations which are valid for an
indefinite period and the
-17-
<PAGE>
validity of which shall not be adversely affected by the consummation of the
transaction contemplated hereby.
(f) Except as set forth in Schedule 3.15 (f) there are no facts Known to
-----------------
Sellers or circumstances which Sellers reasonably expect could form the basis
for the assertion of any Claim against the Company relating to any environmental
matters, including, without limitation, any Claim arising or asserted under any
Environmental Laws or which might have a material adverse effect on the Company,
the Assets, the Business, or the results of operation, financial condition or
prospects of the Company.
3.16 No Violation, Litigation or Regulatory Action. Except as set forth
---------------------------------------------
in Schedule 3.16:
-------------
(a) There are no lawsuits, charges, claims, audits, suits, proceedings,
grievances, arbitrations or investigations pending or, to the Knowledge of
Sellers, threatened against or affecting the Company, the Business or properties
nor, to the Knowledge of Sellers, is there any basis for any of the same, and
there are no lawsuits, suits or proceedings pending in which the Company is the
plaintiff or claimant; and
(b) There is no action, suit or proceeding pending or, to the Knowledge
of Sellers, threatened to restrain or prohibit or otherwise challenge the
legality or validity of the transactions contemplated hereby.
3.17 Warranties. Except as set forth in Schedule 3.17, or as expressly
---------- -------------
reserved for on the Audited Balance Sheet, the Company has not made any express
product warranty with respect to any product that it manufactures or sells or
service that it renders. The Company has not received any notice of any material
claim in excess of Fifty Thousand French Francs (FF 50,000) based on any express
or implied warranty. Any reserve for warranties recorded on the Audited Balance
Sheet has been determined in accordance with GAAP and is consistent with the
past practices of the Company.
3.18 Proprietary Rights; Name.
------------------------
(a) Schedule 3.18(a) contains a list and a description of all
----------------
(i) goodwill; (ii) patents, patent rights, applications for patents, trademarks,
or other commercial property rights; (iii) United States, state or foreign
trademarks, servicemarks, trade names or copyrights for which registrations have
been issued or applied for, or other United States, state or foreign trademarks,
servicemarks, trade names or copyrights (including software) owned by the
Company or in which the Company hold any right, license or interest used in or
relating to the Business; (iv) agreements, commitments, contracts,
understandings, licenses, assignments or indemnities relating or pertaining to
any asset, property or right of the character described in the preceding clause
to which the Company is a party; (v) licenses or agreements pertaining to
mailing lists, know-how, software, trade secrets, inventions, disclosures or
uses of ideas used in or relating to the Business to which the Company is a
party; and (vi) registered and unregistered assumed or fictitious names under
-18-
<PAGE>
which the Company is conducting the Business (collectively, the matters
described in subsections (i), (ii) and (iii) hereinafter referenced to as
"Proprietary Rights").
(b) All Proprietary Rights listed in Schedule 3.18(a) as being owned,
----------------
controlled or used by the Company are valid and in full force and effect and all
applications for such registrations are pending and in good standing, all
without challenge of any kind and the Company owns the entire right, title and
interest in and to all Proprietary Rights so listed, as well as the
registrations and applications for registration therefor, without qualification,
limitation, burden or encumbrance of any kind.
(c) Complete and accurate copies of all such Proprietary Rights and
registrations, applications or deposits therefor, registered assumed name
filings and all such licenses listed in Schedule 3.18(a) have heretofore been
----------------
delivered to Purchaser by Sellers.
(d) Except as expressly disclosed in Schedule 3.18(d), (i) no
----------------
infringement of any Proprietary Rights or registration thereof has occurred or
results in any way from the operations of the Company, or the Business, (ii) no
claim or threat of any such infringement has been made or implied in respect of
any of the foregoing, and (iii) no proceedings are pending or, to the Knowledge
of Sellers, threatened against the Company which challenge the validity or
ownership of any Proprietary Rights or the ownership of any other right or
property described in Schedule 3.18(a), and to the Knowledge of Sellers there is
----------------
no infringing use of any of the same by others. Neither Sellers nor the Company
has had notice of, nor do Sellers have Knowledge of, any basis for a claim
against the Company that the operations, activities, products, equipment,
machinery or processes of the Business infringe the patents, trademarks,
servicemarks, trade names, copyrights or other property rights of others.
3.19 Intercompany/Affiliate Transactions. Schedule 3.19 sets forth (a) a
----------------------------------- -------------
list of each contract or agreement between the Company, on the one hand, and any
Seller, or any Affiliate of any Seller or any member of the immediate family
(including parents, spouse, children and grandchildren) of any Seller, on the
other hand; and (b) a general description of all such transactions in the last
five years.
3.20 Authorizations. The Company owns, holds or possesses all franchises,
--------------
permits, licenses, certificates, registrations, privileges, immunities,
approvals and other authorizations necessary to own or lease, operate and use
the Assets and to carry on and conduct the Business as now conducted
(collectively, the "Authorizations"). The Company does not require any
Authorizations other than normal registrations necessary to conduct the Business
in France, such as commercial registry, social security, and tax registrations.
All of the Company's Authorizations are current and in full force and effect and
the transactions contemplated herein shall not adversely affect or terminate
such Authorizations.
3.21 Employee Relations Matters.
--------------------------
(a) Except as set forth in Schedule 3.21(a) and except for payments to
----------------
social security and retirement organizations imposed by law or the applicable
collective bargaining agreements, the
-19-
<PAGE>
Company is not, with respect to any employee, a party to or bound by any
(i) oral or written employment agreement, consulting agreement, deferred
compensation agreement, severance agreement, confidentiality agreement or
covenant not to compete, or (ii) employees' pension, profit sharing, stock
option, bonus, incentive, stock purchase, welfare, life insurance, hospital or
medical benefit plan or any other employee benefit plan. The Company has no
obligation to any employee or officer for a termination indemnity or for a
termination notice period greater than the indemnity or notice period required
by the French Labor Code or the collective bargaining agreement applicable to
the Company. The Company has not accrued, and is not required to accrue under
GAAP, any retirement or related liabilities on the Audited Balance Sheet.
(b) The Company is subject to the metallurgy collective bargaining
agreement. The Company has complied in all material respects with said agreement
and with the French Labor Code and in particular with the Company's obligations
in connection with employee representatives and its works council. The works
council has been consulted prior to the entering into of this Agreement, in
accordance with Article L 432-1, paragraph 3, of the French Labor Code.
(c) Except as set forth in Schedule 3.21(a), the Company has no
----------------
obligation to provide or contribute to the cost of life insurance, health
insurance or any other non-pension benefit to or on behalf of retirees or former
employees of the Company and there are no health or life insurance, pension,
profit-sharing, retirement, bonus, incentive, stock option or stock purchase,
insurance, severance or other employee benefit plans or arrangements, in which
any employee participates (the "Benefit Plans"). The Company is in compliance
with its obligations under any applicable law in connection with the Benefit
Plans. Seller has previously provided to Purchaser true, complete and correct
copies of all of the Benefit Plans. All employment-related liabilities,
including, but not limited to accrued vacation and liabilities relating to the
Benefit Plans, have been adequately reserved against in the Audited Balance
Sheet, as required by GAAP.
(d) Schedule 3.21(d) contains a complete and accurate list of all
----------------
officers and employees of the Company, setting forth each such officer's and
employee's name, birth date, position, salary and other remuneration and
benefits, as well as the date his employment or office began with the Company,
The Company has not granted, or agreed to grant, any increase in compensation or
any additional benefits to any of its officers or employees beyond those shown
in Schedule 3.21(d). The rights and obligations of the employees result solely
----------------
from the terms of their employment contracts, from applicable law, and from the
collective bargaining agreement which applies to the Company.
3.22 Insurance.
---------
(a) All of the material Assets of the Company are adequately insured,
wherever located. Schedule 3.22 substantially sets forth a list and brief
-------------
description (including insurer, policy number, nature of coverage, limits,
premiums and expiration dates) of the principle policies of insurance
maintained, owned or held by the Company as of the date of this Agreement. The
Company has complied with each of its insurance policies and has not failed to
give notice or present any claim
-20-
<PAGE>
thereunder in a due and timely manner. Neither Sellers nor the Company has
received any notice of cancellation or non-renewal with respect to any of the
insurance policies of the Company.
(b) Sellers have heretofore delivered to Purchaser complete and accurate
copies of (i) all such policies, and (ii) the most recent inspection reports,
if any, received from insurance underwriters as to the condition of any of the
Assets.
3.23 Books and Records.
-----------------
(a) The Company keeps and maintains books, accounts and records which are
up-to-date and accurately account in all material respects for and reflect the
assets, properties, liabilities, obligations, affairs and results of the conduct
and operation of its business. The minute books of the Company contains an
up-to-date, accurate and complete record in all material respects of all
meetings of its shareholders and board of directors, and the shareholders'
registry contains up-to-date and complete record of the issuance of the issued
and outstanding capital stock of the Company. Those books and records, and all
records, deeds, agreements and other documents relating to the affairs of the
Company are in the possession and control of the Company.
(b) Complete and accurate copies of minutes of meetings of the
shareholders and directors of the Company have been heretofore delivered to
Purchaser by Sellers.
(c) The Company's filings with the Office of the Clerk of the Commercial
Court of Bobigny are complete and up-to-date and its commercial registry extract
(K-bis) delivered by the Registry of Commerce of Bobigny accurately reflects its
present legal situation.
3.24 Customers. Schedule 3.24 sets forth for the one year period ended
--------- -------------
December 31, 1995, a list of the twenty largest (by volume of sales) customers
of the Company for such time period. No customer identified in Schedule 3.24 has
terminated or, to the Knowledge of Sellers, intends to terminate its business
relationship with the Company.
3.25 Suppliers. Except as set forth in Schedule 3.25, during the one year
--------- -------------
period ending December 31, 1995, no one supplier accounted for ten percent (10%)
or more of the purchases of the Company for that time period. No supplier
identified in Schedule 3.25 has or, to the Knowledge of Sellers, intends to
-------------
terminate its business relationship with the Company except as noted thereon.
3.26 US Persons. None of the Sellers is a US Person as defined in
----------
Rule 902(o) of Regulation S under the Act, and none of the Sellers is acquiring
any of the Securities for the account or benefit of a US Person.
3.27 Other Disclosures.
-----------------
(a) Except as set forth in Schedule 3.27(a), there are no agreements
----------------
restricting the freedom of the Company's officers or employees to compete in any
line of business with any Person.
-21-
<PAGE>
(b) Schedule 3.27(b) sets forth the name and address of each bank in
----------------
which the Company has an account or safe deposit box and name of each Person
authorized to draw thereon or have access thereto.
3.28 Disclosure. None of the representations or warranties of Sellers
----------
contained herein, none of the information contained in the Schedules referred to
in this Article 3, and none of the other information or documents furnished or
to be furnished to Purchaser or any of its representatives by Sellers, the
Company or any of their representatives in connection with this Agreement and
the transactions contemplated hereby, is false or misleading in any material
respect or omits to state a fact herein or therein necessary to make the
statements made herein or therein not misleading in any material respect.
3.29 RDI Companies. For the purposes of the following representations and
-------------
warranties, the reference to "the Company" shall be deemed to include each one
of the RDI Companies (except as otherwise explicitly provided in Article 3):
Sections 3.7 (a), 3.8, 3.9 3.10, 3.11, 3.12, 3.13, 3.14, 3.15, 3.16, 3.17, 3.18,
3.20, 3.21, 3.24, 3.25, and 3.28.
Article 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
As an inducement to Sellers to enter into this Agreement and to consummate the
transactions contemplated herein, Purchaser hereby represents and warrants to
Sellers and agrees as follows:
4.1 Organization of Purchaser. Purchaser is a corporation duly organized
--------------------------
and validly existing under the laws of the State of Indiana.
4.2 Authority.
---------
(a) Purchaser has full right, capacity, power and authority to execute and
deliver this Agreement, to consummate the transactions contemplated hereby and
to comply with the terms, conditions and provisions hereof. The execution,
delivery and performance of this Agreement and the Subordinated Notes by
Purchaser have been duly authorized and approved by all requisite corporate
action of Purchaser and does not require any further authorization or consent.
(b) The execution, delivery and performance of this Agreement, the
consummation of the transactions contemplated hereby and the compliance with or
fulfillment of the terms and provisions hereof or of any other agreement or
instrument contemplated hereby, including, without limitation, the Subordinated
Notes, do not and will not (i) conflict with or result in a breach of any of the
provisions of the Articles of Incorporation or the By-Laws of Purchaser,
(ii) contravene any Law, (iii) contravene any order, writ, award, judgment,
decree or other determination which affects or binds Purchaser or any of its
properties, (iv) conflict with, result in a breach of, constitute a default
under, or give rise to a right of termination under any contract, agreement,
note, deed of trust, mortgage, trust, lease, Governmental or other license,
permit or other authorization, or any other instrument or restriction to which
Purchaser is a party or by which any
-22-
<PAGE>
of its properties may be affected or bound, or (v) except for the administrative
declaration to be filed with the French Ministry of Economy and as set forth in
Schedule 4.2(b), require Purchaser to obtain the approval, consent or
- ---------------
authorization of, or to make any declaration, filing or registration with, any
third party or any Governmental authority which has not been obtained in writing
prior to the date of this Agreement.
(c) Purchaser is not (i) subject to any order, writ, award, judgment,
decree or determination or (ii) a party to or bound by any deed of trust,
mortgage, trust, lease, Govern mental or other license, permit or other
authorization, contract, agreement, note or other instrument or restriction
which could conflict with or prevent the execution, delivery or performance of
this Agreement or the consummation of the transactions contemplated hereby or
compliance with the terms, conditions or provisions hereof.
(d) This Agreement is the legal, valid and binding agreement of Purchaser
and is enforceable in accordance with its terms. Each of the Subordinated Notes
is the legal, valid and binding agreement of Purchaser enforceable in accordance
with its terms.
Article 5
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligations of Purchaser to effect the transactions contemplated by this
Agreement are subject to the fulfillment at or prior to the Closing of each of
the following conditions, except to the extent any such condition is waived in
writing by Purchaser:
5.1 Performance by Each Seller. Each Seller shall have performed and
--------------------------
complied with all of the terms, provisions and conditions of this Agreement to
be performed and complied with by each of them at or prior to the Closing, and
the representations and warranties of Sellers contained in this Agreement shall
be true as of the date of this Agreement and as of the Closing (except as
expressly contemplated or permitted by this Agreement).
5.2 Certificate of Performance of Sellers. Purchaser shall have received a
-------------------------------------
certificate from each Seller, each dated the date of the Closing, reasonably
satisfactory in form and substance to Purchaser, certifying that such Seller has
performed and complied with all of the terms, provisions and conditions of this
Agreement to be performed and complied with at or prior to the Closing, and that
each of the representations and warranties of Sellers contained in this
Agreement is true as of the date of this Agreement and at and as of the Closing
(except as expressly contemplated or permitted by this Agreement).
5.3 Supervisory Board Meeting. The Supervisory Board of the Company shall
-------------------------
have approved the transfer of the Shares to Purchaser in accordance with the
approval procedure set forth in the Articles of Incorporation (statuts) of the
Company.
5.4 Required Consents. All consents, approvals, permits and other
-----------------
authorizations required to consummate the transactions contemplated hereby
including, without limitation, the consents
-23-
<PAGE>
or waivers of lenders providing long term credit facilities to the Company
listed on Schedule 3.7(a) permitting such facilities to continue after Closing,
---------------
shall have been obtained and shall not have been revoked, terminated or
otherwise rendered ineffective.
5.5 Opinion of Counsel for Sellers. Purchaser shall have received the
------------------------------
Sellers' Counsel's Opinion.
5.6 Release. Each Seller shall have released the Company from any and
-------
all claims, demands and rights (other than any arising under the terms of this
Agreement) such Seller has against the Company as of the Closing Date,
including, without limitation, any payables of the Company owed to such Seller
other than (a) the amounts contemplated by this Agreement, and (b) any unpaid
compensation amounts or related benefits due to Sellers for services rendered to
the Company pursuant to any employment arrangements or agreements listed on
Schedule 3.21.
- -------------
5.7 Additional Financial Statements and Information. Sellers shall have
-----------------------------------------------
delivered to Purchaser at the Closing a certificate prepared by the Company,
certified as accurate by the Chairman of the Company, which sets forth the
amount of the long term indebtedness, the short term indebtedness and the
receivable financing indebtedness of the Company as of the Closing Date.
5.8 Employment Agreements. The Employment Agreements of Lebatard and
---------------------
Hauser-Kauffmann shall have been amended to the reasonable satisfaction of such
Sellers and Purchaser.
5.9 Works Council. The Company's management shall have consulted the
-------------
Company's works council in accordance with Article L 432-1, paragraph 3, of the
French Labor Code.
5.10 No Liens. There shall be no Liens on the Assets or Shares other than
--------
the Permitted Liens and other Liens acceptable to Purchaser.
5.11 Proceedings. No action or proceeding shall be pending or threatened
-----------
to restrain or prevent the consummation of the transaction contemplated hereby.
5.12 Deliveries. Sellers shall have delivered to Purchaser the items
----------
referred to in Section 2.3(b).
Article 6
CONDITIONS TO SELLERS' OBLIGATIONS
The obligations of Sellers to effect the transactions contemplated by this
Agreement is subject to the fulfillment at or prior to the Closing of each of
the following conditions except to the extent any such condition is waived in
writing by Sellers:
6.1 Performance by Purchaser. Purchaser shall have performed and
------------------------
complied with all of the terms, provisions and conditions of this Agreement to
be performed and complied with by
-24-
<PAGE>
Purchaser at or prior to the Closing, and the representations and warranties of
Purchaser contained in this Agreement shall be true as of the date of this
Agreement and as of the Closing (except as expressly contemplated or permitted
by this Agreement).
6.2 Certificate of Performance of Purchaser. Sellers shall have received
---------------------------------------
a certificate of a duly authorized officer of Purchaser, dated the date of the
Closing, reasonably satisfactory in form and substance to Sellers, certifying
that Purchaser has performed and complied with all of the terms, provisions and
conditions of this Agreement to be performed and complied with by Purchaser at
or prior to the Closing, and that each of the representations and warranties of
Purchaser contained herein is true as of the date of this Agreement and at and
as of the Closing (except as expressly contemplated or permitted by this
Agreement).
6.3 Certificate of Secretary of Purchaser. Sellers shall have received a
-------------------------------------
certificate of the Secretary or the Assistant Secretary of Purchaser which
certifies (a) the resolutions duly adopted by the Board of Directors of
Purchaser authorizing and approving the execution, delivery and performance of
this Agreement and the transactions contemplated by this Agreement; and (b) that
such resolutions have not been rescinded or modified and remain in full force
and effect as of the date of the Closing.
6.4 Proceedings. No action or proceeding shall be pending or threatened
-----------
to restrain or prevent the consummation of the transactions contemplated hereby.
6.5 Opinion of Counsel for Purchaser. Sellers shall have received the
--------------------------------
Purchaser's Counsels' Opinions.
6.6 Deliveries. Purchaser shall have delivered to the Sellers the items
----------
referred to in Section 2.3(c).
6.7 Employment Agreements. The Employment Agreements of Lebatard and
---------------------
Hauser-Kauffmann shall have been amended to the reasonable satisfaction of such
Sellers and Purchaser.
Article 7
POST-CLOSING COVENANTS
7.1 Covenant Not to Compete and Non-Solicitation.
--------------------------------------------
(a) In furtherance of the sale of the Shares to Purchaser and for good
and valuable consideration, the receipt of which is hereby acknowledged, each
Seller, on his or her own behalf and on behalf of each of his or her Affiliates
(whether now existing or hereafter acquired or created), hereby agrees that, for
a period commencing on the Closing Date and expiring three years after the date
of the Closing, Sellers, and each of them and each Affiliate of each of them,
will not, directly or indirectly, as an employer, proprietor, partner,
shareholder, director, consultant, agent or otherwise (i) own, manage, operate,
participate in, perform services for, or provide financial assistance to the
entities or persons listed on Exhibit C or (ii) establish a new
-25-
<PAGE>
business which competes with the Business anywhere in France, Germany, Belgium,
the Netherlands, Spain, the United Kingdom, Portugal and Turkey (it being
understood that the customers of the Company and Purchaser and its Affiliates
are generally located within such areas, that the geographic scope of the
Business extends and is projected to extend throughout such areas and is not
limited to any particular region thereof, and that competitors may compete
effectively from any location within such areas); provided, however, ownership
-------- -------
of not more than five percent (5%) of the issued and outstanding shares of a
class of securities issued by a corporation and traded on a recognized national
stock exchange shall not, standing alone, be prohibited by this subsection.
(b) In furtherance of the sale of the Shares to Purchaser, each Seller
hereby also agrees that, for a period commencing on the Closing Date and
expiring three years after the date of the Closing, Sellers, and each of them
and each Affiliate (whether now existing or hereafter acquired or created) of
each of them, will not, directly or indirectly, as an employer, proprietor,
partner, shareholder, director, consultant, agent or otherwise, induce or
attempt to induce any employee of the Company to leave the employ of the Company
or in any way interfere with the relationship between the Company and any of its
employees, agents, consultants or independent contractors.
(c) In furtherance of the sale of the Shares to Purchaser, each Seller
hereby also agrees that Sellers and each of them and each Affiliate (whether now
existing or hereafter acquired or created) of each of them will not directly or
indirectly, disclose, divulge, publish or disseminate, whether orally or in
writing, to any Person, without the consent of Purchaser, any information
relating to this Agreement, the Business, Purchaser or Purchaser's business
which information is not in the public domain.
(d) Without limiting the right of Purchaser to pursue all other legal and
equitable rights available to it for any violation of Subsections 7.1(a), (b) or
(c) by either Seller, the parties agree that monetary damages cannot fully
compensate Purchaser for such a violation and that Purchaser shall be entitled
to injunctive relief to prevent violation or continuing violation thereof and
that no bond or other security shall be required of Purchaser in connection
therewith. It is the intent and understanding of each party hereto that if, in
any action before any court or agency legally empowered to enforce this
Section 7.1, any term, restriction, covenant or promise is found to be
unreasonable and for that reason unenforceable, then such term, restriction,
covenant or promise shall be deemed modified to the minimum extent necessary to
make it enforceable by such court or agency. Nothing herein shall be construed
as prohibiting such party from pursuing any other remedies at law or in equity
which it may have.
7.2 Agreement Regarding IPO. Purchaser shall make good faith efforts to
-----------------------
include any Converted Common Shares in the registration statement filed with the
Securities Exchange Commission so that after completion of the IPO, the
Converted Common Shares do not constitute "restricted securities" obtained in a
non-public offering under applicable securities laws; provided, however, that
-------- ------- ----
the Converted Common Shares shall not be sold in such IPO. Sellers who will hold
Convertible Notes shall execute an agreement with any underwriters engaged by
Purchaser in connection with such IPO which prohibits any sale of Converted
Common Shares for a period of One Hundred Eighty (180) days after the completion
of the IPO. In the event Purchaser is unable
-26-
<PAGE>
to include the Converted Common Shares in its registration statement as
contemplated above, then from the expiration of such One Hundred Eighty (180)
day period until the expiration of the minimum holding period applicable to the
holders of Converted Common Shares under Regulation S, Purchaser shall purchase
any Converted Common Shares, at a price per share equal to the IPO price, upon
ten (10) days advance written notice from any holder of Converted Common Shares.
In the event of an IPO, Purchaser further agrees to make good faith efforts to
direct and make available to the holders of the Non-Convertible Notes, and other
employees of the Company if possible, shares of Purchaser at the IPO issuing
price.
7.3 Investment Restrictions. None of the Sellers shall resell any of the
-----------------------
Securities except pursuant to an effective registration statement under the Act
or in accordance with the provisions of Regulation S. Purchaser shall refuse to
register any transfer of any of the Securities not made in accordance with this
Section 7.4.
7.4 Agreement Regarding Post-Closing Payments. The Sellers, jointly and
-----------------------------------------
severally, hereby represent and warrant to Purchaser that the only unpaid
liabilities to Sellers which exist on the date of this Agreement are: (i) the
unpaid balance of all loans made by the Sellers in the aggregate amount of: One
Million Four Hundred Twenty Two Thousand Eight Hundred Forty French Francs
(FF 1,422,840) (the "Shareholder Debt"); and (ii) the Permissible Dividend
Payment. Following the Closing, Purchaser covenants and agrees to cause the
Company to repay the Shareholder Debt and to pay the Permissible Dividend
Payment (collectively (i) and (ii) the "Post-Closing Payments") in the normal
course of business on the condition that after giving effect to such Post-
Closing Payments the Company shall be in compliance with the covenants of
Purchaser's lender relating to the Company's level of long term, short term and
receivable financing indebtedness.
7.5 Recapitalization. As soon as practicable after Closing but not later
----------------
than thirty (30) days after the Closing, the Purchaser shall transform the
retained earnings of the Company in the amount of Seven Million Two Hundred
Fifty Thousand French Francs (7,250,000) into capital.
7.6 Post Closing Delivery of Balance Sheets. Within thirty (30) days of
---------------------------------------
Closing Sellers hereby covenant and agree to deliver to Purchaser, at their
expense, the balance sheets of each of the RDI Companies, dated as of
December 31, 1995, certified by Guyon, Varona & Autres stating that such balance
sheets have been prepared in accordance with GAAP.
Article 8
INDEMNIFICATION AGREEMENT/SURVIVAL OF REPRESENTATIONS
8.1 Indemnification by Sellers.
--------------------------
(a) Sellers shall, jointly and severally, indemnify Purchaser (or its
designee) (individually, a "Purchaser Party", collectively, the "Purchaser
Parties") and hold each of them harmless from and against all damages, claims,
causes of action, losses and expenses, including reasonable
-27-
<PAGE>
attorneys' fees and expenses (collectively, "Indemnifiable Losses"), incurred by
Purchaser or the Company in connection with or arising from any one or more of
the following: (i) any nonfulfillment or breach by any Seller of any of his or
her respective agreements or covenants in this Agreement; (ii) any breach of
any warranty or the inaccuracy of any representation of Sellers contained in
this Agreement or any certificate or Schedule delivered by or on behalf of any
Seller to this Agreement; (iii) any matters set forth in Schedule 3.16; (iv) any
-------------
Liability of the Company of any kind arising from any act or omission occurring
prior to the Closing Date, accrued or otherwise, which is not shown or which is
in excess of amounts shown or reserved for on the Audited Balance Sheet, other
than liabilities which have been reasonably incurred after December 31, 1995 in
the ordinary course of business consistent with this Agreement and the past
practices of the Company or which are not required to be disclosed on the
Audited Balance Sheet in accordance with GAAP but the existence of which has
been disclosed in Schedule 3.3 to this Agreement; (v) any treatment, storage or
------------
disposal of any Hazardous Materials, or the arranging therefore, by the Company
which occurred prior to the Closing; (vi) any discharge into the environment of
any Hazardous Material from any of the Real Estate, the Leased Real Estate or
any other real property previously owned or leased by the Company which occurred
prior to the Closing, or the presence on any of the Real Estate, the Leased Real
Estate or any other real property previously owned or leased by the Company of
any Hazardous Materials; and (vii) any Liability relating to the Company's
ownership of the Other Equity Interests.
(b) If any Purchaser Party determines that it has suffered or incurred any
Indemnifiable Loss, such Purchaser Party shall so notify Sellers within thirty
(30) days in writing. If any action at law or suit in equity is instituted by a
third party against any Purchaser Party with respect to which such Purchaser
Party intends to claim any Indemnifiable Loss under this Article 8, Purchaser
shall notify Sellers of such action or suit in accordance with this Section and
Section 8.3 of this Agreement.
(c) In addition to any other remedies a Purchaser Party may have in
seeking to enforce its rights to indemnification against any Seller pursuant to
this Section 8.1, Purchaser, shall have the right, but not the obligation, to
offset the full amount of any Indemnifiable Loss against any principal or
interest payment it is obligated to make in connection with the Subordinated
Notes; provided, however, that in the event of a final nonappealable
-------- ------- ----
determination by a court of competent jurisdiction to the effect that Purchaser
was not entitled to offset any such payment or any portion thereof, Purchaser
shall promptly pay to Sellers the wrongfully withheld amount, together with
interest from the original due date of such payment at a rate of nine and one-
half percent (9.5%) per annum.
(d) Notwithstanding anything contained in this Section 8.1 to the
contrary and subject to the limitations set forth in Section 8.4, the Sellers
shall only be required to indemnify the Purchaser Parties (i) to the extent that
the aggregate amount of Indemnifiable Losses suffered by Purchaser Parties in
the aggregate exceeds Seven Hundred Twenty Thousand French Francs (FF 720,000)
plus the amount, if any, by which the Liabilites of the RDI Companies are less
than Seven Hundred Twenty Thousand French Francs (FF 720,000) as of the Closing
Date (the "Threshold Indemnification Level"), and (ii) up to the maximum
aggregate indemnification liability amount equal to (A) the Purchase Price with
respect to Indemnifiable Losses arising as a result of a breach
-28-
<PAGE>
of a warranty or inaccuncy of a representation set forth in Section 3.1 or 3.2
and (B) the aggregate amount of Fifteen Million French Francs (FF 15,000,000)
with respect to Indemnifiable Losses arising as a result of any other matter for
which Purchaser is entitled to indemnification under Section 8.1 (a) for the
period from the Closing Date to the day after the second anniversary of such
Closing Date, at which time the maximum indemnification aggregate amount shall
be reduced to Ten Million French Francs (FF 10,000,000) less, however, the
----------------
aggregate amount which may have been paid by Sellers to Purchaser for the period
from the preceding two-year period referenced in this Subsection (B), to the
balance of the remaining survival period provided for in Section 8.4 (a) for
Sellers' indemnification obligations; provided, however, that, the maximum
-------- ------- ----
indemnification amount for each Seller shall not exceed the amount of the
Purchase Price, including the Cash Portion and the Debt Portion, received by
such Seller as identified in Schedule 2.2 Notwithstanding anything in this
------------
Section 9.1(d), the Threshold Indemnification Level shall not apply to
Indemnifiable Losses which result from or arise under (y) any breach of any
warranty or the inaccuracy of any representation set forth in Section 3.1,or
Section 3.2or (z) any matters addressed in Section 8.1(a)(vii).
8.2 Indemnification by Purchaser.
----------------------------
Purchaser shall indemnify each Seller and hold each of them harmless
from and against any Indemnifiable Loss incurred in connection with or arising
from any one or more of the following: (i) any nonfulfillment or breach by
Purchaser of any of its agreements or covenants in this Agreement; and (ii) any
breach of any warranty or the inaccuracy of any representation of Purchaser
contained in this Agreement or any certificate or Schedule delivered by or on
behalf of Purchaser pursuant to this Agreement.
(a) If any Seller determines that it has suffered or incurred any
Indemnifiable Loss, such Seller shall so notify Purchaser within thirty (30)
days in writing. If any action at law or suit in equity is instituted by a third
party against any Seller with respect to which such Seller intends to claim any
Indemnifiable Loss under this Article 8, such Seller shall notify Purchaser of
any such action or suit in accordance with Section 8.3 of this Agreement.
8.3 Third Party Claims.
------------------
(a) Subject to paragraph (b) of this Section, a party entitled to
indemnification under this Article 8 ("Indemnitee") shall have the right to
conduct and control, through counsel of its choosing, any third-party claim,
action or suit, and Indemnitee may compromise or settle the same, provided that
Indemnitee shall give the party alleged to be liable for such indemnification
("Indemnitor") advance notice of any proposed compromise or settlement.
Indemnitee shall permit the Indemnitor to participate in the defense of any such
action or suit through counsel chosen by Indemnitor, provided that the fees and
expenses of such counsel shall be borne by Indemnitor.
(b) If the remedy sought in any action or suit referred to in paragraph
(a) of this Section is solely money damages and will have no continuing effect
on the Business or the Company's relationship with one of its customers or a
trade creditor, Indemnitor shall have fifteen (15)
-29-
<PAGE>
calendar days after receipt of the notice referred to in Section 8.1(b) or
Section 8.2(b) to notify Indemnitee that Indemnitor elects to conduct and
control such action or suit. If Indemnitor does not give the foregoing notice,
Indemnitee shall have the right to defend, contest, settle or compromise such
action or suit in the exercise of its exclusive discretion, and Indemnitor
shall, upon request from Indemnitee, promptly pay to Indemnitee in accordance
with the other terms of this Article 8 the amount of any damage or loss
resulting from Indemnitee's liability to the third-party claimant and all
related expense. If Indemnitor gives the foregoing notice, Indemnitor shall
have the right to undertake, conduct and control, through counsel of its own
choosing, and at the expense of Indemnitor, the conduct and settlement of such
action or suit, and Indemnitee shall cooperate in connection therewith;
provided, however, that (i) Indemnitor shall permit Indemnitee to participate in
- -------- ------- ----
such conduct or settlement through counsel chosen by Indemnitee, but the fees
and expenses of such counsel shall be borne by Indemnitee except as provided in
clause (ii) below; and (ii) Indemnitor shall agree promptly to reimburse
Indemnitee to the extent required under this Article 8 for the full amount of
any damage or loss resulting from such action or suit and all related expense
incurred by Indemnitee, except fees and expenses of counsel for Indemnitee
incurred after the assumption of the conduct and control of such action or suit
by Indemnitor. So long as Indemnitor is contesting any such action or suit in
good faith, Indemnitee shall not pay or settle any such action or suit.
Notwithstanding the foregoing, Indemnitee shall have the right to pay or settle
any such action or suit, provided that in such event Indemnitee shall waive any
right to indemnity therefor by Indemnitor and no amount in respect thereof shall
be claimed as damage, loss or expense under this Article 8.
8.4 Survival Period and Indemnification.
-----------------------------------
(a) The Purchaser has the right to rely fully upon the representations,
warranties, covenants and agreements of Sellers contained in this Agreement or
in any certificate delivered hereunder. Sellers have the right to rely fully
upon the representations, warranties, covenants and agreements of Purchaser
contained in this Agreement or in any certificate delivered hereunder. The
covenants set forth in this Agreement shall survive the consummation of the
transactions contemplated by this Agreement and shall remain in full force and
effect indefinitely unless otherwise provided in this Agreement. The
representations and warranties and the indemnification provisions contained in
Section 8.1 and Section 8.2 of this Agreement and in any Schedules or
certificates delivered pursuant hereto shall survive consummation of the
transactions contemplated by this Agreement and shall remain in full force and
effect and shall continue and remain in full force and effect until the day
after the second anniversary of the Closing Date, at which time all such
representation, warranties and indemnification obligations shall terminate,
except that any representation, warranty or indemnification relating to (i) any
matters set forth in Section 3.1 or Section 3.2 shall continue in full force and
effect until the day after the tenth anniversary of the Closing Date (ii) any
matters set forth in Sections 3.9 (a) (with respect to title to Personal
Property), 3.10 (b) (with respect to title to Real Estate), 3.15, 3.21,
8.1(a)(v), 8.1(a)(vi) or 8.1(a)(vii) shall continue in full force and effect
until the day after the fifth anniversary of the Closing Date; and (iii) any
matters set forth in Section 3.8 shall continue in full force and effect until
the day after the expiration of the applicable statute of limitations (including
any waiver or extension thereof).
-30-
<PAGE>
(b) Any matter as to which a claim has been asserted by notice to another
party and that is pending or unresolved at the end of the applicable survival
period described in Section 8.4(a) shall continue to be covered by Article 8
until such matter is finally terminated or otherwise resolved by the parties
under this Agreement or by a court of competent jurisdiction and any amounts
payable hereunder are finally determined and paid.
8.5 Tax Implications of Indemnification. The amount of any claim against
-----------------------------------
the Sellers for indemnification hereunder shall be net of any tax benefit to
Purchaser and /or the Company. Any payments made by Sellers pursuant to
Section 8.1 (a) shall be deemed a reduction of the Purchase Price to the extent
permissible under applicable tax regulations.
Article 9
GENERAL PROVISIONS
9.1 Confidential Nature of Information. Each party shall treat in
----------------------------------
confidence all documents, materials and other information which it shall have
obtained regarding the other party during the course of the negotiations leading
to the consummation of the transactions contemplated hereby (whether obtained
before or after the date of this Agreement), the investigation provided for
herein and the preparation of this Agreement and other related documents. The
obligation of each party to treat such documents, materials and other
information in confidence shall not apply to any information which (a) such
party can demonstrate was already lawfully in its possession prior to the
disclosure thereof by the other party, (b) is known to the public and did not
become so known through any violation of a legal obligation, (c) became known to
the public through no fault of such party, or (d) after the Closing, in the case
of Purchaser's confidentiality obligation, relates to the Company, the Assets
and/or the Business. The obligations imposed by the foregoing provisions of this
Section 9.1 shall survive the Closing and any termination of this Agreement.
9.2 Court. Any action, suit or proceeding arising out of or in connection
-----
with this Agreement shall be brought in the Tribunal de Commerce de Paris (the
"Court"), and each party irrevocably submits and consents to the exclusive
jurisdiction of such Court.
9.3 Notices. All notices, requests, consents and other communications
-------
hereunder shall be in writing and shall be deemed given if (a) sent via DHL or
another international courier service, two business days after such notice is
sent to the address listed below for the party to whom the notice is being sent
("Notice Party"); (b) if hand delivered or delivered by courier, upon actual
delivery of such notice to the Notice Party at the address listed below for such
Notice Party; or (c) if sent by facsimile, on the first business day after the
date of the sender's receipt of a confirmed transmission of such notice to the
Notice Party at the facsimile number, if any, listed below for such Notice Party
provided the party giving such notice mails a copy of such notice, in accordance
with Section 9.3(a) above, within two days after the transmission of such notice
by facsimile to the Notice Party. The addresses and facsimile numbers for each
party to this Agreement, as of the date hereof, are:
-31-
<PAGE>
If to Purchaser: Control Devices, Inc.
228 Northeast Road
Standish, Maine 04084
Attn: Bruce D. Atkinson, President
Facsimile No.: 19-1-207/642-0248
With copy to: Hammond, Kennedy, Whitney & Company, Inc.
8888 Keystone Crossing, Suite 690
Indianapolis, Indiana 46240
Attn: Glenn Scolnik, Vice President
Facsimile No.: 19-1-317/574-7515
and a copy to: Sommer & Barnard
Attorneys At Law, PC
4000 Bank One Tower
111 Monument Circle, P.O. Box 44363
Indianapolis, IN 46244-0363
Attn: Julianne S. Lis-Milam
Facsimile No.: 19-1-317/236-9802
and a copy to: Hughes Hubbard & Reed
47 Avenue Georges Mandel
75116 Paris, France
Attn: Winston J. Maxwell
Facsimile No.: 001-33-1-44-05-80-68
If to Sellers:
Michael Hauser-Kauffmann Antonio Alvarez-Mendez
9, rue Meynadier 8 Square Charton
75019 Paris 92200 Neuilly S/Seine
France France
Jacqueline Chambrelan Regina Combes
45 bld de la Saussaye 105 avenue Aristide Briand
92200 Neuilly S/Seine 94230 Cachan
France France
Raymond Fraysse Michel Hauser-Kauffmann
30 rue des Sapins 9 rue Meynadier
94100 St Maur Des Fosses 75019 Paris
France France
-32-
<PAGE>
Alain Lebatard Bernard Viret
48 rue de Mouzaia 28 avenue de la Republique
75109 Paris 94700 Maisons-Alfort
France France
With a copy to: Pullman & Comley, LLC
One Century Tower,
9th Floor
265 Church Street
New Haven, CT 06510-7000
Attn: H. William Shure
Facsimile No.: 19-1-203-776-7075
and a copy to: Veil Armfelt Jourde
69, Avenue Victor Hugo
75783 Paris Cedex 16
France
Attn: Guillaume Kuperfils
Facsimile No.: 011-33-1-44-17-50-30
Any party may change his or its address or facsimile number by providing written
notice, in accordance with the foregoing provisions of this Section 9.3, to each
other party of such change.
9.4 Expenses.
---------
(a) Each party hereto will pay all costs and expenses incident to its
negotiation and preparation of this Agreement and to its performance and
compliance with all agreements contained herein on its part to be performed,
including the fees, expenses and disbursements of its respective counsel and
accountants; provided, however, (i) all such costs, fees and expenses of the
-------- -------
Company incurred at or prior to the Closing shall be paid by Seller, other than
the fees of the Accountants and (ii) any such costs, fees and expenses of any
Seller paid by the Company prior to Closing shall be reimbursed to the Company
by such Seller at the time of Closing.
(b) In any legal action between the parties arising out of or related to
this Agreement, the prevailing party shall be entitled to recover its costs and
expenses, including reasonable accounting and legal fees.
9.5 Governing Law . This Agreement shall be governed by and construed
--------------
in accordance with the laws of France.
9.6 Partial Invalidity . In case any one or more of the provisions
-------------------
contained herein shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality
-33-
<PAGE>
or unenforceability shall not affect any other provisions of this Agreement, but
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision or provisions had never been contained herein.
9.7 Access to Records. For a period of three years after the date
-----------------
hereof, Sellers and their representatives shall have reasonable access to all of
the books and records relating to the Assets and Business to the extent that
such access may reasonably be required by Sellers in connection with matters
relating to or affected by the operations of the Business and the Assets prior
to the Closing (collectively, "Accessible Records"); provided, however, (a)
-------- -------
Sellers shall have reasonable access to any Accessible Records which relate to
an indemnity claim made by Purchaser against any Seller pursuant to this
Agreement for so long as such claim is unresolved, and (b) Sellers shall have
reasonable access to any Accessible Records which related to any Tax obligation
of any Seller for so long as the applicable statute of limitations (including
any waiver or extension thereof) with respect to such Tax obligation has not
expired. Such access shall be afforded by Purchaser upon receipt of reasonable
advance notice and during normal business hours. Sellers shall exercise their
rights under this Section 9.7 in such a manner as to avoid undue disruption of
the business and affairs of the Company and/or Purchaser. Sellers shall be
solely responsible for any costs or expenses incurred pursuant to this Section
9.7. If Purchaser shall desire to dispose of any material tax or accounting
books and records prior to the expiration of such three-year period, or
thereafter, subject to all legal regulations regarding retention of such books
and records, with respect to Accessible Records pertaining to Tax obligations,
Purchaser shall, prior to such disposition, give Sellers a reasonable
opportunity, at Sellers' expense, to segregate and remove such books and records
as Sellers may select.
9.8 Assignment; Right of Purchaser to have Transactions Consummated By a
--------------------------------------------------------------------
Subsidiary. Neither this Agreement nor any right hereunder shall be assigned
- ----------
by any party without the written consent of the other party; provided, however,
-------- -------
Purchaser shall have the right (a) to have the transactions contemplated by this
Agreement consummated by a corporation or other entity owned by Purchaser to be
formed at or prior to the time of the Closing and (b) to collaterally assign its
rights hereunder as security for loans made to Purchaser, but the exercise of
any such rights shall not relieve Purchaser of its obligations under this
Agreement.
9.9 Successors and Assigns. Subject to the provisions of Section 9.8
----------------------
above, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, personal representatives, successors
and assigns.
9.10 Execution in Counterparts. This Agreement may be executed in one or
-------------------------
more counterparts, each of which shall be considered an original counterpart,
and all of which shall be considered to be but one agreement and shall become a
binding agreement when each of Purchaser, Sellers and the Company shall have
executed one counterpart and delivered it to the other parties hereto.
9.11 Titles and Headings. Titles and headings to sections herein are
-------------------
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
-34-
<PAGE>
9.12 Entire Agreement; Amendments and Waivers. This Agreement contains
----------------------------------------
the entire understanding of the parties hereto with regard to the subject matter
contained in this Agreement and supersedes all prior agreements or
understandings of the parties or their respective agents, accountants or
attorneys. The parties, by mutual agreement in writing, may amend, modify and
supplement this Agreement. The failure of any party to this Agreement to enforce
at any time any provision of this Agreement shall not be construed to be a
waiver of such provision, nor in any way to affect the validity of this
Agreement or any part hereof or the right of such party thereafter to enforce
each and every such provision. No waiver of any breach of this Agreement shall
be held to constitute a waiver of any other or subsequent breach. In the event
of conflict between the terms of this Agreement and the Share Assignment
Agreement, the terms of this Agreement shall take precedence.
9.13 Publicity. Sellers and Purchaser shall consult prior to any
---------
announcement or written statement concerning this Agreement or the transactions
contemplated hereby for dissemination to the general public.
9.14 Brokers' and Finders' Fees. Each party represents that it has not
--------------------------
incurred, and shall not incur any liability for brokers' or finders' fees or
agents' commissions in connection with this Agreement or the transactions
contemplated hereby.
9.15 Third Party Beneficiaries. Except as provided in Article 8 and
-------------------------
Section 9.8 to the extent that a party is obligated thereunder, the parties
hereto intend that this Agreement shall not benefit or create any right or cause
of action in or on behalf of any Person other than the parties hereto.
9.16 Business Relationships. Upon the request of Sellers, Purchaser
----------------------
hereby acknowledges that Purchaser has a supplier-distributor business
relationship with the Company. Purchaser is a manufacturer of primarily
automotive circuit breakers, various sensors and ceramic component parts which
are distributed by the Company to original equipment manufacturers in Western
Europe. As a result of such relationship, Purchaser is generally familiar with
that portion of the Business related solely to the products manufactured and
sold by Purchaser to the Company as of the date of this Agreement.
[INTENTIONALLY LEFT BLANK]
-35-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this
Stock Purchase Agreement as of the day and year first above written.
"PURCHASER" "SELLERS"
Control Devices, Inc.
_______________________________
Antonio Alvarez-Mendez
By: ________________________________
Its: ________________________________
_______________________________
Jacqueline Chambrelan
"COMPANY"
Realisations et Diffusion pour l'Industrie _______________________________
Regina Combes
By: ________________________________
_______________________________
Its: ________________________________ Raymond Fraysse
_______________________________
Michel Hauser-Kauffmann
_______________________________
Alain Lebatard
_______________________________
Bernard Viret
-36-
<PAGE>
EXHIBIT 10.14
AMENDMENT No. 2 TO THE EMPLOYMENT CONTRACT OF
---------------------------------------------
JANUARY 10, 1986
----------------
The undersigned: The RDI Company (Realisations et Diffusion pour
l'Industrie)
ZAC de Villepinte, 5-7, Allee Louis Breguet,
93420 Villepinte
Represented by Mr. Lebatard, as Chairman
Party of the first part,
And: Mr. Michel HAUSER KAUFFMANN
residing at 9, rue Meynadier, 75019 Paris,
Party of the second part,
HEREBY SET FORTH THE FOLLOWING PREMISES:
Mr. Michel Hauser Kauffmann is linked with the Company by an employment
contract of January 10, 1986, as modified by an amendment of March 23, 1993.
The parties wish to further modify and amend the said contract by the
following provisions.
<PAGE>
HAVING SET FORTH THESE PREMISES, THE PARTIES
THEREFORE ENTER INTO THE FOLLOWING AGREEMENT:
I. DUTIES AND SENIORITY
--------------------
The provisions relating to seniority appearing in the employment contract
of January 10, 1986, and the amendment of March 23, 1993, remain unchanged.
The provisions relative to the duties and the assignment appearing in the
employment contract of January 10, 1986, and the amendment of March 23, 1993,
are replaced by the following provisions: Mr. Hauser Kauffmann shall carry out
the duties of Sales Manager. In this connection, he will be responsible for
sales policy, quality, communication and technical questions. Mr. Hauser
Kauffmann may travel and carry out assignments abroad, and the Company may
decide to entrust him with new assignments and duties which entail
responsibilities of an equivalent or higher level.
II. BREACHING THE CONTRACT
----------------------
The following provisions cancel and replace the previous provisions
contained in the employment contract of January 10, 1986, and in the amendment
of March 23, 1993:
In the event of breach of the employment contract at the Company's
initiative for reasons other than serious professional misconduct ("faute
grave"), the Company shall pay to Mr. Hauser Kauffmann:
1. If the breach occurs during a period of twenty-four (24) months
starting from the date of the present contract, an indemnity
corresponding to two years of salary, including profit-sharing, such
profit-sharing shall be limited to the amount of the profit-sharing
received by Mr. Hauser Kauffmann in 1995. This indemnity shall cover
all other indemnities that might be due in connection with a breach of
the contract (dismissal indemnity or other damages and interest), but
shall apply in addition to the indemnities relating to notice and paid
vacation that might be due. It will be paid to Mr. Hauser Kauffmann
over a period of one year, starting from the date of his departure from
the Company, in four (4) quarterly installments, each installment being
paid at the start of the quarter in question.
2. If the contract is breached after the said period of twenty-four (24)
months starting with the date of signature of this amendment, the
indemnity mentioned in this amendment will not be due, and the amounts
or indemnities due to Mr. Hauser Kauffmann will be determined by
applying the applicable provisions of law and of the collective
bargaining agreement in the metal-working industry, it being stated
that, in calculation of the said indemnities, Mr. Hauser Kauffmann's
aggregated seniority in the Company (meaning since November 15, 1964),
shall be taken into
2
<PAGE>
account and that the dismissal indemnity will be calculated on the
basis of the monthly average of salary and allowances ("appointments")
as well as the benefits and contractual gratuities from which he will
have benefitted during his last twelve (12) months of work in the
Company. It is also specified that in case of dismissal for serious
professional misconduct ("faute grave"), Mr. Hauser Kauffmann will be
entitled to the same indemnities.
III. ASSIGNMENTS
-----------
The corresponding provisions appearing in the employment contract of
January 10, 1986, and the amendment of March 23, 1993, are replaced by the
provisions of article I, Duties and Seniority, of this amendment.
IV. REMUNERATION
------------
With the exception of the provisions of article IV(d), relative to the
compensatory indemnity for paid vacation, the following revisions cancel and
replace the prior provisions contained in the employment contract of January 10,
1986, and in the amendment of March 23, 1993:
4.1 Salary
------
Mr. Hauser Kauffmann shall receive a gross annual salary of 975,000
FF, payable in thirteen monthly installments.
4.2 Vehicle
-------
A vehicle (of the Renault Safrane type, i.e., in a taxation category
less than or equal to 11 tax horsepower) will be at the disposition of Mr.
Hauser Kauffmann for carrying out his duties. All expenses related to the
said vehicle will be paid by the Company.
4.3 Profit-Sharing
--------------
In addition to his gross annual salary, Mr. Lebatard will receive a
profit-sharing bonus, the maximum amount of which will be equal to 50% of
the amount of Mr. Hauser Kauffmann's gross fixed annual remuneration,
excluding benefits in kind.
The profit-sharing will depend on the degree to which Mr. Hauser
Kauffmann meets targets and obtains results. 100% attainment of Mr. Hauser
Kauffmann's targets and desired results will lead to the allocation of
proportional profit-sharing amounting to 100% of the maximum amount defined
above. Meeting Mr. Hauser Kauffmann's objectives and desired results to an
extent of x% will entail the allocation of proportional profit-sharing
amount to x% of the maximum amount defined above.
3
<PAGE>
Mr. Hauser Kauffmann's targets and results will be determined by
reference to the Company's operating profits after taxes. They will be
supplemented by the definition of general instructions that will have to be
respected to meet the targets and desired results.
The objectives and results, as well as the general instructions, will
be set annually by the Company, in December of the previous year, by
agreement with Mr. Hauser Kauffmann. However, for the year 1996, the
determination of the targets, results and general instructions will occur
in March.
The profit-sharing due in connection with the financial year will be
paid at the latest on July 31 of the year following the financial year for
which it is allocated. Payment of the profit-sharing is subject to the
following conditions: Mr. Hauser Kauffmann must have held duties as an
employee of the Company for the entire financial year for which the profit-
sharing is due. If the employment contract is breached, for any reason
whatsoever, during a year, no profit-sharing will be due for the year in
question.
4.4 Retirement and Welfare
----------------------
Mr. Hauser Kauffmann shall benefit from the retirement and welfare
contract in effect with the Company. The shareout of the contributions
relating thereto (prior deduction and employer share) will be carried out
pursuant to rules and practices.
V. SUBORDINATION
-------------
The following provisions cancel and replace the prior provisions contained
in the employment contract of January 10, 1986, and in the amendment of March
23, 1993:
Mr. Hauser Kauffmann will carry out his duties under the authority of the
Company's President and CEO ("President Directeur General").
VI. PROFESSIONAL SECRECY
--------------------
The corresponding provisions appearing in the employment contract of
January 10, 1986, and in the amendment of March 23, 1993, remain unchanged.
VII. NON-COMPETITION CLAUSE
----------------------
The corresponding provisions appearing in the employment contract of
January 10, 1986, and in the amendment of March 23, 1993, are deleted.
4
<PAGE>
VIII. ARTICLE 50
----------
The corresponding provisions appearing in the employment contract of
January 10, 1986, and in the amendment of March 23, 1993, are no longer
applicable.
IX. EXPENSES
--------
In, addition, Mr. Hauser Kauffmann shall be entitled to reimbursement for
assignment, entertainment and travel expenses, in addition to the expenses for
the vehicle (as detailed above), which he may incur in connection with carrying
out his duties. He will be reimbursed for the said expenses upon receipt of
substantiating documents.
Signed in Paris
On March 29, 1996
(Signature) (Signature)
RDI Mr. Hauser Kauffmann
By: Alain LEBATARD
R.D.I. S.A. Signature, insofar as need be,
6-7 Allee Louis Breguet As representative of the new
93421 VILLEPINTE CEDEX stockholder
Tel.: 49.63.12.72 - Fax: 49.63.12.22
D 712 042 803 00031 (Signature)
5
<PAGE>
April 1, 1996
Bruce Atkinson
Michel Hauser Kauffmann
Subject: Bonus payment objectives
- -------
Dear Michel:
In regard to your bonus agreement, please not the following objectives
which must be achieved for a payout to be made:
<TABLE>
<CAPTION>
1. Net Income
----------
Payment Net Income FF
------- ---------- --
<S> <C> <C>
50% 5.8 FF million 487,000
45% 5.2 FF million 438,750
35% 4.0 FF million 337,207
0% 2.9 FF million 0
</TABLE>
For any net income result between 2.9 FF million and 5.8 FF million, the
bonus will be prorated.
2. Debt Covenants
--------------
In order to meet all debt covenants, you understand that the following debt
levels not be exceeded in 1996:
Long-term debt FF 6,735,000
Short-term debt FF 1,531,265
Receivable "paper" 40% of gross receivables
It is mandatory that we never exceed these amounts individually or
-----
collectively. If we do exceed these levels, we will violate our agreement with
Mass Mutual and bonus will not be paid.
<PAGE>
3. Check Signing Authority
-----------------------
With the exception of part numbers (Inventory) and Government payments, no
purchases or single payments of over FF 500,000 will be made without the prior
written approval of the President or in his absence, the CFO, of Control
Devices. To this extent, fragmenting a payment for a single item into two or
more checks would constitute a violation of this objective. In order to be
eligible for a bonus, compliance with this objective is required.
In regard of check signing authority, I would like you to institute the
following:
Authorized signatories: Michel Hauser Kauffmann, Alain Lebatard,
Bernard Viret, Danielle Gouzerh
For checks up to FF 25,000: any one of the above
For checks over FF 25,000: two of the above
Best regards,
/s/ Bruce Atkinson
-------------------------------
Bruce Atkinson
"Read and Approved"
/s/ Michel Hauser Kauffmann
- ------------------------------
Michel Hauser Kauffmann
<PAGE>
AMENDMENT TO THE CONTRACT OF WORK
---------------------------------
Between:
The Company RDI SART with a capital of 5,000,000 Francs, whose registered office
is at 5-7 Allee Louis Beguet, ZAC de Villepinte, 93420 VILLEPINTE, entered in
the BOBIGNY Trade and Companies Registered under No. B 712 042 803, represented
by Mr. Bernard VIRET, acting in the capacity of Managing Director.
ON THE ONE HAND,
And: Mr. Michel HAUSER KAUFFMANN, residing at 9 Rue Meynadier,
ON THE OTHER HAND,
Mr. Michel HAUSER KAUFFMANN is connected to the RDI Company by a contract of
work concluded in Paris on 10th January 1986.
The clause in the aforesaid contract took into consideration the economic and
legal situation of the RDI Company considered as an integral economic entity.
Since then the RDI Company:
* has taken control of the DDS Company which was then absorbed.
* is going to take control of the TOTEM Company.
* and is considering taking control of other companies and/or transferring
certain present or future business activities to subsidiaries.
Within this context, Mr. Michel HAUSER KAUFFMANN is or will be vested within the
aforesaid companies with assignments identical and/or complementary to those
defined in his contract of work. In addition, he may have to act for the
company as instructed and it is to be noticed that in that case all the
arrangement in his contract of work will be maintained with the reservation of
the adjustments stipulated in this amendment. The purpose of these adjustments
is to take into consideration the legal changes which have occurred as well as
economic changes. Mr. HAUSER KAUFFMANN will have to carry out all of the tasks
which devolve upon him.
Accordingly, the above mentioned contract of work dated 10th January 1986 is
amended in respect of the following points:
I. DUTIES AND SENIORITY
--------------------
Unchanged.
<PAGE>
II. CANCELLATION
------------
This section is henceforth worded as shown below; this cancels and replaces the
original wording.
"II. BREACH OF CONTRACT
------------------
In the case of the contract of work being broken, at the initiative of either of
the parties and whatever the reason for it, Mr. HAUSER KAUFFMANN will receive
from the RDI Company, which undertakes to pay it to him at the latest on the
last day of the period of notice, compensation for the breach of contract equal
to 2/5 of a month for the first eight years and 3/4 of a month for the following
years, the total amount of this compensation for breach of contract being
limited to 24 months salary. The remuneration used as the basis for
calculation will be equal to the average renumeration for the twelve months
preceding the date of notification of breach of contract."
III. ASSIGNMENT
----------
Section a) is henceforth as follows this cancels and replaces the original
wording:
"a) Mr. HAUSER KAUFFMANN will be responsible for the designing and application
of the company's sales policy both in France and for Exports, i.e. for all of
the sales, distribution and publicity activities.
The rest of section a) remains unchanged.
b) and c) Unchanged.
As from today's date, Mr. HAUSER KAUFFMANN will take on the title of Sales
Manager."
IV. REMUNERATION
------------
Sections a) and b) are henceforth worded as follows: this cancels and replaces
the original wording.
"a) With regard to the profit related bonus calculated on the turnover, it is
stated that the turnover to be decided on is understood to be the achieved by
the RDI Company and by its subsidiaries directly or indirectly held to the
extent of 50% and over, it being understood that sales made between companies in
the "group" thus formed will not be taken into consideration.
b) With regard to the profit-related bonus calculated on the current result
before Companies' Tax, the same conditions will prevail.
In other words, the current result before Companies' Tax is understood to be the
algebraic cumulative figure for the results for the RDI Companies and its
directly or indirectly controlled subsidiaries to the extent of 50% and over, it
being understood that the results (profits or losses) made between companies in
the group thus formed will be neutralized."
<PAGE>
V. SUBORDINATION
-------------
The following wording is added to Section V:
"Mr. Michel HAUSER KAUFFMANN will exercise his business activities under the
control of the Managing Director and the group of partners."
All the other arrangements in the contract remains unchanged.
Concluded at Villepinte on 23rd March 1993
[In handwriting] A Managing Director
Passed as agreed [Signature] [Signature] B.Viret
BETWEEN La Societe RDI (Realigations et Diffusion pour l'Industrie)
32 Rue Breguet
75011 PARIS
Represented by its Managing Director
Madame CHAMBRELAN-DUPUY
ON THE ONE HAND
---------------
AND: Mr. Michel HAUSER KAUFFMANN
Domiciled at 7 Rue Curial, 75019 PARIS
ON THE OTHER
------------
A PRIOR REMINDER BEING GIVEN THAT:
- ----------------------------------
Mr. Michel HAUSER KAUFFMANN was engaged on 15th November 1964 in the capacity of
Sales Representative by the Company ELECTRIC PRODUCTION whose Managing Director
is Madame CHAMBRELAN-DUPUY who is also the Managing Director of the RDI Company.
As from 1st September 1973, Mr. HAUSER KAUFFMANN devoted an increasing amount of
his time to carrying out sales duties within the RDI Company.
Madame CHAMBRELAN-DUPUY, Managing Director of the Company ELECTRIC PRODUCTION
and Managing Director of RDI Company, wanted Mr. HAUSER KAUFFMANN to cancel his
duties within the ELECTRIC PRODUCTION Company in order to devote himself fully
to the development of the RDI Company, and particularly to the Management of
Purchases and Exports.
<PAGE>
Mr. HAUSER KAUFFMANN accepted this in principle on condition that certain
conditions of his collaboration within the RDI Company would be redefined.
WHAT WAS AGREED:
- ----------------
I - DUTIES AND SENIORITY:
- -------------------------
Mr. HAUSER KAUFFMANN has retained his duties as Manager of Purchasing and
Exports in the RDI Company which from now on he will exercise with the exclusion
of any other professional activities.
By mutual agreement, the staring point of his seniority is fixed as at 15th
November 1964, the date on which he was engaged by the ELECTRIC PRODUCTION
Company in which he occupied the post of Marketing Manager up to 31st December
1985.
This contract is governed by the Collective Agreement of the Metallugical
Industry ("Senior" position III C), except for any more favorable clause.
Either of the parties can terminate this contract provided the other party is
advised of this by registered mail six months before the date on which the
cancellation comes into effect.
In the case of redundancy due to the RDI Company, Mr Hauser Kauffmann is
entitled, except in the case of a serious fault or misdemeanor, to redundancy
compensation of 2/3 of a month for the first eight years and 3/4 of a month for
the following years, the total of this redundancy money being limited to 24
months salary. The remuneration used as the basis for a calculation will be
equal to the average remuneration for the twelve months preceding the date of
notification of redundancy.
III ASSIGNMENTS
- -----------------
a) Mr. Hauser Kauffmann will be responsible for the designing and application of
the company's sales policy with regard to Exports, i.e. all of the sales,
marketing, distribution and publicity activities.
He will also be responsible for Purchasing, Relations and Transactions with the
Companies whose customer, distributor or representative RDI is or will be.
Mr. Hauser Kauffmann will devote himself full time to these activities.
b) As Purchasing and Export Manager, Mr. Hauser Kauffmann will continue, while
respecting the Collective Agreement of the Metallugical Industry, to have full
powers to recruit and discharge the personnel of his choice, necessary for
fulfilling his task and achieving the targets which are communicated to him.
c) In general, Mr.Hauser Kauffmann will take on full responsibility for sales in
his territory, which is understood to mean that his actions will consist
particularly of:
<PAGE>
* Recruiting
* Motivating
* Supporting
* Training
* Discharging
the personnel with reports to him.
IV REMUNERATION
- ---------------
As remuneration for the activities defined above, Mr. Hauser Kauffmann will
receive a salary determined as follows:
a) a fixed annual basic salary of 520,000 Francs payable over thirteen (13)
months. This basic salary will be reviewed annually.
b) A profit related bonus equal to ONE PER CENT of the increase in the runover
before tax achieved by the Company during the financial year in question
compared with the previous financial year.
In the case of a drop in the turnover, the percentage will be calculated in
relation to the previous highest turnover.
c) A profit related bonus equal to TWO PER CENT of the current result before tax
of the Company for the preceding financial year, as defined by the 1982 revised
accounting plan (and consequently before extraordinary results).
The following will have been deducted from the basis of the calculation of the
aforesaid profit related bonus:
* The fixed remuneration mentioned in section a) above;
* The profit related bonus on the turnover mentioned in section b) above;
* The social contributions and fiscal charges on these same sums.
Responsibility for this remuneration (and the provision for social contributions
and fiscal charges relating thereto) will be taken on in the accounts for the
financial year used as the basis for the calculations. It will only be paid
during the following financial year. However, none of these bonuses can exceed
3/12ths of the annual salaries defined in section IV a).
d) In accordance with the legislation in force, Mr. Hauser Kauffmann will be
entitled to compensation for paid holidays. This compensation will only concern
the fixed part defined in section a) above and will form an integral part of it.
In other words, this compensation appears in the amount indicated in section a)
above.
e) A vehicle (of the R25 type, i.e. a tax category below or equal to 11 HP
fiscal rating) will be borne by the Company.
<PAGE>
All expenses relating to this vehicle (insurance, servicing, repairs, dues and
taxes etc.) will be borne by the Company.
Mr. Hauser Kauffmann will also be entitled to reimbursement of the cost of
assignments, receiving visitors and travelling expenses, other than those
relating to the vehicle, which he may incur within the framework of carrying out
his duties. These expenses will be refunded to him against substantiating
documents.
Mr. Hauser Kauffmann will have the benefit of the retirement and provident
policies in force within the Company. The contributions relating thereto
(amount deducted at source and employer's share) will be split in accordance
with general rules and practices.
Finally, he can, if he so wishes, take advantage of holiday periods exceeding
the legal duration. This extra holiday time must be taken all at once and that
will be done in exchange for relinquishing a share of his profit related bonuses
as defined in sections 4b 4c.
The sum which Mr. Hauser Kauffmann can relinquish for these extra holidays will
be limited to half of the sums represented by his overall profit related bonuses
for the previous year and the maximum duration of these extra holidays will be
calculated in proportion to the sum relinquished, taking as the basis for
calculation the monthly salary as defined in section 4a.
V. SUBORDINATION
- ----------------
Mr. Hauser Kauffmann will be under the direct authority of Madame Jacqueline
Chambrelan-Dupuy, the Company's Managing Director.
VI. PROFESSIONAL SECRECY
- -------------------------
Throughout the duration of his contract, Mr. Hauser Kauffmann will be subject to
professional secrecy, in particular with regard to the manufacturing processes
used by the Company.
VII. CLAUSE CONCERNING NON COMPETITION
- ---------------------------------------
If Mr. Hauser Kauffmann leaves the Company, whether voluntarily or not, RDI
retains its right to prohibit him from exercising, on his own account or on
behalf of some other competing Company, the same business activities as defined
above in Section III with regard to the products marketed by the Company.
This right of prohibition is also applicable to producers similar to those
marketed by the RDI Company.
The prohibition cannot exceed a period of 1 year, renewable once, counting from
the date of the end of the duties, and for the territorial area detailed in
Section III above.
This prohibition will only be effective if it is notified by the Company in the
redundancy letter or,
<PAGE>
in the case of resignation, within eight days following notification of
resignation.
In exchange, a special monthly compensation equal to 3/4 of the average monthly
salaries as will as contractual profit related bonuses, will be paid for the
duration of the clause on non competition.
As this monthly compensation is in exchange for the clause on non competition,
it ceases to be due if Mr. Hauser Kauffmann infringes the condition, without
prejudice to any damages which may be claimed from you.
VIII CLAUSE 50 OF THE LAW DATED 24TH JULY 1966
- ------------------------------------------------
Taking into consideration Mr. Hauser Kauffmann's capacity as partner in the RDI
Company, this contract will be subject to checking by the partners under the
conditions laid done in Article 50 of the Law dated 24th July 1966.
10.1.86 PARIS
Michel Hauser Kauffmann J. Chambrelan-Dupuy
[Signature] Managing Director
[Signature]
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our firm included in or made part of this
registration statement.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Stamford, Connecticut
August 1, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our firm included in or made part of this
registration statement.
/s/ Thierry Aymonier
-----------------------------
BARBIER FRINAULT & ASSOCIES
Member of Andersen Worlwide SC
Thierry Aymonier
Paris, France,
August 1, 1996
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