<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 10, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
STELLEX INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-3971931
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
</TABLE>
and subsidiary guarantors
TSMD ACQUISITION CORP.
STELLEX MICROWAVE SYSTEMS, INC.
KII HOLDING CORP.
KII ACQUISITION CORP.
STELLEX AEROSPACE
BANDY MACHINING INTERNATIONAL
PARAGON PRECISION PRODUCTS
SCANNING ELECTRON ANALYSIS LABORATORIES, INC.
GENERAL INSPECTION LABORATORIES, INC.
(Exact name of registrants as specified in their respective charters)
<TABLE>
<S> <C>
DELAWARE 13-3964808
CALIFORNIA 77-0465876
DELAWARE 13-3954446
DELAWARE 13-3954445
CALIFORNIA 95-4172476
CALIFORNIA 95-4294446
CALIFORNIA 95-2882883
CALIFORNIA 95-4172314
CALIFORNIA 95-3972454
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
</TABLE>
3559
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
------------------------
<TABLE>
<S> <C>
WILLIAM L. REMLEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
STELLEX INDUSTRIES, INC.
3333 HILLVIEW AVE. 3333 HILLVIEW AVE.
PALO ALTO, CALIFORNIA 94304-1223 PALO ALTO, CALIFORNIA 94304-1223
(650) 493-4141 (650) 493-4141
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL NUMBER,
EXECUTIVE OFFICE) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
COPY TO:
ROBERT W. ERICSON
DANIEL A. NINIVAGGI
WINSTON & STRAWN
200 PARK AVENUE
NEW YORK, NEW YORK 10166
(212) 294-6885
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the Securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
<S> <C> <C> <C> <C>
Series B 9 1/2% Senior Subordinated Notes due 2007........ $100,000,000 100% $100,000,000 $30,304
Guarantee of Series B 9 1/2% Senior Subordinated Notes due
2007.................................................... $100,000,000 (2) (2) (2)
Total..................................................... $100,000,000 100% $100,000,000 $30,304
</TABLE>
(1) In accordance with Rule 457(f)(2), the registration fee is calculated based
on the book value, which has been computed as of December 1, 1997, of the
outstanding 9 1/2% Senior Subordinated Notes due 2007 of Stellex Industries,
Inc.
(2) Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee is
payable for the Guarantees.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE 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, AS AMENDED, OR UNTIL THIS 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>
STELLEX INDUSTRIES, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM
NUMBER ITEM LOCATION IN PROSPECTUS
- ------ ------------------------------------------ --------------------------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus.............................. Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus..................... Inside Front Cover Page; Outside Back
Cover Page
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other
Information............................. Summary; Risk Factors; Selected Historical Financial Data; Pro
Forma Consolidated Financial Data
4. Terms of the Transaction.................. Outside Front Cover Page; Summary; Description of Notes; The
Exchange Offer; Certain U.S. Federal Income Tax
Considerations
5. Pro Forma Financial Information........... Pro Forma Consolidated Financial Data
6. Material Contracts with the Company Being
Acquired................................ Inapplicable
7. Additional Information Required........... Inapplicable
8. Interests of Named Experts and
Counsel................................. Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Inapplicable
10. Information with Respect to S-3
Registrants............................. Inapplicable
11. Incorporation of Certain Information by
Reference............................... Inapplicable
12. Information with Respect to S-3 or S-2
Registrants............................. Inapplicable
13. Incorporation of Certain Information by
Reference............................... Inapplicable
14. Information with Respect to Registrants
other than S-3 or S-2 Registrants....... Outside Front Cover Page; Summary; Risk Factors;
Capitalization; Pro Forma Consolidated Financial Data;
Selected Historical Financial Data; Management's Discussion
and Analysis of Financial Condition and Results of
Operations; Business; Management; Certain Transactions;
Principal Stockholders; Description of Certain Indebtedness;
Description of Notes
15. Information with Respect to S-3
Companies............................... Inapplicable
16. Information with Respect to S-3 or S-2
Companies............................... Inapplicable
17. Information with Respect to Companies
Other than S-3 or S-2 Companies......... Inapplicable
18. Information if Proxies, Consents or
Authorizations are to be Solicited...... Inapplicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited
or in an Exchange Offer................. Management; Principal Stockholders; Certain Transactions
</TABLE>
<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 the registration or qualification under the securities laws of any such
State.
SUBJECT TO COMPLETION, DATED DECEMBER 10, 1997.
PROSPECTUS
STELLEX INDUSTRIES, INC.
OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF ITS
SERIES B 9 1/2% SENIOR SUBORDINATED NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR
EACH $1,000 IN PRINCIPAL AMOUNT OF ITS OUTSTANDING
9 1/2% SENIOR SUBORDINATED NOTES DUE 2007,
OF WHICH $100,000,000 PRINCIPAL AMOUNT IS OUTSTANDING
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED.
------------------------
Stellex Industries, Inc., a Delaware corporation ('Stellex,' and together
with its direct and indirect subsidiaries, the 'Company'), hereby offers (the
'Exchange Offer'), upon the terms and conditions set forth in this Prospectus
(the 'Prospectus') and the accompanying Letter of Transmittal (the 'Letter of
Transmittal'), to exchange $1,000 principal amount of its Series B 9 1/2% Senior
Subordinated Notes due 2007 (the 'New Notes'), registered under the Securities
Act of 1933, as amended (the 'Securities Act'), pursuant to a Registration
Statement of which this Prospectus is a part, for each $1,000 principal amount
of its outstanding 9 1/2% Senior Subordinated Notes due 2007 (the 'Old Notes'),
of which $100,000,000 principal amount is outstanding. The form and terms of the
New Notes are the same as the form and terms of the Old Notes (which they
replace), except that the New Notes will bear a Series B designation and will
have been registered under the Securities Act and, therefore, will not bear
legends restricting their transfer and will not contain certain provisions
relating to the payment of Liquidated Damages (as defined herein) which were
included in the terms of the Old Notes in certain circumstances relating to the
timing of the Exchange Offer. The New Notes will evidence the same debt as the
Old Notes (which they replace) and will be issued under and be entitled to the
benefits of the Indenture, dated as of October 31, 1997 (the 'Indenture'), among
Stellex, the Subsidiary Guarantors (as defined herein) and Marine Midland Bank,
as trustee (the 'Trustee'). The Old Notes and the New Notes are sometimes
referred to herein collectively as the 'Notes.' See 'The Exchange Offer' and
'Description of Notes.'
Interest on the New Notes will be paid semi-annually on May 1 and November 1
of each year, commencing on May 1, 1998. The New Notes will mature on November
1, 2007 unless previously redeemed. The New Notes will be redeemable, in whole
or in part, at the option of Stellex, at any time on or after November 1, 2002,
at the redemption prices set forth herein, plus accrued and unpaid interest, if
any, thereon, to the date of redemption. In addition, on or prior to November 1,
2000, Stellex may redeem, at any time and from time to time, up to 35% of the
aggregate principal amount of the Notes at a redemption price of 109.50% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon, to the date of redemption, with the net cash proceeds
from one or more Public Equity Offerings (as defined herein); provided, however,
that at least 65% of the aggregate principal amount of the Notes originally
issued remains outstanding following each such redemption. In addition, at any
time prior to November 1, 2002, Stellex may, at its option, redeem the Notes, in
whole but not in part, at a redemption price equal to 100% of the principal
amount thereof plus the applicable Make-Whole Premium (as defined herein). Upon
the occurrence of a Change of Control (as defined herein), each holder of Notes
may require Stellex to repurchase such holder's Notes, in whole or in part, at a
repurchase price of 101% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon, to the repurchase date.
See 'Description of Notes.'
The New Notes will be unsecured and will be subordinated in right of payment
to all existing and future senior indebtedness of Stellex. The New Notes will
rank pari passu with any future senior subordinated indebtedness of Stellex and
will rank senior to all other subordinated indebtedness of Stellex. The New
Notes will be unconditionally guaranteed, jointly and severally, on an
unsecured, senior subordinated basis, by the Subsidiary Guarantors. The
Subsidiary Guarantees (as defined herein) will be general, unsecured obligations
of the Subsidiary Guarantors, subordinated in right of payment to all existing
and future senior indebtedness of the Subsidiary Guarantors. As of September 30,
1997, on a pro forma basis after giving effect to the Transactions, the
aggregate principal amount of Stellex's outstanding senior indebtedness would
have been approximately $2.1 million (excluding unused commitments) and Stellex
would have had no senior subordinated indebtedness outstanding other than the
Notes. As of the same date, the aggregate principal amount of senior
indebtedness of the Subsidiary Guarantors outstanding would have been
approximately $2.6 million (exclusive of guarantees under the New Credit
Facilities). The Indenture pursuant to which the New Notes will be issued
permits Stellex and the Subsidiary Guarantors to incur additional indebtedness,
including senior indebtedness, subject to certain limitations. See 'Description
of Notes.'
(Continued on Next Page)
------------------------
SEE 'RISK FACTORS' BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE
OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY, NOR HAS ANY SUCH COMMISSION OR REGULATORY AUTHORITY
REVIEWED OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1997.
<PAGE>
(Continued from Cover Page)
Stellex will accept for exchange any and all Old Notes validly tendered and
not withdrawn prior to 5:00 p.m., New York City time on , 1998,
unless extended by Stellex in its sole discretion (the 'Expiration Date').
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. The Exchange Offer is subject to certain customary conditions.
The Old Notes were sold in an aggregate principal amount of $100.0 million
by Stellex on October 31, 1997 to Societe Generale Securities Corporation, BT
Alex. Brown Incorporated and Jefferies & Company, Inc. (the 'Initial
Purchasers') in a transaction not registered under the Securities Act in
reliance upon the private offering exemption under Section 4(2) of the
Securities Act (the 'Initial Offering'). The Initial Purchasers subsequently
placed the Old Notes with qualified institutional buyers in reliance upon Rule
144A under the Securities Act and with a limited number of accredited investors
(as defined in Rule 501(A)(1), (2), (3) or (7) under the Securities Act).
Accordingly, the Old Notes may not be reoffered, resold or otherwise transferred
in the United States unless registered under the Securities Act or unless an
applicable exemption from the registration requirements of the Securities Act is
available. The New Notes are being offered hereunder in order to satisfy the
obligations of Stellex and the Subsidiary Guarantors under the Registration
Rights Agreement (as defined herein) entered into by Stellex and the Subsidiary
Guarantors in connection with the Initial Offering. See 'The Exchange Offer.'
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the 'Commission') to third parties, Stellex believes the
New Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by any holder thereof (other than any such
holder that is an 'affiliate' of Stellex within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such holder's business and such holder has no
arrangement or understanding with any person to participate in the distribution
of such New Notes. See 'The Exchange Offer--Resale of the New Notes.' Each
broker-dealer (a 'Participating Broker-Dealer') that receives New Notes for its
own account pursuant to the Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
'underwriter' within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such Participating Broker-Dealer
as a result of marketmaking activities or other trading activities. The Company
has agreed that, for a period of 90 days after the Expiration Date, it will make
this Prospectus available to any Participating Broker-Dealer for use in
connection with any such resale. See 'Plan of Distribution.'
Holders of Old Notes not tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act. Stellex will
pay all the expenses incurred by it incident to the Exchange Offer. See 'The
Exchange Offer.'
There has not previously been any public market for the Old Notes or the New
Notes. Stellex does not intend to list the New Notes on any securities exchange
or to seek approval for quotation through any automated quotation system. There
can be no assurance that an active market for the New Notes will develop. See
'Risk Factors--Lack of Public Market; Restrictions on Transferability.'
Moreover, to the extent that Old Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Old Notes
could be adversely affected.
The New Notes will be available initially only in book-entry form and
Stellex expects that the New Notes issued pursuant to the Exchange Offer will be
issued in the form of a Global Note (as defined herein), which will be deposited
with, or on behalf of, The Depository Trust Company ('DTC') and registered in
its name or in the name of Cede & Co., its nominee. Beneficial interests in the
Global Note representing the New Notes will be shown on, and transfers thereof
will be effected through, records maintained by DTC and its participants. After
the initial issuance of the Global Note, New Notes in certificated form will be
issued in exchange for the Global Note only under the limited circumstances set
forth in the Indenture. See 'Description of Notes--Book-Entry, Delivery and
Form.'
<PAGE>
AVAILABLE INFORMATION
Stellex and the Subsidiary Guarantors have filed with the Commission a
Registration Statement on Form S-4 (the 'Exchange Offer Registration Statement,'
which term shall encompass all amendments, exhibits, annexes and schedules
thereto) pursuant to the Securities Act, and the rules and regulations
promulgated thereunder, covering the New Notes being offered hereby. This
Prospectus does not contain all the information set forth in the Exchange Offer
Registration Statement. For further information with respect to the Company and
the Exchange Offer, reference is made to the Exchange Offer Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Exchange Offer Registration Statement, reference is made to the
exhibit for a more complete description of the document or matter involved, and
each such statement shall be deemed qualified in its entirety by such reference.
The Exchange Offer Registration Statement, including the exhibits thereto, can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at the
Regional Offices of the Commission at 7 World Trade Center, 13th Floor, New
York, New York 10048 and at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a World
Wide Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of such site is http://www.sec.gov.
As a result of the filing of the Exchange Offer Registration Statement with
the Commission, Stellex and the Subsidiary Guarantors will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the 'Exchange Act'), and in accordance therewith will be required to file
periodic reports and other information with the Commission. The obligation of
Stellex and the Subsidiary Guarantors to file periodic reports and other
information with the Commission will be suspended if the Notes are held of
record by fewer than 300 holders as of the beginning of any fiscal year of
Stellex and the Subsidiary Guarantors other than the fiscal year in which the
Exchange Offer Registration Statement is declared effective. Stellex has agreed
that, whether or not it is required to do so by the rules and regulations of the
Commission, for so long as any of the Notes remain outstanding, it will furnish
to the holders of the Notes and file with the Commission (unless the Commission
will not accept such a filing) (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if Stellex were required to file such forms,
including a 'Management's Discussion and Analysis of Financial Condition and
Results of Operations' and, with respect to the annual information only, a
report thereon by Stellex's independent auditors and (ii) all current reports
that would be required to be filed with the Commission on Form 8-K if Stellex
were required to file such reports.
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS CERTAIN 'FORWARD-LOOKING STATEMENTS' WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT
CONCERNING THE COMPANY'S OPERATIONS, OPERATING PERFORMANCE AND FINANCIAL
CONDITION, WHICH ARE SUBJECT TO INHERENT UNCERTAINTIES AND RISKS, INCLUDING
THOSE IDENTIFIED UNDER 'RISK FACTORS.' ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THIS PROSPECTUS. WHEN USED IN THIS PROSPECTUS, THE
WORDS 'ESTIMATE,' 'PROJECT,' 'ANTICIPATE,' 'EXPECT,' 'INTEND,' 'BELIEVE' AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
i
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified by, and should be read in conjunction
with, the more detailed information and consolidated financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. As used in
this Prospectus, unless the context otherwise requires, 'Stellex' refers to
Stellex Industries, Inc. (successor to Kleinert Industries, Inc.), the issuer of
the Notes, and the 'Company' refers to Stellex and its direct and indirect
subsidiaries. On October 31, 1997, Stellex acquired the tactical subsystems and
microwave devices businesses of Watkins-Johnson Company (the 'W-J Acquisition').
The W-J Acquisition, the Kleinert Acquisition (as defined), the Initial Offering
and the application of the net proceeds therefrom, and the consummation of the
New Credit Facilities (as defined) and the incurrence of $2.1 million of
indebtedness thereunder to partially fund the transactions described under
'--The Initial Offering--Notes,' are hereinafter referred to as the
'Transactions.' Stellex is a holding company, all of whose operations are
conducted through its operating subsidiaries. All references to historical
financial information contained herein are references to financial information
as reported in the historical financial statements of TSMD (as defined) and
Kleinert (as defined), as the case may be. Unless otherwise specified, pro forma
financial information and references to the Company's business or operations
contained in this Prospectus give effect to the Transactions. See Appendix I for
a glossary of definitions of certain technical or industry terms used herein.
THE COMPANY
The Company, through its subsidiaries Stellex Microwave Systems, Inc.
('Stellex Microwave') and Stellex Aerospace ('Stellex Aerospace'), is a leading
provider of highly engineered subsystems and components for the aerospace,
defense and space industries. Stellex Microwave is a worldwide leader in the
design, manufacture and marketing of fully integrated and proprietary microwave
electronic subsystems for radar-guided tactical missile systems and a broad line
of high radio frequency and microwave frequency single function modules. Stellex
Microwave products are used in the generation, reception and translation of
communication, data and radar signals. Stellex Aerospace is a leader in the
machining of turbomachinery, aircraft hinges and other structural components for
the aerospace and space industries. For the year ended December 31, 1996 and the
nine months ended September 30, 1997, after giving pro forma effect to the
Transactions, the Company would have had sales of $113.5 million and $91.1
million, respectively, and Adjusted EBITDA (as defined) of $15.1 million and
$16.9 million, respectively. As of September 30, 1997, after giving pro forma
effect to the Transactions, the Company would have had $99.8 million in order
backlog.
The Company's objective is to provide extensive engineering, low cost
manufacturing and systems integration to the consolidated base of original
equipment manufacturers ('OEMs') within its industries. The Company believes
that it is well positioned to benefit from certain trends in its markets
including increases in the production of high-priority platforms, airframes and
spare parts, the use of sophisticated electronics, the consolidation of OEM
suppliers, and the outsourcing of subsystems.
STELLEX MICROWAVE
Stellex Microwave is a worldwide leader in the design, manufacture and
marketing of proprietary microwave electronic subsystems for use in radar-guided
munitions and signal intelligence equipment. As the largest independent supplier
of microwave subsystems for tactical missiles, Stellex Microwave's products are
critical to the onboard navigation, communications and target location systems
of many of the highest priority missile systems developed by the United States
Department of Defense (the 'DoD'). The Company's proprietary products, low cost
manufacturing and extensive engineering capabilities have enabled it to become
the sole or primary source for the principal programs it supplies. These
programs include the Advanced Medium Range Air-to-Air Missile ('AMRAAM'), the
Patriot missile and the Standard Missile, the most widely used radar-guided
missiles of their type in the U.S. armed forces. In addition, the Company is
currently participating in production programs for the AEGIS radar system and
the TARTAR fire control system, and has been recently selected to participate in
the program to produce the Longbow Hellfire missile, one of the U.S. Army's most
significant new missile systems.
Stellex Microwave is also a leading manufacturer of multi-function modules
('MFMs') and of single function modules ('SFMs'), such as high radio frequency
mixers, amplifiers, tuners, converters, filters and oscillators, which are sold
to system designers and manufacturers. Stellex Microwave has provided the
1
<PAGE>
intelligence, electronic warfare, space and communication markets with a broad
assortment of such devices since 1957. For the year ended December 31, 1996 and
the nine months ended September 30, 1997, Stellex Microwave had sales of $89.2
million and $67.9 million, respectively.
STELLEX AEROSPACE
Stellex Aerospace is a leading provider of high precision products and
services to certain niche markets within the aerospace and space industries.
Through Bandy Machining International ('Bandy'), Stellex Aerospace is the
world's leading contract manufacturer of commercial and military precision
aircraft hinges. Hinges manufactured by Bandy are installed on every type of
aircraft currently produced by the leading aircraft OEMs, including The Boeing
Company ('Boeing'), McDonnell Douglas Corporation ('McDonnell Douglas'), Airbus
Industrie ('Airbus'), Lockheed Martin Corporation ('Lockheed Martin'), and
Northrop Grumman Corporation ('Northrop Grumman'). Through Paragon Precision
Products ('Paragon'), Stellex Aerospace is a leader in the machining of complex
turbomachinery. Paragon's flexible manufacturing operations permit the
production of both (i) highly engineered, close tolerance prototype components,
which are generally manufactured from expensive, exotic alloys and are found in
high performance gas turbine engines and liquid fuel rocket engines, and (ii)
higher volume standard components used in aircraft and industrial power
actuation systems and high performance turbine engines. Through Scanning
Electron Analysis Laboratories, Inc. ('SEAL') and General Inspection
Laboratories, Inc. ('GIL'), Stellex Aerospace also provides a comprehensive
range of services for testing of sophisticated manufactured aerospace
components. For the year ended December 31, 1996 and the nine months ended
September 30, 1997 (collectively comprised of Kleinert (predecessor) sales for
the six months ended June 30, 1997 and Stellex (successor) for the three months
ended September 30, 1997), Stellex Aerospace had sales of $24.3 million and
$23.2 million, respectively.
COMPETITIVE STRENGTHS
The Company believes that its competitive position in the markets it serves
is based on superior product design and performance and a consistent record of
meeting rigorous DoD and OEM contract performance criteria. Specifically, the
Company believes that its position is primarily attributable to the following
competitive strengths:
Strong Partnering Relationships with Major OEMs. As an incumbent preferred
supplier on high-priority, long-term programs, the Company has over many years
solidified its relationships with major OEMs. The Company participates in
concurrent design, engineering and development of new programs and provides cost
and performance enhancement for existing programs. Stellex Microwave often
serves as the sole source supplier of mission-critical subsystems to Hughes
Missile Systems Company ('Hughes'), Raytheon Company ('Raytheon'), Rockwell
International Corporation ('Rockwell'), Boeing and Lockheed Martin. Stellex
Microwave was selected by Hughes as subcontractor of the year for each of 1994,
1995 and 1996. Paragon is a preferred supplier, often as a sole or primary
source, of a variety of turbomachinery and turbine engine components to such
OEMs as AlliedSignal, Inc. ('AlliedSignal'), Aerojet General Corporation
('Aerojet') (a subsidiary of GenCorp, Inc.) and the Rocketdyne division of
Boeing ('Rocketdyne'). Bandy also has received the highest quality awards from,
and is a preferred supplier to, many of its customers, including Boeing,
McDonnell Douglas, Airbus, Lockheed Martin, and Northrop Grumman.
Integration Leadership. Stellex Microwave has developed proprietary
technology, products and manufacturing processes which integrate the electronic
functions as well as the mechanical and packaging requirements of microwave
subsystems into 'snap-together' designs that eliminate the need for expensive
and less reliable external cables and connectors. The Company's proprietary
packaging and substrate materials and manufacturing processes were developed
over a period of many years and are instrumental in the superior performance of
its integrated microwave subsystems. The Company believes that the leading edge
technology and manufacturing processes which it has developed for high
production volume missile subsystems will provide a significant competitive
advantage in developing integrated products for certain commercial markets.
Low Cost Manufacturing. By following systematic design parameters that
balance the need for multi-functionality, cost reduction and reliability and by
using a modularized automated manufacturing process, the Company is able to
manufacture subsystems in high volume and achieve the highest percentage of
usable product in its industry. The Company believes that its manufacturing
processes enable it to reduce unit costs and shorten
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development and production cycles, thereby providing the Company with a
significant cost advantage in competing for high volume subsystem programs.
Reputation for High Quality. The Company's individual microwave devices
are well known among designers of high performance electronic equipment, and the
catalogs used by Stellex Microwave have been standard reference materials since
1978. Paragon is one of five companies in the United States which competes for
and produces sophisticated, close tolerance machined prototypes of rotating
turbine components for use in aircraft jet engines and other components for use
in spacecraft rocket engines. Management believes that the 'Bandy' name is the
most recognized name in precision aircraft hinges in the world. GIL is one of
the leading independent, full-service non-destructive testing ('NDT')
laboratories in the United States. SEAL is one of three companies in the United
States approved by the National Aeronautics and Space Administration ('NASA') to
perform destructive physical analysis on high-reliability space electronic
components.
INDUSTRY TRENDS
United States defense budget appropriations are forecasted to remain
relatively constant or increase slightly in the near term, reversing the recent
decline in spending which precipitated the dramatic consolidation among prime
contractors. In order to enhance readiness and modernize their forces, military
agencies are expected to continue to maximize resources by modifying and
upgrading existing systems and platforms and relying upon sophisticated
electronic equipment for existing and new systems. In furtherance of their
objectives, agencies are expected to require enhanced performance and cost
reductions from their prime contractors. The Company believes that this cost and
technology pressure will cause continued consolidation of the defense industry's
supply base and cause prime contractors to (i) focus on the design and
manufacture of overall weapon systems and (ii) outsource the manufacture and
integration of subsystems to independent commercially-oriented suppliers. The
Company believes that the current procurement environment favors the Company's
proprietary design and manufacturing processes, which are characterized by
limited reliance on government funded research and development.
The Company believes that current trends in the aerospace industry are
favorable for both the consolidated OEMs and their preferred suppliers.
According to the Boeing Commercial Airplane Group 1997 Current Market Outlook
(the 'Boeing Report'), expenditures on new aircraft production, revenue
passenger miles and the worldwide fleet of aircraft have all increased in recent
years and are projected to grow further over the next five years. In addition,
military procurements for aircraft replacement parts and components are expected
to increase as a result of an aging fleet of aircraft and generally low
inventory levels. Management believes that these factors will benefit aerospace
industry preferred suppliers, such as the Company, that were able to withstand
the difficult operating environment of the early 1990s.
BUSINESS STRATEGY
The Company's objective is to strengthen its position as a leading supplier
of highly engineered subsystems and components to its customers in the
aerospace, defense and space industries and to expand its business to contiguous
commercial markets. The following are the key strategies the Company intends to
employ to achieve this objective:
Exploit Outsourcing Trend. The Company estimates that approximately 50% of
the subsystems used on all types of radar-guided missiles are still produced
internally by OEMs. The Company believes it is well positioned to compete
effectively for this remaining in-house production by capitalizing on its
proprietary products and low cost manufacturing processes. For example, Stellex
Microwave has increased its share of the individual microwave subsystems onboard
the AMRAAM from approximately 50% in 1992 to over 90% in 1997. Many of these
AMRAAM subsystems had previously been produced by the in-house microwave
component groups of Hughes and Raytheon. In addition, the design of one of the
Company's subsystems produced for the Standard Missile was incorporated in the
1997 Raytheon design of the Advanced Sea Sparrow missile. Overall program costs
of these missiles were substantially reduced as a result of this outsourcing.
The Company also believes that it has opportunities to capture new business in
the commercial aerospace industry as a result of additional outsourcing.
Capture Share in Commercial Markets. The Company believes that its
experience and expertise in high frequency microwave subsystem integration
provide it with significant opportunities to develop integrated
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products for commercial applications. The Company's current defense and
aerospace customers are also the world's largest manufacturers of satellites.
These manufacturers currently purchase subsystems for their defense platforms
but only purchase SFMs for space applications. Using its existing technologies,
the Company intends to modify and market MFMs and, eventually, entire microwave
subsystems for space applications to supplement or replace such SFM sales.
Leverage Prototype Expertise. The Company will seek to gain a larger share
of the production volume for turbomachinery parts for which it develops the
prototype. In response to customer requests, the Company has, and plans to
continue to, selectively increase its production capacity such that it can
manufacture efficiently at higher volumes.
Acquire Selected Businesses. The Company anticipates that the
consolidation of the historically fragmented aerospace component manufacturing
industry will provide opportunities for selective acquisitions. In addition, in
response to growing demand for microwave products, the Company will pursue
selective acquisitions that can broaden its microwave product offering or
provide it with enhanced technological or strategic capabilities. Such
acquisitions offer the opportunity to broaden the Company's product lines and
manufacturing capabilities, diversify its customer base, improve its absorption
of corporate overhead and enhance its attractiveness as a leading supplier to
OEMs in the aerospace, defense and space industries.
THE TRANSACTIONS
On July 1, 1997, KII Holding Corp. ('KII Holding'), through a wholly-owned
subsidiary, acquired (the 'Kleinert Acquisition') all of the issued and
outstanding capital stock of Kleinert Industries, Inc. ('Kleinert') (currently
Stellex Aerospace) for approximately $26.5 million (including the assumption of
$2.6 million of indebtedness and the issuance to the seller of a note for
approximately $1.75 million). The Company, which was formed in September 1997,
currently owns approximately 80% of the issued and outstanding common stock of
KII Holding, with Stellex Aerospace's management holding the remainder of its
outstanding common stock. See 'Certain Transactions--The Kleinert Acquisition.'
On October 31, 1997, the Company, through a wholly-owned subsidiary,
acquired (the 'W-J Acquisition' and, together with the Kleinert Acquisition, the
'Acquisitions') the tactical subsystems and microwave devices businesses of
Watkins-Johnson ('TSMD') for a net purchase price of approximately $82.2 million
(after giving effect to estimated purchase price adjustments). The W-J
Acquisition was consummated simultaneously with the consummation of the Initial
Offering. See 'Certain Transactions--The W-J Acquisition.'
In connection with the consummation of the Initial Offering, the Company
entered into the New Credit Facilities, which provide for borrowing
availability, subject to certain conditions, in an outstanding principal amount
of up to $50 million. A substantial portion of the net proceeds to the Company
from the Initial Offering, together with borrowings under the New Credit
Facilities, was used to fund the W-J Acquisition and refinance indebtedness
incurred in connection with the Kleinert Acquisition.
Mentmore Holdings Corporation ('Mentmore'), a privately-held investment and
management company, currently provides management services to the Company. See
'Certain Transactions.'
------------------
The Company's principal executive offices are located at 3333 Hillview
Avenue, Palo Alto, California 94304-1223. Its telephone number at that location
is (650) 493-4141. Stellex was incorporated in Delaware on September 5, 1997.
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THE INITIAL OFFERING
Notes
Pursuant to a Purchase Agreement dated as of October 23, 1997 (the
'Purchase Agreement'), the Company sold Old Notes in an aggregate principal
amount of $100.0 million to the Initial Purchasers on October 31, 1997. The
Initial Purchasers subsequently resold the Old Notes purchased from the Company
to qualified institutional buyers pursuant to Rule 144A under the Securities Act
and to certain accredited investors (as defined in Rule 501(A)(1), (2), (3) or
(7) under the Securities Act). A substantial portion of the net proceeds from
the Initial Offering, estimated to have been approximately $92.3 million after
deducting discounts to the Initial Purchasers and estimated expenses relating to
the consummation of the Transactions, together with initial borrowings under the
New Credit Facilities, were used to repay certain indebtedness incurred in
connection with the Kleinert Acquisition and to finance the W-J Acquisition.
Specifically, the Company used a portion of the net proceeds of the Initial
Offering to (i) repay $17.2 million of principal and $42,000 of accrued interest
under that certain Credit Agreement dated as of July 1, 1997 (the 'Prior Credit
Agreement') between KII Holding (as defined) and Societe Generale, under which
borrowings bore interest at an average rate of 7.7% per annum as of October 31,
1997; (ii) repay $2.5 million of principal and $20,000 of accrued interest under
the Trinity Note (as defined), under which borrowings bore interest at an
average rate of 10% per annum as of October 31, 1997; and (iii) finance the W-J
Acquisition for a net purchase price of approximately $82.2 million.
Registration Rights Agreement
Pursuant to the Purchase Agreement, the Company, the Subsidiary Guarantors
and the Initial Purchasers entered into a Registration Rights Agreement dated as
of October 31, 1997 (the 'Registration Rights Agreement'), which grants the
holders of the Old Notes certain exchange and registration rights. The Exchange
Offer is intended to satisfy such exchange rights which terminate upon the
consummation of the Exchange Offer.
THE EXCHANGE OFFER
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Securities Offered........................ $100,000,000 aggregate principal amount of 9 1/2% Senior Subordinated
Notes due 2007 of the Company.
The Exchange Offer........................ $1,000 principal amount of New Notes in exchange for each $1,000
principal amount of Old Notes. As of the date hereof, $100,000,000
aggregate principal amount of Old Notes are outstanding. The Company
will issue the New Notes to holders on or promptly after the
Expiration Date.
Based on an interpretation by the staff of the Commission set forth
in no-action letters issued to third parties, the Company believes
that New Notes issued pursuant to the Exchange Offer in exchange for
Old Notes may be offered for resale, resold and otherwise transferred
by any holder thereof (other than any such holder which is an
'affiliate' of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that
such New Notes are acquired in the ordinary course of such holder's
business and that such holder does not intend to participate and has
no arrangement or understanding with any person to participate in the
distribution of such New Notes. Each holder accepting the Exchange
Offer is required to represent to the Company in the Letter of
Transmittal that, among other things, the New Notes will be acquired
by the holder in the ordinary course of business and the holder does
not intend to participate and has no arrangement or understanding
with any person to participate in the distribution of such New Notes.
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Any Participating Broker-Dealer that acquired Old Notes for its own
account as a result of market-making activities or other trading
activities may be a statutory underwriter. Each Participating Broker-
Dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit
that it is an 'underwriter' within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer in connection with
resale of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such Participating Broker-Dealer as a result
of market-making activities or other trading activities. The Company
has agreed that, for a period of 90 days after the Expiration Date,
it will make this Prospectus available to any Participating
Broker-Dealer for use in connection with any such resale. See 'Plan
of Distribution.'
Any holder who tenders in the Exchange Offer with the intention to
participate, or for the purpose of participating, in a distribution
of the New Notes could not rely on the position of the staff of the
Commission enunciated in no-action letters and, in the absence of an
exemption therefrom, must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any
resale transaction Failure to comply with such requirements in such
instance may result in such holder incurring liability under the
Securities Act for which the holder is not indemnified by the
Company.
Minimum Condition......................... The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Old Notes being tendered or accepted for
exchange.
Expiration Date........................... 5:00 p.m., New York City time, on , 1998 unless the
Exchange Offer is extended, in which case the term 'Expiration Date'
means the latest date and time to which the Exchange Offer is
extended.
Conditions to the Exchange Offer.......... The Exchange Offer is subject to certain customary conditions, which
may be waived by the Company. See 'The Exchange Offer--Conditions.'
The Company reserves the right to terminate or amend the Exchange
Offer at any time prior to the Expiration Date upon the occurrence of
any such condition.
Procedures for Tendering Old Notes........ Each holder of Old Notes wishing to accept the Exchange Offer must
complete, sign and date the accompanying Letter of Transmittal, or a
facsimile thereof, in accordance with the instructions contained
herein and therein, and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, or an Agent's Message (as defined) in
connection with a book entry transfer together with the Old Notes and
other required documentation to the Exchange Agent (as defined) at
the addresss set forth herein. By executing the Letter of
Transmittal, each holder will represent to the Company that, among
other things, the New Notes acquired pursuant to the Exchange Offer
are being obtained in the ordinary course of business of the person
receiving such New Notes, whether or not such person is the holder,
and that neither the holder nor any
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such other person (i) has any arrangement or understanding with any
person to participate in the distribution of such New Notes, (ii) is
engaging or intends to engage in the distribution of such New Notes,
or (iii) is an 'affiliate,' as defined under Rule 405 of the
Securities Act, of the Company. See 'The Exchange Offer--Purpose and
Effect of the Exchange Offer' and '--Procedures for Tendering.'
Untendered Old Notes...................... Following the consummation of the Exchange Offer, holders of Old
Notes eligible to participate but who do not tender their Old Notes
will not have any further exchange rights and such Old Notes will
continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such Old Notes could be
adversely affected.
Consequences of Failure
to Exchange............................. The Old Notes that are not exchanged pursuant to the Exchange Offer
will remain restricted securities. Accordingly, such Old Notes may be
resold only (i) to the Company, (ii) pursuant to Rule 144A or Rule
144 under the Securities Act or pursuant to some other exemption
under the Securities Act, (iii) outside the United States to a
non-U.S. person pursuant to the requirements of Rule 904 under the
Securities Act, or (iv) pursuant to an effective registration
statement under the Securities Act. See 'The Exchange Offer--
Consequences of Failure to Exchange.'
Shelf Registration Statement.............. If (i) changes in the law or the applicable interpretations of the
staff of the Commission do not permit the Company to effect the
Exchange Offer or (ii) any holder (A) is not eligible to participate
in the Exchange Offer, (B) participates in the Exchange Offer and
does not receive freely transferable New Notes in exchange for
tendered Old Notes or (C) is a broker-dealer that holds Notes
acquired directly from the Company or one of its affiliates, the
Company and the Subsidiary Guarantors will (i) file a shelf
registration statement (the 'Shelf Registration Statement') on or
prior to the 30th day after such filing obligation arises to cover
resales of Transfer Restricted Securities (as defined) covering
resales of the Old Notes, (ii) use their respective reasonable best
efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act on or prior to 60 days after such
obligation arises and (iii) use their respective reasonable best
efforts to keep effective the Shelf Registration Statement until two
years after its effective date, subject to certain exceptions,
including suspending the effectiveness thereof for certain valid
business reasons. For purposes of the foregoing, 'Transfer Restricted
Securities' means each Note until the earliest to occur of (i) the
date on which such Note has been exchanged for a freely tradeable New
Note in the Exchange Offer, (ii) the date on which such Note has been
effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iii) the date on
which such Note is distributed to the public pursuant to Rule 144
under the Securities Act or is saleable pursuant to Rule 144(k) under
the Securities Act. A holder of the Old Notes that sells such Old
Notes pursuant to the Shelf Registration Statement generally would be
required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers, will be subject
to certain of the civil liability provisions under the Securities Act
in connection with
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such sales and will be bound by the provisions of the Registration
Rights Agreement which are applicable to such a holder (including
certain indemnification obligations).
Special Procedures for Beneficial
Owners.................................. Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender should contact such registered holder promptly
and instruct such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to completing and
executing the Letter of Transmittal and delivering its Old Notes,
either make appropriate arrangements to register ownership of the Old
Notes in such owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may
take considerable time. The Company will keep the Exchange Offer open
for not less than twenty business days in order to provide for the
transfer of registered ownership.
Guaranteed Delivery Procedures............ Holders of Old Notes who wish to tender their Old Notes and whose Old
Notes are not immediately available or who cannot deliver their Old
Notes, the Letter of Transmittal or any other documents required by
the Letter of Transmittal to the Exchange Agent (or comply with the
procedures for book-entry transfer) prior to the Expiration Date must
tender their Old Notes according to the guaranteed delivery
procedures set forth in 'The Exchange Offer-- Guaranteed Delivery
Procedures.'
Withdrawal Rights......................... Tenders may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the Expiration Date.
Acceptance of Old Notes and Delivery of
New Notes............................... The Company will accept for exchange any and all Old Notes which are
properly tendered in the Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The New Notes issued pursuant to
the Exchange Offer will be delivered promptly following the
Expiration Date. See 'The Exchange Offer--Terms of the Exchange
Offer.'
Federal Income Tax Consequences........... The exchange of Old Notes for New Notes by tendering holders will not
be a taxable exchange for federal income tax purposes, and such
holders should not recognize any taxable gain or loss or any interest
income as a result of such exchange.
Use of Proceeds........................... There will be no cash proceeds to the Company from the exchange
pursuant to the Exchange Offer.
Exchange Agent............................ Marine Midland Bank.
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THE NEW NOTES
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General................................... The form and terms of the New Notes are the same as the form and
terms of the Old Notes (which they replace) except that (i) the New
Notes bear a Series B designation, (ii) the New Notes have been
registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof, and (iii) the holders of
New Notes will not be entitled to certain rights under the
Registration Rights Agreement, including the provisions providing for
an increase in the interest rate on the Old Notes in certain
circumstances relating to the timing of the Exchange Offer, which
rights will terminate when the Exchange Offer is consummated. See
'The Exchange Offer--Purpose and Effect of the Exchange Offer.' The
New Notes will evidence the same debt as the Old Notes and will be
entitled to the benefits of the Indenture. See 'Description of
Notes.' The Old Notes and the New Notes are referred to collectively
herein as the 'Notes.'
Issuer.................................... Stellex Industries, Inc.
Securities Offered........................ $100,000,000 principal amount of Series B 9 1/2% Senior Subordinated
Notes due 2007.
Maturity Date............................. November 1, 2007.
Interest Payment Dates.................... Interest will accrue on the New Notes from the most recent date to
which interest on the Notes has been paid or, if no interest has been
paid, from October 31, 1997, and will be payable semi-annually on
each May 1 and November 1, commencing May 1, 1998.
Optional Redemption....................... The New Notes will be redeemable, in whole or in part, at the option
of Stellex, at any time on or after November 1, 2002, at the
redemption prices set forth herein, plus accrued and unpaid interest,
if any, thereon, to the date of redemption. In addition, on or prior
to November 1, 2000, Stellex may redeem, at any time and from time to
time, up to 35% of the aggregate principal amount of the Notes at a
redemption price of 109.50% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, thereon,
to the date of redemption, with the net cash proceeds of one or more
Public Equity Offerings (as defined herein); provided, however, that
at least 65% of the aggregate principal amount of the Notes
originally issued remains outstanding following each such redemption.
In addition, at any time prior to November 1, 2002, Stellex may, at
its option, redeem the Notes, in whole but not in part, at a
redemption price equal to 100% of the principal amount thereof plus
the applicable Make-Whole Premium (as defined herein). See
'Description of Notes--Optional Redemption.'
Subsidiary Guarantees..................... The New Notes will be fully and unconditionally guaranteed, jointly
and severally (the 'Subsidiary Guarantees'), on an unsecured, senior
subordinated basis, by each of Stellex's Subsidiaries existing on the
date of issuance of the New Notes and by each Subsidiary of Stellex
(other than Unrestricted Subsidiaries and Foreign Subsidiaries (as
defined herein)) created or acquired thereafter (collectively, the
'Subsidiary Guarantors'). See 'Description of Notes--Guarantees.'
Ranking................................... The New Notes will be unsecured and will be subordinated in right of
payment to all existing and future senior indebtedness of Stellex.
The New Notes will rank pari passu with any future senior
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subordinated indebtedness of Stellex and will rank senior to all
other subordinated indebtedness of Stellex. The Subsidiary Guarantees
will be general, unsecured obligations of the Subsidiary Guarantors,
subordinated in right of payment to all existing and future senior
indebtedness of the Subsidiary Guarantors. As of September 30, 1997,
on a pro forma basis after giving effect to the Transactions, the
aggregate principal amount of Stellex's outstanding senior
indebtedness would have been approximately $2.1 million (excluding
unused commitments) and Stellex would have had no senior subordinated
indebtedness outstanding other than the Notes. As of the same date,
the aggregate principal amount of senior indebtedness of the
Subsidiary Guarantors outstanding would have been approximately $2.6
million (exclusive of guarantees under the New Credit Facilities).
See 'Description of Notes--Ranking and Subordination.'
Restrictive Covenants..................... The Indenture contains certain covenants pertaining to Stellex and
its Restricted Subsidiaries (as defined herein), including, but not
limited to, covenants with respect to the following matters: (i)
limitations on indebtedness and preferred stock; (ii) limitations on
restricted payments such as dividends, repurchases of Stellex's or
subsidiaries' stock, repurchases of subordinated obligations, and
investments; (iii) limitations on restrictions on distributions from
subsidiaries; (iv) limitations on sales of assets and of stock of
subsidiaries; (v) limitations on transactions with affiliates; (vi)
limitations on liens; and (vii) limitations on mergers,
consolidations and transfers of all or substantially all assets.
However, all of these covenants are subject to a number of important
qualifications and exceptions. See 'Description of Notes--Certain
Covenants.'
Change of Control......................... Upon a Change of Control (as defined herein), each holder of New
Notes may require Stellex to repurchase any or all outstanding New
Notes owned by such holder at 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, thereon, to the date of
repurchase. See 'Description of Notes--Change of Control.'
Registration Rights....................... Pursuant to the Registration Rights Agreement, Stellex and the
Subsidiary Guarantors agreed to (i) file, within 45 days of the
closing date of the Initial Offering, a registration statement (the
'Exchange Offer Registration Statement' and, together with the Shelf
Registration Statement, the 'Registration Statements') with respect
to an offer to exchange the Old Notes for New Notes of Stellex with
terms substantially identical to the Old Notes, (ii) cause such
Exchange Offer Registration Statement to be declared effective within
120 days after the closing date of the Initial Offering and (iii)
consummate the Exchange Offer within 165 days after the closing date
of the Initial Offering. In addition, under certain circumstances the
Company may be required to file a Shelf Registration Statement. In
the event that (i) the applicable Registration Statement is not filed
with the Commission on or prior to the specified date, (ii) the
Exchange Offer Registration Statement is not declared effective
within 120 days after the closing date of the Initial Offering or the
Shelf Registration Statement is not declared effective on or prior to
the 60th day after the shelf filing deadline, (iii) the Exchange
Offer is not consummated on or prior to 165 days
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after the closing date of the Initial Offering, or (iv) the Shelf
Registration Statement is filed and declared effective on or prior to
the date specified for such effectiveness, but shall thereafter cease
to be effective (at any time that the Company is obligated to
maintain the effectiveness thereof) without being succeeded within 45
days by an additional Registration Statement filed and declared
effective (each such event referred to in clauses (i) through (iv), a
'Registration Default'), the Company will generally be obligated to
pay liquidated damages ('Liquidated Damages') to each holder of
Transfer Restricted Securities, with respect to the first 90-day
period immediately following the occurrence of the first Registration
Default, in an amount equal to $0.05 per week per $1,000 principal
amount of the Notes constituting Transfer Restricted Securities held
by such holder until the applicable Registration Statement is filed
or declared effective, the Exchange Offer is consummated or the Shelf
Registration Statement again becomes effective, as the case may be.
The amount of Liquidated Damages will increase by an additional $0.05
per week per $1,000 principal amount of Notes with respect to each
subsequent 90-day period until all Registration Defaults have been
cured, up to a maximum amount of Liquidated Damages of $0.20 per week
per $1,000 principal amount of Notes. All accrued Liquidated Damages
shall be paid to holders in the same manner as interest payments on
the Notes on semi-annual payment dates which correspond to interest
payment dates for the Notes. Following the cure of all Registration
Defaults, the accrual of Liquidated Damages will cease.
Transfer Restrictions; Absence of a
Public Market for the Notes............. The Notes have not been registered under the Securities Act and are
subject to restrictions on transferability and resale. In addition,
there is currently no established market for the Notes. If issued,
the New Notes will generally be freely transferable (subject to the
restrictions discussed elsewhere herein) but will be new securities
for which there will not initially be a market. Accordingly, there
can be no assurance as to the development or liquidity of any market
for the Notes or, if issued, the New Notes. The Notes have been
designated eligible for trading in the PORTAL market. The Initial
Purchasers have advised Stellex that they currently intend to make a
market in the Notes. However, the Initial Purchasers are not
obligated to do so, and any market making with respect to the Notes
may be discontinued at any time without notice. Stellex does not
intend to apply for a listing of the Notes, or, if issued, the New
Notes, on any securities exchange or on any automated dealer
quotation system.
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RISK FACTORS
Before tendering their Old Notes for the New Notes offered hereby, holders
of the Old Notes should carefully consider the information set forth under the
caption 'Risk Factors' and all other information set forth in this Prospectus.
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SUMMARY PRO FORMA FINANCIAL DATA
The following table sets forth the consolidated statements of operations
and other financial data of the Company on a pro forma basis for the year ended
December 31, 1996 and the nine months ended September 30, 1997. The pro forma
statements of operations data give effect to the Transactions as if they
occurred on January 1, 1996. The pro forma balance sheet data give effect to the
Transactions as if they had occurred on September 30, 1997. The pro forma
financial data are provided for informational purposes only, are unaudited and
are not necessarily indicative of future results or what the operating results
or financial condition of the Company would have been had the Transactions
actually been consummated on the dates assumed. The following table should be
read in conjunction with 'Capitalization,' 'Pro Forma Consolidated Financial
Data,' 'Selected Historical Financial Data,' 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and the historical
financial statements of Stellex (formerly Kleinert) and TSMD (Stellex
Microwave), and the accompanying notes thereto, included elsewhere in this
Prospectus.
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PRO FORMA
CONSOLIDATED
-----------------
YEAR ENDED
DECEMBER 31, 1996
-----------------
(DOLLARS IN
THOUSANDS)
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STATEMENT OF OPERATIONS DATA:
Sales..................................................................................... $113,507
Cost of goods sold(a)..................................................................... 89,617
--------
Gross profit.............................................................................. 23,890
Selling, general and administrative(a)(b)................................................. 18,809
Amortization of intangibles............................................................... 3,496
--------
Income from operations.................................................................... 1,585
Interest expense(c)....................................................................... 10,984
Other expense, net........................................................................ 40
--------
Income (loss) before income taxes......................................................... (9,439)
Income tax provision...................................................................... --
--------
Net income (loss)......................................................................... $ (9,439)
--------
--------
OTHER FINANCIAL DATA:
EBITDA(d)................................................................................. $ 12,259
Adjusted EBITDA(d)........................................................................ 15,220
Depreciation and amortization............................................................. 10,725
Capital expenditures...................................................................... 2,753
Ratio of Adjusted EBITDA to cash interest expense(e)...................................... --
Ratio of total debt to Adjusted EBITDA(f)................................................. --
Ratio of earnings to fixed charges........................................................ --(g)
<CAPTION>
PRO FORMA
CONSOLIDATED
---------------------
NINE MONTHS ENDED
SEPTEMBER 30, 1997
---------------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Sales..................................................................................... $ 91,086
Cost of goods sold(a)..................................................................... 67,297
--------
Gross profit.............................................................................. 23,789
Selling, general and administrative(a)(b)................................................. 11,894
Amortization of intangibles............................................................... 1,760
--------
Income from operations.................................................................... 10,135
Interest expense(c)....................................................................... 8,527
Other expense, net........................................................................ 73
--------
Income (loss) before income taxes......................................................... 1,535
Income tax provision...................................................................... 150
--------
Net income (loss)......................................................................... $ 1,385
--------
--------
OTHER FINANCIAL DATA:
EBITDA(d)................................................................................. $ 16,923
Adjusted EBITDA(d)........................................................................ 16,940
Depreciation and amortization............................................................. 6,868
Capital expenditures...................................................................... 2,007
Ratio of Adjusted EBITDA to cash interest expense(e)...................................... 2.1x
Ratio of total debt to Adjusted EBITDA(f)................................................. 4.7x
Ratio of earnings to fixed charges........................................................ 1.1x
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1997
-------------------
<S> <C>
COMBINED BALANCE SHEET DATA (AT END OF PERIOD):
Working capital........................................................................... $ 18,980
Total assets.............................................................................. 133,445
Long-term debt, including current maturities.............................................. 106,519
Minority interest......................................................................... 778
Stockholders' equity...................................................................... 10,012
</TABLE>
- ------------------
(a) In connection with the W-J Acquisition, Stellex Microwave entered into a
sublease with Watkins-Johnson of the facilities used by TSMD at a rent
higher than the historical amounts charged to TSMD. Accordingly, for the
year ended December 31, 1996 and the nine months ended September 30, 1997,
cost of goods sold has been increased by $1.1 million and $810,000,
respectively, and selling, general and administrative expense has been
increased by $120,000 and $90,000, respectively.
(b) Selling, general and administrative expense for the year ended December 31,
1996 and the nine months ended September 30, 1997 includes $750,000 and
$563,000, respectively, of management fees that would have been paid to
Mentmore pursuant to the Management Agreement (as defined). Excludes
non-recurring charges of $450,000 of investment banking and financial
advisory fees that were paid to Mentmore in connection with the Kleinert
Acquisition and $1,000,000 of investment banking and financial advisory fees
paid to Mentmore in connection with the W-J Acquisition and the Initial
Offering. See 'Certain Transactions--Management Agreement with Mentmore.'
(c) Interest expense reflects an interest rate of 9.5% on the Notes and related
amortization of the estimated debt issuance costs of $5.0 million over the
ten year term of the Notes. Interest expense also reflects charges of
$580,000 and $347,000 for the year ended December 31, 1996 and the nine
months ended September 30, 1997, respectively, related to the ongoing
working capital requirements of Stellex Microwave that are expected to be
funded through borrowings under the New Credit Facilities assuming a 7.75%
interest rate on the balance of working capital items not acquired as part
of the W-J Acquisition.
(d) EBITDA represents income (loss) before income taxes plus interest expense,
depreciation and amortization less interest income of $11,600 and $6,500 for
the year ended December 31, 1996 and the nine months ended September 30,
1997. Adjusted EBITDA ('Adjusted EBITDA') for the year ended December 31,
1996 excludes a $1.5 million charge included in cost of goods sold for the
write-off of slow moving and excess inventory, a $700,000 charge included in
cost of goods sold for severance costs relating to a reduction in force of
operational and manufacturing employees at Stellex Microwave and the Stellex
Aerospace management stock compensation adjustment totaling $761,000.
Adjusted EBITDA for the nine months ended September 30, 1997 excludes the
Stellex Aerospace management stock compensation adjustment totaling $17,000.
EBITDA is presented because it is a widely accepted financial indicator of a
company's ability to service indebtedness. However, EBITDA should not be
considered an alternative to operating income or cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) and should not be construed as an indication of a company's
operating performance or as a measure of liquidity. Since all companies and
analysts do not necessarily calculate EBITDA in the same fashion, EBITDA as
presented in this Prospectus may not be comparable to similarly titled
measures reported by other companies.
(e) Cash interest expense excludes $500,000 of annual expense relating to the
amortization of debt issuance costs.
(f) For purposes of this calculation, an annualized EBITDA was utilized, which
was derived by multiplying EBITDA for the nine months ended September 30,
1997 times 1.333.
(g) In calculating the ratio of earnings to fixed charges, earnings consist of
income before taxes plus fixed charges. Fixed charges consist of interest
expense and amortization of deferred financing costs, whether expensed or
capitalized. Earnings were inadequate to cover fixed charges by $10,584,000
for the year ended December 31, 1996.
12
<PAGE>
RISK FACTORS
In addition to the other information set forth in this Prospectus, before
tendering their Old Notes for the New Notes offered hereby, holders of the Old
Notes should carefully consider the following risk factors, which may be
generally applicable to the Old Notes as well as the New Notes.
SUBSTANTIAL LEVERAGE
The Company is highly leveraged. At September 30, 1997, after giving pro
forma effect to the Transactions, the Company's total consolidated indebtedness
would have been $106.5 million, and the Company would have had up to an
additional $47.9 million available to be borrowed under the New Credit
Facilities. In addition, subject to certain restrictions set forth in the New
Credit Facilities and the Indenture, the Company may incur additional
indebtedness, including Senior Indebtedness (as defined), in the future for
acquisitions, capital expenditures and other corporate purposes. For the year
ended December 31, 1996, the Company's pro forma earnings would have been
insufficient to cover fixed charges by approximately $10.6 million.
The Company's ability to make scheduled payments of the principal of, or
interest on, or to refinance its indebtedness (including the Notes) depends on
its future operating performance, which to a certain extent is subject to
economic, financial, competitive and other factors beyond its control. The
Company believes that, based on its current level of operations and anticipated
growth, its cash flow from operations, together with borrowings under the New
Credit Facilities, will be adequate to meet its anticipated requirements for
working capital, capital expenditures, interest payments and scheduled principal
payments over the next several years. See 'Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources.' There can be no assurance, however, that the Company's business will
generate cash flow at or above expected levels. If the Company is unable to
generate sufficient cash flow from operations in the future to service its debt,
fund working capital requirements and make necessary capital expenditures, or if
its future earnings are insufficient to make all required principal payments out
of internally generated funds, the Company may be required to refinance all or a
portion of its existing debt, sell assets or obtain additional financing. There
can be no assurance that any such refinancing or asset sales would be possible
or that any additional financing could be obtained on terms acceptable to the
Company or at all, particularly in view of the Company's high level of debt.
The Company's high level of debt will have several important effects on its
future operations, including the following: (a) the Company will have
significant cash requirements to service debt, reducing funds available for
working capital, acquisitions, capital expenditures and other corporate purposes
and increasing the Company's vulnerability to adverse general economic and
industry conditions and (b) the financial covenants and other restrictions
contained in the New Credit Facilities, the Indenture and other agreements
relating to the Company's indebtedness require the Company to meet certain
financial tests, restrict its ability to borrow additional funds and impose
limitations on the disposition of assets. In addition, although management
believes that capital expenditures above maintenance levels can be deferred to
address cash flow or other constraints, such initiatives cannot be deferred for
extended periods without adverse effects on the Company's business, results of
operations and financial position. The Company's continued growth depends, in
part, on its ability to maintain its facilities and technological capabilities,
and, therefore, to the extent it is unable to do so with internally generated
cash, its inability to finance capital expenditures through borrowed funds could
have a material adverse effect on the Company's financial position and results
of operations.
SUBORDINATION OF THE NOTES AND SUBSIDIARY GUARANTEES; UNSECURED STATUS OF THE
NOTES
Subordination
The payment of principal of, premium and interest on, and any other amounts
owing in respect of, the Notes is subordinated to the prior payment in full of
all existing and future Senior Indebtedness of the Company, including
indebtedness under the New Credit Facilities. Similarly, the Subsidiary
Guarantees of the Subsidiary Guarantors will be subordinated in right of payment
to all Guarantor Senior Indebtedness of the respective Subsidiary Guarantors. At
September 30, 1997, after giving pro forma effect to the Transactions, the
Company and the Subsidiary Guarantors would have had an aggregate of $4.8
million of Senior Indebtedness and Guarantor Senior Indebtedness outstanding and
up to $47.9 million of undrawn commitments available under the New Credit
Facilities. The Indenture limits, but does not prohibit, the incurrence by the
Company and the Subsidiary Guarantors of additional indebtedness which may
constitute Senior Indebtedness and Guarantor
13
<PAGE>
Senior Indebtedness. In the event of the bankruptcy, liquidation, dissolution,
reorganization or other winding up of the Company, the assets of the Company
will be available to pay obligations on the Notes only after all Senior
Indebtedness has been paid in full in cash, and there may not be sufficient
assets remaining to pay amounts due on any or all of the Notes. In addition,
under certain circumstances, the Company may not pay principal of, premium or
interest on, or any other amounts owing in respect of, the Notes, or purchase,
redeem or otherwise retire the Notes, if a payment default or a non-payment
default exists with respect to certain Senior Indebtedness, and, in the case of
a non-payment default, a payment blockage notice has been received by the
Trustee (as defined). See 'Description of Notes--Ranking and Subordination.'
Unsecured Status of the Notes and Subsidiary Guarantees
The Notes and Subsidiary Guarantees are unsecured obligations of the
Company and the Subsidiary Guarantors, respectively. The Indenture permits the
Company to incur certain secured indebtedness, including indebtedness under the
New Credit Facilities, which is secured by a lien on substantially all of the
assets of the Company and the Subsidiary Guarantors. The holders of any secured
indebtedness will have a claim prior to the holders of the Notes with respect to
any assets pledged by the Company and the Subsidiary Guarantors as security for
such indebtedness. Upon an event of default under the New Credit Facilities, the
lenders thereunder would be entitled to foreclose on the assets of the Company
and the Subsidiary Guarantors. In such event, the assets of the Company and the
Subsidiary Guarantors remaining after repayment of such secured indebtedness may
be insufficient to satisfy the obligations of the Company and the Subsidiary
Guarantors with respect to the Notes and the Subsidiary Guarantees.
HOLDING COMPANY STRUCTURE
Stellex is a holding company with no independent operations. Stellex is
dependent on the earnings and cash flow of, and dividends and distributions or
advances from, its subsidiaries to provide the funds necessary to meet its debt
service obligations, including the payment of principal and interest on the
Notes. In particular, Stellex is heavily dependent on the earnings of Stellex
Microwave, which, on a pro forma basis, would have accounted for approximately
74.6% of the Company's sales for the nine months ended September 30, 1997. There
can be no assurance that Stellex's subsidiaries will generate sufficient cash
flow to dividend, distribute or advance funds to Stellex.
ABILITY TO SERVICE DEBT
The Company's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness will depend on its financial and
operating performance which in turn will be subject to prevailing economic
conditions and to certain financial, business and other factors beyond its
control. If the Company's cash flow and capital resources are insufficient to
fund its debt service obligations, the Company may be forced to reduce or delay
planned expansion and capital expenditures, sell assets, obtain additional
equity capital or restructure its debt. There can be no assurance that the
Company's operating results, cash flow and capital resources will be sufficient
for payment of its indebtedness in the future. In the absence of such operating
results and resources, the Company could face substantial liquidity problems and
might be required to dispose of material assets or operations to meet its debt
service and other obligations, and there can be no assurance as to the timing of
such sales or the proceeds that the Company could realize therefrom. In
addition, because the Company's obligations under the New Credit Facilities bear
interest at floating rates, an increase in interest rates could adversely
affect, among other things, the Company's ability to meet its debt service
obligations. See 'Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources' and 'Description of
Certain Indebtedness--New Credit Facilities.'
FRAUDULENT CONVEYANCE
The incurrence of indebtedness (such as the Notes) in connection with the
W-J Acquisition and the application of the proceeds thereof to consummate the
W-J Acquisition are subject to review under relevant federal and state
fraudulent conveyance statutes in a bankruptcy or reorganization case or a
lawsuit by or on behalf of creditors of the Company. Under these statutes, if a
court were to find that obligations (such as the Notes) were incurred with the
intent of hindering, delaying or defrauding present or future creditors or that
the Company received less than a reasonably equivalent value or fair
consideration for those obligations and, at the time of the occurrence of the
obligations, the obligor either (i) was insolvent or rendered insolvent by
reason
14
<PAGE>
thereof, (ii) was engaged or was about to engage in a business or transaction
for which its remaining unencumbered assets constituted unreasonably small
capital or (iii) intended to or believed that it would incur debts beyond its
ability to pay such debts as they matured or became due, such court could void
the Company's obligations under the Notes, subordinate the Notes to other
indebtedness of the Company or take other action detrimental to the holders of
the Notes.
The measure of insolvency for purposes of a fraudulent conveyance claim
will vary depending upon the law of the jurisdiction being applied. Generally,
however, a company will be considered insolvent at a particular time if the sum
of its debts at that time is greater than the then fair value of its assets or
if the fair saleable value of its assets at that time is less than the amount
that would be required to pay its probable liability on its existing debts as
they became absolute and mature. The Company believes that, after giving effect
to the Transactions, the Company was (i) neither insolvent nor rendered
insolvent by the incurrence of indebtedness in connection with the W-J
Acquisition and the Initial Offering, (ii) in possession of sufficient capital
to run its business effectively and (iii) incurring debts within its ability to
pay as the same mature or become due.
There can be no assurance, however, as to what standard a court would apply
to evaluate the parties' intent or to determine whether the Company was
insolvent at the time of, or rendered insolvent upon consummation of, the
Transactions or that, regardless of the standard, a court would not determine
that the Company was insolvent at the time of, or rendered insolvent upon
consummation of, the Transactions.
In addition, the Subsidiary Guarantees may be subject to review under
relevant federal and state fraudulent conveyance and similar statutes in a
bankruptcy or reorganization case or in a lawsuit by or on behalf of creditors
of any of the Subsidiary Guarantors. In such a case, the analysis set forth
above would generally apply, except that the Subsidiary Guarantees could also be
subject to the claim that, since the Subsidiary Guarantees were incurred for the
benefit of the Company (and only indirectly for the benefit of the Subsidiary
Guarantors), the obligations of the Subsidiary Guarantors thereunder were
incurred for less than reasonably equivalent value or fair consideration. A
court could avoid a Subsidiary Guarantor's obligation under its Subsidiary
Guarantee, subordinate the Subsidiary Guarantee to other indebtedness of such
Subsidiary Guarantor or take other action detrimental to the holders of the
Notes.
RESTRICTIONS UNDER DEBT AGREEMENTS
The Indenture contains covenants that, among other things, limit the
ability of the Company and its Restricted Subsidiaries to incur additional
indebtedness, incur liens, pay dividends and make certain other restricted
payments, make investments, consummate certain asset sales, enter into certain
transactions with affiliates, sell stock of Restricted Subsidiaries, consolidate
or merge with any other person or transfer all or substantially all of the
assets of the Company. In addition, the New Credit Facilities contain
restrictive covenants which, generally, are more restrictive than those
contained in the Indenture, and limit the Company's ability to prepay its
subordinated indebtedness (including the Notes). The New Credit Facilities also
require the Company to maintain specified consolidated financial ratios and
satisfy certain consolidated financial tests. The Company's ability to meet
those financial ratios and financial tests can be affected by events beyond its
control, and there can be no assurance that the Company will meet those ratios
and tests. See 'Description of Certain Indebtedness--New Credit Facilities.'
Upon consummation of the Initial Offering and the W-J Acquisition, the
Company was in compliance with the covenants and restrictions contained in the
New Credit Facilities and in the Indenture. However, its ability to continue to
comply with such agreements may be affected by events beyond its control,
including prevailing economic, financial and industry conditions. The breach of
any of such covenants or restrictions could result in a default under the New
Credit Facilities and/or the Indenture, which would permit the senior lenders or
the holders of the Notes, as the case may be, to declare all amounts borrowed
thereunder to be due and payable, together with accrued and unpaid interest, and
the commitments of the senior lenders to make further extensions of credit under
the New Credit Facilities could be terminated. If the Company were unable to
repay its indebtedness to its senior lenders, such lenders could proceed against
the collateral securing such indebtedness as described under 'Description of
Certain Indebtedness--New Credit Facilities.'
15
<PAGE>
LIMITATION ON CHANGE OF CONTROL
Upon a Change of Control (as defined under 'Description of Notes--Change of
Control'), the Company will be required to offer to purchase all of the
outstanding Notes at a price equal to 101% of the principal amount thereof to
the date of repurchase plus accrued and unpaid interest and Liquidated Damages,
if any, thereon to the date of repurchase. The Change of Control purchase
feature of the Notes may in certain circumstances discourage or make more
difficult a sale or takeover of the Company. In particular, a Change of Control
may cause an acceleration of, or require an offer to repurchase under, the New
Credit Facilities and certain other indebtedness, if any, of the Company and its
subsidiaries, in which case such indebtedness would be required to be repaid in
full before repurchase of the Notes. See 'Description of Certain
Indebtedness--New Credit Facilities' and 'Description of Notes--Change of
Control.' The inability to repay such indebtedness, if accelerated, and to
purchase all of the tendered Notes would constitute an event of default under
the Indenture. There can be no assurance that the Company will have funds
available to repurchase the Notes upon the occurrence of a Change of Control.
LACK OF PUBLIC MARKET; RESTRICTIONS ON TRANSFERABILITY
The Old Notes were issued to, and the Company believes are currently owned
by, a relatively small number of beneficial owners. Prior to the Exchange Offer,
there has not been any public market for the Old Notes. The Old Notes have not
been registered under the Securities Act and will be subject to restrictions on
transferability to the extent that they are not exchanged for New Notes by
holders who are entitled to participate in the Exchange Offer. The holders of
Old Notes (other than any such holder that is an 'affiliate' of the Company
within the meaning of Rule 405 under the Securities Act) who are not eligible to
participate in the Exchange Offer are entitled to certain registration rights,
and the Company and the Subsidiary Guarantors are required to file a Shelf
Registration Statement with respect to such Old Notes. The New Notes will
constitute a new issue of securities with no established trading market. The
Company does not intend to list the New Notes on any national securities
exchange or seek the admission thereof to trading in the National Association of
Securities Dealers Automated Quotation System. The Initial Purchasers have
advised the Company that they currently intend to make a market in the New
Notes, but they are not obligated to do so and may discontinue such market
making at any time. In addition, such market making activity will be subject to
the limits imposed by the Securities Act and the Exchange Act and may be limited
during the Exchange Offer and the pendency of the Shelf Registration Statement.
Accordingly, no assurance can be given that an active public or other market
will develop for the New Notes or as to the liquidity of the trading market for
the New Notes. If a trading market does not develop or is not maintained,
holders of the New Notes may experience difficulty in reselling the New Notes or
may be unable to sell them at all. If a market for the New Notes develops, any
such market may be discontinued at any time.
If a public trading market develops for the New Notes, future trading
prices of such securities will depend on many factors including, among other
things, prevailing interest rates, the Company's results of operations and the
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the New Notes may trade at a discount from their
principal amount.
LACK OF STAND-ALONE OPERATING HISTORY
Prior to the consummation of the W-J Acquisition, Stellex Microwave
constituted an operating division of Watkins-Johnson. Throughout its history,
the business of Stellex Microwave benefited from its association with
Watkins-Johnson. Although pursuant to the terms of the W-J Acquisition Stellex
Microwave retained the right to sell its products through the 1997-98 device
catalog produced by Watkins-Johnson and to identify its products as 'formerly
made by Watkins-Johnson' until the expiration of Watkins-Johnson's 1999-2000
catalog, the ability of the Company to function as a stand-alone entity,
including its ability to develop name recognition for its products independent
of the 'Watkins-Johnson' name, is unproven. See 'Certain Transactions--The W-J
Acquisition' and 'Business--Sales and Marketing--Stellex Microwave--Microwave
Devices.' In addition, Watkins-Johnson corporate personnel formerly provided
management information, financial, treasury, tax, legal, cash management,
payroll processing and employee benefits assistance to the Stellex Microwave
business. Although the costs of these services were allocated to the business by
Watkins-Johnson for internal corporate accounting purposes, these costs may not
necessarily reflect accurately the costs that the business would have incurred
for those services as a stand-alone entity. Because these services are essential
to the effective operation of the Company's business, the failure by the Company
to establish and maintain its own capacity to provide
16
<PAGE>
these services, or to obtain them from outside contractors, could have a
material adverse effect on the Company's financial condition and results of
operations.
DEPENDENCE ON DEFENSE MARKET
A substantial portion of the Company's pro forma sales has been to the
defense market. As a result, the Company's sales could be materially adversely
impacted by a decrease in defense spending by the United States government
because of defense spending cuts, general budgetary constraints or otherwise.
The United States defense budget declined significantly in the early 1990s and,
while appropriations are forecasted to remain relatively constant during the
next five years, there can be no assurance that there will not be further
reductions in defense spending generally or in the procurement of weapon systems
utilizing the Company's products. Fewer available defense industry production
programs, coupled with continued pricing pressure on follow-on orders for
programs in which the Company participates and other factors, caused Stellex
Microwave's defense-related sales, primarily microwave subsystems and
components, to decline from approximately $72.2 million for the year ended
December 31, 1995 to $62.4 million for the year ended December 31, 1996. The
Company expects to continue to derive a substantial portion of its sales from
these business segments and develop microwave products for defense applications.
Failure of the Company to replace sales attributable to a significant defense
program or contract at the end of that program or contract, whether due to
cancellation, spending cuts, budgetary constraints or otherwise, could have a
material adverse effect upon the Company's financial position and results of
operations. In addition, a large portion of the Company's expenses are fixed and
difficult to reduce, thus magnifying the material adverse effect of any revenue
shortfall. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations.'
In January 1997, Raytheon, the Company's second largest customer based on
1996 pro forma sales, announced plans to acquire the defense business of Hughes
Aircraft Company, the Company's largest customer based on 1996 pro forma sales.
In October 1997, this proposed acquisition was approved by the U.S. Department
of Justice. Combined pro forma sales to Raytheon and Hughes in 1996 accounted
for approximately 34% of the Company's total pro forma sales.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's future success is dependent in part upon its proprietary
technology and trade secrets, including manufacturing and scientific know-how.
There can be no assurance that other parties will not develop technologies that
are similar or superior to the Company's technology, duplicate the Company's
technology or design around the patents and other intellectual property owned by
the Company. There also can be no assurance that the steps taken by the Company
to protect its proprietary technology and trade secrets will prevent
misappropriation of its technology, including its manufacturing know-how. See
'Business--Technology' and '--Intellectual Property.'
The Company must also continually engage in effective research and
development efforts in order to provide innovative new products for
technologically-sophisticated customers and markets. There is an inherent risk
that advances in existing technology could have a material adverse impact on its
financial condition and results of operations. See 'Business--Competition.'
COMPETITION
Declining defense budgets in the early 1990s and increasing pressures for
cost reductions have precipitated a major consolidation in the defense industry.
In recent years, this consolidation has resulted in program cancellations, scope
reductions and delays in contract funding or awards. While it appears that the
rapid decline in U.S. defense spending has ceased, reduced funding has
contributed to significant price competition throughout the industry. In
addition, while Stellex Microwave faces competition in the subsystems markets in
which it competes from independent microwave equipment manufacturers which have
integration capabilities, management believes that its primary competition is
from the in-house manufacturing operations of OEMs and prime contractors, most
of whom have greater financial and technical resources than the Company. The
future success of Stellex Microwave, and the Company, is dependent on the extent
to which OEMs and prime contractors elect to purchase from outside sources
rather than manufacture and integrate their own MFMs and components. These
in-house manufacturers could also elect to enter the non-captive market for
microwave products and compete directly with Stellex Microwave's microwave
components. See 'Business--Competition.'
17
<PAGE>
Approximately 62% of the Company's 1996 pro forma sales were derived from
contracts with the U.S. government and its prime contractors. The Company
encounters significant competition for a number of these contracts in most of
its business segments from other companies, some of which have financial,
technical, marketing, manufacturing, distribution and other resources
substantially greater than those of the Company. The Company's ability to
compete for these contracts depends to a large extent on the effectiveness and
innovativeness of its research and development programs, its ability to offer
better program performance than its competitors at a lower cost to the U.S.
government customer, and its readiness in facilities, equipment and personnel to
undertake the programs for which it competes.
Many of the markets in which the Company competes or intends to compete are
highly competitive and require a high level of service, extremely reliable
products and cost competitiveness. There can be no assurance that the Company
will continue to compete successfully for new program opportunities or otherwise
secure new business, or that new programs, if awarded, and other new business
will be profitable. In addition, even as to those defense programs which the
U.S. government or a prime contractor have historically awarded to the Company
on a sole-source basis, the U.S. government or prime contractor may in the
future determine to shift to a competitive bidding process. There can be no
assurance that the Company will continue to be successful in remaining the
sole-source contractor on various programs or, in competitive situations, in
having its bids accepted or, if accepted, that awarded contracts will generate
sufficient sales to result in profitability for the Company.
UNCERTAINTY ASSOCIATED WITH GOVERNMENT CONTRACTS
The Company's contracts with the U.S. government and its prime contractors
are subject to termination either upon default by the Company or at the
convenience of the U.S. government. Termination for convenience provisions
generally entitle the Company to recover costs incurred, settlement expenses and
profit on work completed prior to termination. In addition to the right of the
U.S. government to terminate U.S. government contracts, such contracts are
conditioned upon the continuing availability of congressional appropriations.
Congress usually appropriates funds for a given program on a fiscal year basis
even though contract performance may take more than one year. Consequently, at
the outset of a major program, the contract is usually partially funded, and
additional monies are normally, incrementally, committed to the contract by the
procuring agency from appropriations made by Congress for future fiscal years.
See 'Business--Government Contracts and Regulation.'
Because the Company contracts to supply goods and services to the U.S.
government and its prime contractors, it is also subject to other risks,
including contract suspensions, protests by disappointed bidders of contract
awards, which can result in the reopening of the bidding process, and changes in
government policies or regulations. In addition, licenses are required from U.S.
government agencies to export many of the weapon systems and other products for
which the Company supplies microwave subsystems and other components. See
'Business--Government Contracts and Regulation' and '--Sales to Foreign
Customers.'
Due to its business with the U.S. government and its prime contractors, the
Company may also be subject to 'whistle blower' suits brought by private
plaintiffs in the name of the U.S. government upon the allegation that the
Company submitted a false claim to the U.S. government, as well as to false
claim suits brought by the U.S. government. A judgment against the Company in a
'whistle blower' or false claim suit could cause the Company to be liable for
substantial damages and could carry penalties of suspension or debarment which
would make the Company ineligible to be awarded any U.S. government contracts
for a period of up to three years and, thereby, could potentially have a
material adverse effect on the Company's financial condition and results of
operations. See 'Business--Government Contracts and Regulation.'
U.S. GOVERNMENT CONTRACT CONSENTS AND NOVATIONS
Watkins-Johnson was a party to several contracts with various agencies of
the U.S. government which were transferred to the Company in connection with the
W-J Acquisition. These contracts generate a relatively small portion of the
Company's consolidated pro forma sales. The U.S. government may assert that, as
a result of the W-J Acquisition, the Company must enter into a novation
agreement with the U.S. government and Watkins-Johnson in order to continue to
be recognized as the contractor under its U.S. government contracts. A novation
agreement is typically entered between the U.S. government, a contractor who
transfers its assets (including its contracts) to a successor-in-interest, and
that successor-in-interest. If required, the novation process typically
18
<PAGE>
takes a matter of weeks or months, and can require up to or more than a year, to
complete and in any event was not completed prior to the consummation of the W-J
Acquisition. Although the Company knows of no reason why it cannot successfully
complete the negotiation and execution of the novation agreements that may be
required, there can be no assurance that such agreements will ultimately be
obtained. Failure to obtain any novation agreement deemed to be required could
have a material adverse effect on the Company's financial condition and results
of operations.
A substantial portion of the Company's consolidated pro forma sales would
have been generated under subcontracts between Watkins-Johnson and prime
contractors of U.S. government agencies. The subcontracts cannot be transferred
to a successor-in-interest without the consent of the prime contractor. While
prime contractor approval has been obtained for the transfer of a substantial
number of material subcontracts, there are a number of material contracts with
key prime contractors for which approval remains outstanding. The U.S.
government may assert that it also has the right to approve the transfer of
subcontracts. Such approval, if required, will be sought. Although the Company
knows of no reason why any required consent or approval from U.S. government
agencies and its prime contractors would not be granted, there can be no
assurance that any such consent or approval will ultimately be obtained. Failure
to obtain consent to the transfer of the subcontracts from prime contractors or,
if required, from the U.S. government could have a material adverse effect on
the Company's financial condition and results of operation.
CONTRACT PROFIT EXPOSURES
The Company's products are provided primarily through two types of
contracts: fixed-price and cost-reimbursable contracts. The Company would have
derived approximately 6% of its total pro forma sales during 1996 from
cost-reimbursable contracts under which the Company is reimbursed for all actual
costs incurred in performing the contract to the extent that such costs are
within the contract ceiling and allowable under the terms of the contract, plus
a fee or profit. A significant portion of the balance of the Company's total pro
forma sales in 1996 would have been attributable to fixed-price contracts which
require the Company to perform services under a contract at a stipulated price.
The Company assumes greater financial risk on fixed-price type contracts
than on cost-reimbursable contracts. The Company believes that an increasing
percentage of its contracts will be entered into on a fixed-price basis. Failure
to anticipate technical problems, estimate costs accurately or control costs
during performance of a fixed-price contract may reduce the Company's profit or
cause a loss.
DEPENDENCE ON KEY PERSONNEL
The success of the Company is largely dependent on the personal efforts and
abilities of senior management. The loss of services of key management personnel
could have a material adverse effect on the Company. The Company's continued
success also depends in large part on its ability to recruit and retain the
professional and technical personnel necessary in connection with its
operations. Competition for skilled personnel in the electronics and aerospace
industries is intense and increasing, and companies often experience high
attrition among their skilled employees. Excessive attrition among its
professional and technical personnel could increase the Company's costs of
performing its contractual obligations, reduce the Company's ability to
efficiently satisfy its clients' needs and seriously constrain the Company's
future growth potential. In addition, the Company must often comply with
provisions in government contracts that require employment of persons with
specified levels of education, work experience and security clearances. The loss
of any significant number of the Company's existing key professional and
technical personnel or the inability to attract and retain key employees in the
future could have a material adverse effect on the Company's financial condition
and results of operations. See 'Business--Employees' and 'Management.'
ENVIRONMENTAL MATTERS
The Company and its operations are subject to extensive federal, state, and
local environmental laws and regulations that may change frequently and that (i)
impose limitations and prohibitions on the discharge of, and establish standards
for the use, disposal, and management of, certain materials, substances and
waste, and (ii) impose liability for the costs of investigating and cleaning up,
and certain damages resulting from, past spills, disposals or other releases of
hazardous substances or materials (together, 'Environmental Laws'). Management
cannot predict with any certainty whether and to what extent future events, such
as changes in existing laws and regulations or the discovery of conditions not
currently known to the Company, or contractual indemnification
19
<PAGE>
not providing the Company with the protection it anticipates for certain known
environmental conditions, may affect the Company. Furthermore, actions by
federal, state, and local governments concerning environmental matters could
result in laws or regulations that could increase the costs of producing the
Company's products or otherwise adversely affect the demand for its products.
Any such development could result in a material adverse impact on the Company.
See 'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Environmental Matters' and 'Business--Government Contracts and
Regulation.'
NATURAL DISASTERS
The geology and other natural conditions of the California area, in which
all of the Company's facilities are located, present particular risks of natural
disasters, including the risk of seismic activity. Future seismic activity in
California could cause significant damage to these facilities and could have a
material adverse effect on the Company's financial condition and results of
operations.
COMPANY GROWTH AND RISKS RELATED TO FUTURE ACQUISITIONS
A key element of the Company's business strategy is to selectively pursue
acquisitions of other companies in the aerospace and defense industries. There
can be no assurance that acquisition opportunities will continue to be available
or that if available, such acquisitions could be consummated on terms acceptable
to the Company, or that the Company would be able to obtain financing on terms
that it deems acceptable to consummate any potential acquisition. In addition,
the Company's future performance will depend, in part, on its ability to manage
expanding operations and to adapt its operational systems to such expansions.
The failure of the Company to effectively manage its growth or successfully
integrate acquired companies or assets into the Company's operations could have
a material adverse effect on the Company's financial condition and results of
operations.
BACKLOG
The Company's order backlog is subject to fluctuations and is not
necessarily indicative of future sales. There can be no assurance that current
order backlog will necessarily lead to sales in any future period. The Company's
order backlog as of September 30, 1997 was approximately $99.8 million,
approximately 29.7% of which was attributable to commercial customers and
approximately 70.3% of which was attributable to defense customers. A
substantial amount of the Company's order backlog can be canceled at any time
without penalty, except, in some cases, the recovery of the Company's actual
committed costs and profit on work performed up to the date of cancellation.
Cancellations of pending purchase orders or termination or reductions of
purchase orders in progress from customers of the Company could have a material
adverse effect on the Company's financial position and results of operations.
See 'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Backlog.'
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of the Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes, as set forth in the legend thereon, as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act and applicable state
securities laws, or pursuant to an exemption therefrom. Except under certain
limited circumstances, the Company does not intend to register the Old Notes
under the Securities Act. In addition, any holder of Old Notes who tenders in
the Exchange Offer for the purpose of participating in a distribution of the New
Notes may be deemed to have received restricted securities and, if so, will be
required to comply with the registration and propectus delivery requirements of
the Securities Act in connection with any resale transaction. To the extent Old
Notes are tendered and accepted in the Exchange Offer, the trading market, if
any, for the Old Notes not so tendered could be adversely affected. See 'The
Exchange Offer.'
20
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents and the
capitalization of the Company at September 30, 1997, and as adjusted to give
effect to the Transactions, and should be read in conjunction with 'Pro Forma
Consolidated Financial Data,' 'Management's Discussion and Analysis of Financial
Condition and Results of Operations,' and the historical consolidated financial
statements of Stellex (successor to Kleinert), and the accompanying notes
thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
--------------------------
<S> <C> <C>
HISTORICAL PRO FORMA
---------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................................ $ 730 $ 730
--------- ----------
--------- ----------
Short-term note payable(a)....................................... 4,000 --
--------- ----------
Long-term debt, including current maturities:
Prior Credit Facility.......................................... $ 17,250 $ --(b)
New Credit Facilities(c)....................................... -- 2,150
The Notes...................................................... -- 100,000
Trinity Note................................................... 2,500 --(d)
Other long-term debt, including current maturities(e).......... 4,369 4,369
--------- ----------
Total long-term debt, including current maturities........ 24,119 106,519
--------- ----------
Minority interest(f)............................................. 778 778
--------- ----------
Stockholders' equity:
Preferred Stock(g)............................................. -- 11,450
Common Stock(h)................................................ 50 50
Retained earnings.............................................. (256) (1,488)
--------- ----------
Total stockholders' equity.................................. (206) 10,012
--------- ----------
Total capitalization...................................... $ 28,691 $ 117,309
--------- ----------
--------- ----------
</TABLE>
- ------------------
(a) Consists of indebtedness outstanding under the Sunderland Note (as defined).
See 'Certain Transactions--Relationship with Equity Investors.'
(b) Reflects the repayment of $17.2 million of principal and $42,000 of accrued
interest outstanding as of September 30, 1997 under the Prior Credit
Agreement. Substantially all of these borrowings were incurred to finance
the Kleinert Acquisition. Borrowings under the Prior Credit Agreement bore
interest at an average rate of 7.7% per annum as of September 30, 1997.
(c) In connection with the consummation of the Initial Offering, the Company
entered into the New Credit Facilities. As of September 30, 1997, on a pro
forma basis, the Company would have had up to $47.9 million of borrowing
availability under the New Credit Facilities, subject to the satisfaction of
certain conditions. See 'Description of Certain Indebtedness--New Credit
Facilities.'
(d) Reflects the repayment of $2.5 million of principal and $20,000 of accrued
interest outstanding as of September 30, 1997 under the Trinity Note (as
defined). See 'Certain Transactions--Trinity Note.' Borrowings under the
Trinity Note bore interest at a rate of 10% per annum as of September 30,
1997.
(e) Consists of indebtedness outstanding under the Paragon Note (as defined) and
the Kleinert Seller Note (as defined). See 'Description of Certain
Indebtedness--Paragon Note' and '--Kleinert Seller Note,' and Note 5 to the
consolidated financial statements of Stellex (successor to Kleinert)
included elsewhere in this Prospectus.
(f) Consists of 19.9% of the issued and outstanding common stock of KII Holding
which is held by its management, who have rights to sell such shares to KII
Holding under certain circumstances.
(g) Consists of Series A Preferred Stock with an aggregate stated value of
$11.45 million issued in connection with the consummation of the W-J
Acquisition and the Initial Offering to certain trusts and other entities
owned by such trusts and certain other trusts, the beneficiaries of which
are certain relatives of Richard L. Kramer and William L. Remley. See
'Certain Transactions--Relationship with Equity Investors.'
(h) Consists of Common Stock, without par value, of which 1,000 shares are
authorized and 1,000 shares are issued and outstanding.
21
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL DATA
On July 1, 1997, KII Holding, through a wholly-owned subsidiary, acquired
all of the issued and outstanding capital stock of Kleinert for approximately
$26.5 million (including the assumption of $2.6 million of indebtedness and the
issuance to the seller of a note for approximately $1.75 million). Stellex was
formed on September 5, 1997 and, as a result of an equity exchange transaction
between Stellex and KII Holding on September 12, 1997, owns approximately 80% of
the outstanding common stock of KII Holding, with Stellex Aerospace's management
holding the remainder.
On October 31, 1997, concurrently with the consummation of the Initial
Offering, Stellex, through a wholly-owned subsidiary, acquired the tactical
subsystems and microwave devices businesses of Watkins-Johnson for a net
purchase price of approximately $82.2 million (after giving effect to estimated
purchase price adjustments). In addition, on the same date the Company entered
into the New Credit Facilities to provide working capital and
acquisition-related borrowing availability of $25 million and $25 million,
respectively.
The unaudited pro forma consolidated financial statements have been
prepared to give effect to the application of the purchase method of accounting
for the Kleinert Acquisition and the W-J Acquisition, as well as the application
of proceeds from the Initial Offering and New Credit Facilities. The allocation
of the purchase price to the tangible and intangible assets and liabilities
acquired in connection with the Acquisitions reflected in these pro forma
consolidated financial statements are based on preliminary estimates of their
fair market values.
The unaudited pro forma consolidated balance sheet as of September 30, 1997
gives effect to the W-J Acquisition, the Initial Offering and the New Credit
Facilities as if they had occurred as of September 30, 1997.
The unaudited pro forma consolidated statements of operations for the year
ended December 31, 1996 and the nine months ended September 30, 1997 give effect
to the Transactions as if they had occurred as of January 1, 1996, and include
estimated amounts for interest required to fund the working capital requirements
of Stellex Microwave during such periods. The pro forma consolidated statements
of operations exclude non-recurring charges directly related to the
Acquisitions, including (i) investment banking and financial advisory fees paid
and payable to Mentmore, (ii) increases in cost of sales arising from the
write-up of inventories at the date of the consummation of the Acquisitions to
fair market value and (iii) retention bonuses to be paid to certain employees of
TSMD; these amounts are estimated to be $1.5 million, $1.2 million, and $2.3
million, respectively, which are anticipated to be included in expenses in the
three months ended December 31, 1997.
The unaudited pro forma consolidated financial statements have been
prepared by management of the Company and do not necessarily represent the
results of the Company's operations which would have occurred if the
Transactions had actually taken place on the dates indicated, and may not be
indicative of the results of operations which may be obtainable in the future.
The unaudited pro forma consolidated financial statements should be read in
conjunction with the historical consolidated financial statements of Stellex
(successor to Kleinert) and TSMD (Stellex Microwave) and the accompanying notes
thereto, 'Summary Pro Forma Financial Data,' 'Capitalization,' 'Selected
Historical Financial Data' and 'Management's Discussion and Analysis of
Financial Condition and Results of Operations,' which information is included
elsewhere in this Prospectus.
22
<PAGE>
STELLEX INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
OFFERING
AND
W-J NEW CREDIT STELLEX
STELLEX TSMD ACQUISITION FACILITIES CONSOLIDATED
HISTORICAL HISTORICAL ADJUSTMENTS ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents.............................. $ 730 $ -- $ 730
Receivables....................................... 5,803 15,500 (15,200)(a) (50)(g) 6,053
Inventories....................................... 13,211 15,100 1,000 (b) 29,311
Prepaid and other................................. 815 300 (300)(a) 815
Deferred taxes.................................... 486 3,000 (3,000)(a) 486
---------- ---------- ----------- ----------- ------------
Total current assets............................ 21,045 33,900 (17,500) (50) 37,395
Property and equipment............................ 13,767 4,300 17,600 (b) 35,667
Favorable lease................................... -- -- 4,500 (c) 4,500
Goodwill.......................................... -- -- 49,900 (d) 49,900
Other assets...................................... 1,215 -- 5,000 (f) 5,983
(232)(h)
---------- ---------- ----------- ----------- ------------
Total Assets.................................... $ 36,027 $ 38,200 $ 54,500 $ 4,718 $133,445
---------- ---------- ----------- ----------- ------------
---------- ---------- ----------- ----------- ------------
LIABILITIES AND EQUITY
Bank line of credit............................... $ 1,230 $ -- 2,130 (f) 2,130
(1,230)(g)
Notes payable..................................... 4,058 -- -- (4,000)(j) 58
Accounts payable.................................. 1,536 2,400 (2,400)(a) (2,700)(g) 1,536
2,700 (e)
Accrued liabilities............................... 2,158 7,500 (4,000)(a) 5,658
Payable for W-J Acquisition....................... 82,200 (82,200)(g) --
Customer deposits................................. 233 4,800 5,033
---------- ---------- ----------- ----------- ------------
Total current liabilities....................... 9,215 14,700 78,500 (84,000) 18,415
Notes payable..................................... 18,581 -- (16,000)(g) 2,581
The Notes......................................... 100,000 (f) 100,000
Other subordinated debt........................... 4,250 -- (2,500)(g) 1,750
Deferred compensation and pension liabilities..... 1,672 500 2,172
Deferred income taxes............................. 1,737 500 (500)(a) 1,737
---------- ---------- ----------- ----------- ------------
Total liabilities............................... 35,455 15,700 78,000 (6,500) 122,655
---------- ---------- ----------- ----------- ------------
Minority interest................................. 778 778
---------- ---------- ----------- ----------- ------------
Preferred stock................................... 4,000 (j) 11,450
7,450 (i)
Common stock...................................... 50 -- 50
Additional paid in capital........................ -- -- --
Invested equity................................... -- 22,500 (22,500)(a) --
Retained earnings................................. (256) -- (1,000)(e) (232)(h) (1,488)
---------- ---------- ----------- ----------- ------------
Total Shareholders' Equity...................... (206) 22,500 (23,500) 11,218 10,012
---------- ---------- ----------- ----------- ------------
Total............................................. $ 36,027 $ 38,200 $ 54,500 $ 4,718 $133,445
---------- ---------- ----------- ----------- ------------
---------- ---------- ----------- ----------- ------------
</TABLE>
See notes to pro forma consolidated balance sheet.
23
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
The accompanying unaudited pro forma consolidated balance sheet as of September
30, 1997 gives effect to the W-J Acquisition, the Initial Offering and the New
Credit Facilities as if they had occurred as of September 30, 1997. Pro forma
adjustments are as follows:
<TABLE>
<S> <C>
As to the W-J Acquisition:
(a) Pursuant to the W-J Acquisition, the Company only purchased certain assets and assumed certain liabilities of
TSMD. Reflects an adjustment to eliminate those assets not purchased and liabilities not assumed as part of
the W-J Acquisition, and the related invested equity account.
(b) Reflects an adjustment to increase the carrying values of property and inventory acquired in connection with
the W-J Acquisition to their estimated fair market values (based on preliminary estimates).
(c) Reflects an adjustment to record the difference in contractual lease costs on the Stellex Microwave leased
facilities compared to estimated fair market lease costs, to be amortized over three years.
(d) Reflects an adjustment to reflect the excess purchase price paid over the fair value of the tangible and
identified intangible assets purchased and liabilities assumed (goodwill) in connection with the W-J
Acquisition.
(e) Reflects an adjustment to record the investment banking and financial advisory fees paid to Mentmore in
connection with the W-J Acquisition and the Initial Offering, and to accrue additional acquisition-related
expenses. See 'Certain Transactions--Management Agreement with Mentmore.'
As to the Initial Offering and the New Credit Facilities:
(f) Reflects adjustments to record the proceeds of the Initial Offering, estimated debt issuance costs of
$5,000,000 and the incurrence of $2,130,000 of borrowings under the New Credit Facilities.
(g) Reflects the payment of the W-J Acquisition purchase price of $82,200,000 (after giving effect to estimated
purchase price adjustments), payment of related accrued costs for the W-J Acquisition, and the repayment of
$17,230,000 of debt under the Prior Credit Facility and $2,500,000 of debt under the Trinity Note.
(h) Reflects an adjustment to write-off debt issuance costs recorded in connection with the Kleinert Acquisition,
as such debt was repaid with the proceeds of the Initial Offering.
(i) Reflects the sale of preferred stock for an aggregate of $7,450,000.
(j) Reflects the exchange of a note payable to an affiliated company for preferred stock of Stellex.
</TABLE>
24
<PAGE>
STELLEX INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
W-J
ACQUISITION
AND
KLEINERT OFFERING COMPANY
KLEINERT ADJUST- TSMD ADJUST- CONSOLIDATED
HISTORICAL MENTS HISTORICAL MENTS PRO FORMA
-------- ----------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sales.................................................... $ 24,307 $89,200 $113,507
Cost of sales............................................ 17,367 $ (204)(a) 65,900 $ 3,274 (i) 87,417
1,080 (j)
Inventory writedowns and staff reductions................ -- 2,200 2,200
-------- ----------- ------- ----------- ------------
Gross profit............................................. 6,940 204 21,100 (4,354) 23,890
Selling, general and administrative...................... 3,629 (47)(a) 14,600 246 (i) 18,809
761 (c) 120 (j)
(500)(k)
Amortization of intangibles.............................. 31 (31)(a) -- 3,496 (i) 3,496
-------- ----------- ------- ----------- ------------
Income from operations................................... 3,280 (479) 6,500 (7,716) 1,585
Interest expense......................................... 856 140 (e) -- 10,000 (l) 10,984
(592)(f) 580 (m)
Other expense, net....................................... 47 (7)(g) -- 40
-------- ----------- ------- ----------- ------------
Income (loss) before taxes............................... 2,377 (20) 6,500 (18,296) (9,439)
Provision (benefit) for income taxes..................... 945 (8)(h) 2,500 (3,437)(n) --
-------- ----------- ------- ----------- ------------
Net income (loss)........................................ 1,432 (12) 4,000 (14,859) (9,439)
Preferred stock dividends................................ -- -- (1,145)(o) (1,145)
-------- ----------- ------- ----------- ------------
Income (loss) applicable to common stockholders.......... $ 1,432 $ (12) $ 4,000 $ (16,004) $(10,584)
-------- ----------- ------- ----------- ------------
-------- ----------- ------- ----------- ------------
</TABLE>
See notes to pro forma consolidated statements of operations.
25
<PAGE>
STELLEX INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS W-J
ENDED THREE MONTHS ACQUISITION
JUNE 30, ENDED KLEINERT AND
1997 SEPTEMBER 30, 1997 /STELLEX OFFERING
KLEINERT STELLEX ADJUST- TSMD ADJUST-
HISTORICAL HISTORICAL MENTS HISTORICAL MENTS
------------- ------------------ -------- ---------- -----------
(PREDECESSOR) (SUCCESSOR)
<S> <C> <C> <C> <C> <C>
Sales................................... $14,296 $ 8,890 $ 67,900
Cost of sales........................... 10,140 6,747 $ (131)(a) 47,900 $ 2,455 (i)
(624)(b) 810 (j)
------------- -------- -------- ---------- -----------
Gross profit............................ 4,156 2,143 755 20,000 (3,265)
Selling, general and administrative..... 1,783 1,571 (27)(a) 9,100 185 (i)
17 (c) 90 (j)
(450)(d) (375)(k)
Amortization of intangibles............. 15 12 (15)(a) -- 1,748 (i)
------------- -------- -------- ---------- -----------
Income from operations.................. 2,358 560 1,230 10,900 (4,913)
Interest expense........................ 376 508 70 (e) -- 7,500 (l)
(274)(f) 347 (m)
Other expense, net...................... 98 20 (45)(g) --
------------- -------- -------- ---------- -----------
Income before taxes..................... 1,884 32 1,479 10,900 (12,760)
Provision (benefit) for income taxes.... 754 288 592 (h) 4,200 (5,684)(n)
------------- -------- -------- ---------- -----------
Net income.............................. 1,130 (256) 887 6,700 (7,076)
Preferred stock dividends............... -- -- -- (859)(o)
------------- -------- -------- ---------- -----------
Income applicable to common
stockholders.......................... $ 1,130 $ (256) $ 887 $ 6,700 $ (7,935)
------------- -------- -------- ---------- -----------
------------- -------- -------- ---------- -----------
<CAPTION>
COMPANY
CONSOLIDATED
PRO FORMA
------------
<S> <<C>
Sales................................... $ 91,086
Cost of sales........................... 67,297
------------
Gross profit............................ 23,789
Selling, general and administrative..... 11,894
Amortization of intangibles............. 1,760
------------
Income from operations.................. 10,135
Interest expense........................ 8,527
Other expense, net...................... 73
------------
Income before taxes..................... 1,535
Provision (benefit) for income taxes.... 150
------------
Net income.............................. 1,385
Preferred stock dividends............... (859)
------------
Income applicable to common
stockholders.......................... $ 526
------------
------------
</TABLE>
See notes to pro forma consolidated statements of operations.
26
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying pro forma consolidated statements of operations for the year
ended December 31, 1996 and the nine months ended September 30, 1997 give effect
to the Transactions as if they had occurred as of January 1, 1996. Pro forma
adjustments are as follows:
As to the Kleinert Acquisition:
(a) Reflects an adjustment to record the decrease in depreciation and
amortization expense as a result of the allocation of the purchase price to
the net assets of Kleinert (based on estimated lives of four to eight years
for equipment and 32.5 years for the buildings at Kleinert). These amounts
are based on appraised values of the tangible assets. No amounts were
ascribed to intangible assets or goodwill as the purchase price did not
exceed the fair value of the net tangible assets acquired.
(b) Reflects an adjustment to eliminate non-recurring expenses associated with
the writeoff of inventory fair value adjustments directly connected with
the Kleinert Acquisition.
(c) Reflects an adjustment to record the estimated increase in the value of the
shares of common stock of KII Holding held by management which may be sold
to KII Holding under certain circumstances, as well as the estimated value
of stock appreciation rights (SARs) held by Stellex Aerospace management.
(d) Reflects an adjustment to eliminate non-recurring investment banking and
financial advisory fees paid to Mentmore directly connected with the
Kleinert Acquisition.
(e) Reflects an adjustment to record interest expense on indebtedness under the
Kleinert Seller Note incurred in connection with the Kleinert Acquisition
and not repaid in connection with the Initial Offering.
(f) Reflects an adjustment to eliminate interest expense on indebtedness
refinanced in the Transactions.
(g) Reflects an adjustment to eliminate non-recurring expenses directly
connected with the Kleinert Acquisition.
(h) Reflects an adjustment to record the estimated tax effect of entries (a)
through (g) above.
As to the W-J Acquisition and the Initial Offering:
(i) Reflects an adjustment to record the increase in depreciation and
amortization expense as a result of the allocation of the purchase price to
net assets of TSMD (based on estimated lives of five years for equipment,
three years for a favorable rent agreement and 25 years for goodwill, and
straight-line depreciation and amortization). These amounts are based on
preliminary estimates of fair market values of the tangible assets
acquired.
(j) Reflects an adjustment for additional cash to be paid for facilities rent
based on agreements between the Company and Watkins-Johnson entered into in
connection with the W-J Acquisition.
(k) Reflects an adjustment to eliminate the Watkins-Johnson corporate expense
allocation to TSMD ($2,800,000 and $2,100,000 for the year ended December
31, 1996 and nine months ended September 30, 1997, respectively) and to
record the Company's estimated costs of corporate services on a separate
company basis, as well as the Mentmore management fees payable pursuant to
the Management Agreement.
(l) Reflects an adjustment to record interest on the Notes at an interest rate
of 9.5% per annum, and related amortization of the estimated debt issuance
costs of $5,000,000 over the ten-year expected term of the Notes.
(m) Reflects an adjustment to impute interest expense on the net working
capital requirements of TSMD. As business units of Watkins-Johnson, no
interest expense was allocated to TSMD for the invested equity of their
operations. The ongoing working capital requirements of TSMD are expected
to be funded through cash flow from operations and borrowings under the New
Credit Facilities. Interest was calculated at 7.75% per annum based on the
balance of working capital items which will require funding by the Company
on an ongoing basis and TSMD's cash flows subsequent to January 1, 1996.
(n) Reflects an adjustment to record the estimated tax effect of entries (i)
through (m). The goodwill incurred on the acquisition is expected to be
deductible under Section 197 of the Internal Revenue Code. The 1996 tax
benefit is limited due to limitations on the recognizability of a deferred
tax asset on the pro forma net loss of the combined companies.
(o) Reflects an adjustment to record the dividends relating to the $11,450,000
preferred stock issued by the Company in connection with the Initial
Offering and the W-J Acquisition.
27
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
STELLEX
The selected historical financial data of Stellex as of and for each of the
five years in the period ended December 31, 1996 have been derived from the
audited financial statements of its predecessor, Kleinert; such audited
financial statements for the years ended December 31, 1994, 1995 and 1996 are
included elsewhere in this Prospectus. The selected financial data for Stellex
as of and for the nine, six and three months ended September 30, 1996, June 30,
1997 and September 30, 1997, respectively, are unaudited and, with the exception
of the financial data for the three months ended September 30, 1997, have been
prepared on the same basis as the audited financial data and, in the opinion of
management of Stellex, contain all adjustments necessary for a fair presentation
of the results of operations for such periods. The selected historical financial
data for the successor company as of and for the three months ended September
30, 1997 reflect adjustments resulting from the application of the purchase
method of accounting in conjunction with the Kleinert Acquisition. The purchase
accounting adjustments relate primarily to the impact of write-ups of
inventories and property and equipment to their fair values and the addition of
acquisition debt. The results of operations for the 1997 interim periods
presented are not necessarily indicative of the results to be expected for the
full year. The data presented below should be read in conjunction with the
historical financial statements of Stellex (successor to Kleinert) and related
footnotes, 'Pro Forma Consolidated Financial Data,' and 'Management's Discussion
and Analysis of Financial Condition and Results of Operations' contained
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS SIX MONTHS THREE MONTHS
ENDED ENDED ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
------------------------------------------- ------------- ------------- -------------
1992 1993 1994 1995 1996 1996 1997 1997
------- ------- ------- ------- ------- ------------- ------------- -------------
(SUCCESSOR)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales.............................. $25,620 $21,664 $17,808 $21,049 $24,307 $17,967 $14,296 $ 8,890
Cost of goods sold................. 18,220 16,239 13,121 15,083 17,367 12,872 10,140 6,747
------- ------- ------- ------- ------- ------------- ------------- -------------
Gross profit....................... 7,400 5,425 4,687 5,966 6,940 5,095 4,156 2,143
Selling, general and
administrative................... 4,133 3,514 3,110 3,299 3,629 2,747 1,783 1,571
Amortization of intangibles........ 629 533 416 282 31 23 15 12
------- ------- ------- ------- ------- ------------- ------------- -------------
Operating income................... 2,638 1,378 1,161 2,385 3,280 2,325 2,358 560
Interest expense................... 1,386 1,078 979 1,034 856 660 376 508
Interest income.................... (93) (73) (44) (5) (11) (7) (5) (2)
Other expense (income)............. 317 273 145 44 58 39 103 22
------- ------- ------- ------- ------- ------------- ------------- -------------
Income before income taxes......... 1,028 100 81 1,312 2,377 1,633 1,884 32
Income tax provision............... 377 42 50 525 945 657 754 288
------- ------- ------- ------- ------- ------------- ------------- -------------
Net income (loss).................. $ 651 $ 58 $ 31 $ 787 $ 1,432 $ 976 $ 1,130 $ (256)
------- ------- ------- ------- ------- ------------- ------------- -------------
------- ------- ------- ------- ------- ------------- ------------- -------------
OTHER FINANCIAL DATA:
EBITDA(a).......................... $ 5,127 $ 3,831 $ 3,440 $ 4,291 $ 4,913 $ 3,539 $ 3,133 $ 1,987
Depreciation and amortization...... 2,806 2,726 2,424 1,950 1,691 1,253 878 375
Capital expenditures............... 542 389 288 657 1,053 623 868 539
Ratio of earnings to fixed
charges(b)....................... 1.74x 1.09x 1.08x 2.27x 3.78x 3.47x 6.01x 1.06x
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital.................... $ 7,043 $ 6,751 $ 6,621 $ 6,802 $ 7,735 $11,829
Total assets....................... 33,694 30,065 28,029 28,180 29,614 36,027
Long-term debt, including current
maturities....................... 15,237 12,650 10,021 7,824 5,682 22,889
Stockholders' equity............... 12,652 11,927 11,958 12,745 14,178 (206)
</TABLE>
- ------------------
(a) EBITDA represents income (loss) before income taxes plus interest expense,
depreciation and amortization less interest income. EBITDA for the three
months ended September 30, 1997 excludes certain non-recurring costs
directly related to the Kleinert Acquisition which included investment
banking fees paid to Mentmore totaling $450,000 and non-cash amortization of
an acquisition accounting adjustment to fair value inventory totaling
$624,000. The definition of EBITDA as used herein differs in certain
respects from the definition of such term in the Indenture. See 'Description
of Notes--Certain Definitions.' EBITDA is presented because it is a widely
accepted financial indicator of a company's ability to service indebtedness.
However, EBITDA should not be considered an alternative to operating income
or cash flows from operating activities (as determined in accordance with
generally accepted accounting principles) and should not be construed as an
indication of a company's operating performance or as a measure of
liquidity. Since all companies and analysts do not necessarily calculate
EBITDA in the same fashion, EBITDA as presented in this Prospectus may not
be comparable to similarly titled measures reported by other companies.
(b) In calculating the ratio of earnings to fixed charges, earnings consist of
income before taxes plus fixed charges. Fixed charges consist of interest
expense and amortization of deferred financing costs, whether expensed or
capitalized.
28
<PAGE>
STELLEX MICROWAVE
The selected financial data of Stellex Microwave as of and for the years
ended December 31, 1995 and 1996 and as of September 30, 1997 and for the nine
month period then ended have been derived from the audited financial statements
of the tactical systems and microwave devices business ('TSMD') of
Watkins-Johnson Company included elsewhere in this Prospectus. Certain assets
and liabilities held by TSMD were acquired by the Company in connection with the
W-J Acquisition. The selected financial data for TSMD as of and for the year
ended December 31, 1994 and as of the nine months ended September 30, 1996 are
unaudited but have been prepared on the same basis as the audited financial data
of TSMD and, in the opinion of management of Stellex Microwave, contain all
adjustments necessary for a fair presentation of the results of operations for
such periods. TSMD was a division of Watkins-Johnson, and its results may not be
reflective of those that would have resulted had it operated as an independent
entity. The results of operations for the nine months ended September 30, 1997
are not necessarily indicative of the results to be expected for the full year.
The data presented below should be read in conjunction with the historical
financial statements and related footnotes, 'Pro Forma Consolidated Financial
Data,' and 'Management's Discussion and Analysis of Financial Condition and
Results of Operations' contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ ------------------
1994 1995 1996 1996 1997
-------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales................................................... $101,300 $97,600 $89,200 $61,300 $67,900
Cost of goods sold...................................... 72,300 65,200 68,100 45,400 47,900
-------- ------- ------- ------- -------
Gross profit............................................ 29,000 32,400 21,100 15,900 20,000
Selling, general and administrative..................... 22,400 17,300 14,600 11,000 9,100
-------- ------- ------- ------- -------
Income before income taxes.............................. 6,600 15,100 6,500 4,900 10,900
Income tax provision.................................... 2,600 5,900 2,500 1,900 4,200
-------- ------- ------- ------- -------
Net income.............................................. $ 4,000 $ 9,200 $ 4,000 $ 3,000 $ 6,700
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
OTHER FINANCIAL DATA:
EBITDA(a)............................................... $ 9,300 $17,700 $ 8,800 $12,300
Adjusted EBITDA(a)...................................... 9,300 18,100 11,000 12,300
Depreciation and amortization........................... 2,700 2,600 2,300 1,400
Capital expenditures.................................... 3,000 2,200 1,700 600
BALANCE SHEET DATA (AT END OF PERIOD)(B):
Working capital......................................... $ 25,800 $16,900 $25,800 $19,200
Total assets............................................ 46,600 39,200 50,200 38,200
Long-term debt.......................................... -- -- -- --
Stockholders' equity.................................... 31,000 21,400 29,900 22,500
</TABLE>
- ------------------
(a) EBITDA represents income (loss) before income taxes, depreciation and
amortization. TSMD's historical results do not include interest expense or
interest income. Adjusted EBITDA for the year ended December 31, 1996
excludes a $1.5 million charge included in cost of goods sold for the
write-off of slow moving and excess inventory, and a $700,000 charge
included in cost of goods sold for severance costs relating to a reduction
in force of operational and manufacturing employees, of which $300,000 was
recorded in the nine months ended September 30, 1996. Adjusted EBITDA for
the year ended December 31, 1995 excludes a $400,000 charge included in
selling, general and administrative expenses for severance costs relating to
a reduction in force of operational and manufacturing employees. The
definition of EBITDA as used herein differs in certain respects from the
definition of such term in the Indenture. See 'Description of Notes--Certain
Definitions.' EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service indebtedness. However, EBITDA
should not be considered an alternative to operating income or cash flows
from operating activities (as determined in accordance with generally
accepted accounting principles) and should not be construed as an indication
of a company's operating performance or as a measure of liquidity. Since all
companies and analysts do not necessarily calculate EBITDA in the same
fashion, EBITDA as presented in this Prospectus may not be comparable to
similarly titled measures reported by other companies.
(b) Represents the historical assets of TSMD. In connection with the W-J
Acquisition, a subsidiary of the Company acquired only certain operating
assets and liabilities of TSMD. See 'Certain Transactions--The W-J
Acquisition.'
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company, through its subsidiaries, Stellex Microwave and Stellex
Aerospace, is a leading provider of highly engineered subsystems and components
for the aerospace, defense and space industries. Stellex Microwave is a
worldwide leader in the design, manufacture and marketing of fully integrated
and proprietary microwave electronic subsystems for radar-guided tactical
missile systems and a broad line of high radio frequency and microwave frequency
single function modules. Stellex Microwave products are used in the generation,
reception and translation of communication, data and radar signals. Stellex
Aerospace is a leader in the machining of turbomachinery, aircraft hinges and
other structural components for the aerospace and space industries.
On July 1, 1997, KII Holding acquired Stellex Aerospace (formerly Kleinert
Industries, Inc.) from Kleinert Industrie Holding A.G. Stellex Aerospace
conducts its business through four operating subsidiaries--Paragon, Bandy, SEAL
and GIL. On September 5, 1997 Stellex was formed and thereafter acquired
approximately 80% of the common stock of KII Holding. The results of operations
of Stellex for the periods presented herein represent the results of operations
of Kleinert for such periods. See 'Certain Transactions--Kleinert Acquisition.'
In connection with the W-J Acquisition, the Company acquired the tactical
subsystems and microwave devices businesses ('TSMD') of Watkins-Johnson, which
was operated as a division of Watkins-Johnson and was not a separate legal
entity. The Company operates the TSMD business through Stellex Microwave. The
results of operations of Stellex Microwave for the periods presented herein
represent the results of operations of TSMD for such periods and its results may
not be reflective of those that would have resulted had it operated as an
independent entity. The income tax expense and other tax-related information of
Stellex Microwave for the periods presented (i) are presented as if TSMD had not
been eligible to be included in the consolidated tax returns of Watkins-Johnson
and (ii) have required certain assumptions, allocations and significant
estimates that management believes are reasonable in measuring the tax
consequences to TSMD as if it had been a stand-alone taxpayer separate from
Watkins-Johnson.
STELLEX AEROSPACE
The Company's sales to the aerospace industry are conducted primarily by
Stellex Aerospace. Stellex Aerospace's historical financial results have been
significantly influenced by both the cyclicality of the commercial aerospace
industry and the increased outsourcing of the production of components by OEMs
to outside suppliers. During the period from 1992 to 1994, the commercial
aerospace industry experienced a significant reduction in orders for new
aircraft and engines. In response, Stellex Aerospace significantly reduced its
costs by reducing its work force and rationalizing its production capacity. In
addition, Stellex Aerospace took steps to expand its business activity
throughout this period by increasing the number of customers for whom it
manufactured prototypes and by seeking contracts to produce higher volumes of
turbomachinery components. Since 1994, primarily as a result of the recovery in
overall aircraft orders and its success in gaining additional prototype and
production-oriented supply contracts, Stellex Aerospace has significantly
increased sales and profitability.
The Company believes that the recent increases in expenditures on new
aircraft production and revenue passenger miles will benefit aerospace industry
suppliers, such as the Company, that were able to withstand the difficult
operating environment and consolidation among suppliers of the early 1990's. See
'Business--Industry Overview.'
30
<PAGE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 (COLLECTIVELY COMPRISED OF KLEINERT
(PREDECESSOR) FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND STELLEX (SUCCESSOR) FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 1997) COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
Sales. Stellex Aerospace's sales increased by $5,218,900, or 29.0%, in the
nine months ended September 30, 1997 over the comparable period in the prior
year. The increase in sales was primarily attributable to increases in
commercial aircraft production by Boeing, strong spare parts demand and the
acceleration of the production schedule for the C-17 program which impacted
Bandy's business. In addition, Paragon experienced increases in spacecraft and
prototype work due to continuing strong demand for space shuttle parts.
Gross profit. Gross profit increased by $1,204,400, or 23.6%, in the nine
months ended September 30, 1997 over the comparable period in the prior year,
and gross profit margin decreased to 27.2% in the nine months ended September
30, 1997 from 28.4% in the comparable period in the prior year. Gross profit was
impacted during the three month period ended September 30, 1997 by the
amortization of a non-recurring purchase accounting adjustment totaling
approximately $624,000, resulting from the write-up of inventories to their fair
market value on the date of the Kleinert Acquisition. Ignoring the impact of
this write-up on gross profit margin would result in a 29.9% comparable amount.
Gross margin benefitted from an improvement in plant utilization and production
efficiencies at Bandy due to the installation of new Fadal milling machines.
These benefits were partially offset by increased outsourcing necessitated by
capacity constraints and raw material price increases on aluminum extrusions.
Additional milling capacity will be added at Bandy during the fourth quarter of
1997 to accommodate increasing demand.
Selling, general and administrative. Selling, general and administrative
expenses increased $606,700, or 22.1%, in the nine months ended September 30,
1997 over the comparable period in the prior year. The increase in selling,
general and administrative expenses was primarily due to a non-recurring charge
totaling $450,000 for investment banking and financial advisory fees related to
the Kleinert Acquisition. Excluding this non-recurring charge, selling, general
and administrative expenses as a percentage of sales decreased from 15.3% in the
nine months ended September 30, 1996 to 12.5% in the comparable period in 1997,
primarily because the increased sales volume and improved plant utilization
required a relatively small increase in selling, general and administrative
expenses. Additionally, employee benefit costs were reduced in the 1997 period
over the levels in the comparable period in the prior year when two deferred
compensation plans were established.
Amortization of intangible assets. Amortization expense relating to
intangible assets increased by $4,400, or 18.8%, in the nine months ended
September 30, 1997 over the comparable period in the prior year. The increase
was due to increased amortization of intangibles relating to the Kleinert
Acquisition.
Operating income. Operating income increased by $593,300, or 25.5%, in the
nine months ended September 30, 1997 over the comparable period in the prior
year. Operating income as a percentage of net sales decreased to 12.6% in the
nine months ended September 30, 1997 from 12.9% in the comparable period.
However, excluding non-recurring adjustments related to the Kleinert
Acquisition, operating income as a percentage of net sales would have increased
to 17.2%, primarily due to the factors outlined above.
Interest expense. Interest expense increased by $224,200, or 34.0%, in the
nine months ended September 30, 1997 over the comparable period in the prior
year. The increase in interest expense resulted from a net increase in total
outstanding debt of approximately $18,000,000, primarily to finance the Kleinert
Acquisition, offset partially by an interest rate reduction from 10.125% to
7.875% on a building mortgage, and lower outstanding debt during the first six
months of 1997.
Other expense (income). Other expense (income) increased by $86,300 in the
nine months ended September 30, 1997, over the comparable period in the prior
year. The increase in other (income) expense was primarily due to expenses
related to the Kleinert Acquisition and a vending machine contract dispute
settlement.
Income tax provision. The effective income tax rates for the nine months
ended September 30, 1997 and 1996 were 54.4% and 40.2%, respectively. The higher
effective income tax rate for 1997 was primarily due to the non-deductibility
for income tax purposes of certain purchase accounting adjustments relating to
the Kleinert Acquisition.
Net income. As a result of the factors described above, net income
decreased by $101,700, or 10.4%, during the period ended September 30, 1997 over
the comparable period in the prior year.
31
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Sales. Stellex Aerospace's sales increased by $3,257,800, or 15.5%, in
1996 over 1995. The increase in sales was primarily attributable to the
resurgence of new orders as a result of increases in aircraft production in
commercial and military aircraft markets, offset partially by $1.0 million in
lower sales resulting from a reduction in volume in Paragon's Titan program,
which is in the latter stages of its product life cycle.
Gross profit. Stellex Aerospace's gross profit increased by $974,500, or
16.3%, in 1996 over 1995. Gross profit margin increased to 28.6% in 1996 from
28.3% in 1995. The increase in gross profit was primarily the result of
increased sales. The slight improvement in gross margin was due primarily to
longer production runs and improved plant capacity utilization, which was almost
entirely offset by lower margins on a new power actuation contract,
industry-wide pricing pressures and lower volume on Paragon's higher margin
Titan program.
Selling, general and administrative. Selling, general and administrative
expenses increased by $330,700, or 10.0%, in 1996 over 1995. As a percentage of
sales, selling, general and administrative expenses decreased from 15.7% in
1995, to 14.9% in 1996 because the increased sales volume and improved plant
utilization did not require a comparable increase in selling or administrative
expenses. Additional administrative costs, however, were incurred in
establishing two deferred compensation plans.
Amortization of intangible assets. Amortization expense relating to
intangible assets decreased by $251,000, or 88.9%, in 1996 from 1995. The
decrease in amortization expense relating to intangible assets was due to the
expiration of a non-compete agreement during 1995.
Operating income. Operating income increased by $894,800, or 37.5%, in
1996 over 1995. Operating income as a percentage of net sales increased to 13.5%
in 1996 from 11.3% in 1995 primarily due to the factors outlined above.
Interest expense. Interest expense decreased by $178,600, or 17.3%, in
1996 from 1995. The decrease in interest expense resulted primarily from a
reduction of the mortgage interest rate on a building and lower outstanding
debt.
Other expense (income). Other expense (income) increased by $7,900, or
20.5%, in 1996 over 1995. The increase in other (income) expense was primarily
due to lower levels of gains on sale of fixed assets and expenses related to the
Kleinert Acquisition.
Income tax provision. The effective income tax rate was 39.7% and 40.0%,
in 1996 and 1995, respectively.
Net income. As a result of the factors described above, net income
increased by $645,400, or 82.0%, for the year ended December 31, 1996 over 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Sales. Stellex Aerospace's sales increased by $3,240,700, or 18.2%, in
1995 over 1994. The increase in sales was primarily attributable to production
orders from a new program for AlliedSignal for machine blades and vanes for a
new jet engine totaling approximately $2,500,000 and general improving strength
in the aerospace industry.
Gross profit. Stellex Aerospace's gross profit increased by $1,278,800, or
27.3%, in 1995 over 1994. Gross profit margin increased to 28.3% in 1995 from
26.3% in 1994. The increase in gross profit and gross profit margin was
primarily the result of higher margin orders, lower depreciation expense, longer
production runs and improved plant capacity utilization.
Selling, general and administrative. Selling, general and administrative
expenses increased by $189,300, or 6.1%, in 1995 over 1994. As a percentage of
sales, selling, general and administrative expenses decreased as a percentage of
sales from 17.5% in 1994 to 15.7% in 1995 because increased sales volume and
improved plant utilization did not require comparable increases in selling and
administrative expenses.
Amortization of intangible assets. Amortization expense relating to
intangible assets decreased by $133,900, or 32.2%, in 1995 over 1994. The
decrease in amortization expense related to the expiration of a non-compete
agreement established in conjunction with the Bandy acquisition in 1990.
32
<PAGE>
Operating income. Operating income increased by $1,223,400, or 105.3%, in
1995 over 1994. Operating income as a percentage of net sales increased to 11.3%
in 1995 from 6.5% in 1994 primarily due to factors outlined above.
Interest expense. Interest expense increased by $55,600, or 5.7%, in 1995
over 1994. The increase in interest expense resulted from greater working
capital needs and capital spending offset partially by lower interest rates
during the latter period.
Other expense (income). Other expense (income) decreased by $62,600, or
61.9%, in 1995 over 1994. The decrease in other expense (income) was primarily
due to lower severance costs, non-repeat of 1994 earthquake expenses, and lower
interest income.
Income tax provision. The effective income tax rate was 40.0% and 61.3%,
in 1995 and 1994, respectively.
Net income. As a result of the factors described above, net income
increased by $755,600 for the year ended December 31, 1995 over 1994.
STELLEX MICROWAVE
Since the consummation of the W-J Acquisition, the Company's sales to the
DoD and other government agencies and their prime contractors have been
conducted, in large part, by Stellex Microwave. Stellex Microwave's historical
financial results have been affected by a variety of factors which influence the
defense industry in general and Stellex Microwave in particular. Significant
factors include DoD budget appropriations, the level of production of high
priority platforms, the use of sophisticated electronics, the level of new
weapon development and procurement, the competition among OEM suppliers, and the
outsourcing of the manufacture and integration of subsystems to independent
commercially-oriented suppliers. United States defense budget appropriations are
forecasted to remain relatively constant or increase slightly in the near term,
reversing the recent decline in spending which precipitated the dramatic
consolidation among prime contractors. See 'Business--Industry Overview.'
Between 1994 and 1996, the number of AMRAAM missiles purchased by the DoD
decreased significantly and the number of sophisticated tuners purchased by the
DoD and various intelligence agencies also decreased significantly. This decline
was due primarily to reduced military force structures and signals intelligence
activity. In response to the decline of AMRAAM sales, management implemented
various initiatives to gain market share in the AMRAAM program and to support
other key tactical missile programs and thereby diversify and grow Stellex
Microwave's subsystem revenue base. As a result, the Company is the dominant
supplier of microwave subsystems for the AMRAAM program and is currently
supporting several key missile programs including Standard Missile, Longbow
Hellfire, Patriot PAC-3 and Sea Sparrow. As the majority of these programs have
been in initial development or low rate production, management expects to
further diversify Stellex Microwave's program revenues as these programs move to
high rate production.
In addition, during the past five years, significant management attention
and corporate resources of Watkins-Johnson were devoted to growing its
semiconductor equipment and low frequency telecommunications equipment
businesses. Also, in early 1995, Watkins-Johnson sold a business that shared
facilities and personnel with the businesses now conducted by Stellex Microwave.
In response to these factors, Stellex Microwave management initiated a program
to reduce its operations to a level more appropriate for the requirements of the
reduced military force structures and to increase its share of microwave
subsystems on those high priority military weapons systems on which the DoD is
expected to rely to equip its modernized force structure.
Beginning in 1994, Watkins-Johnson (i) divested a non-core business line
which shared production facilities with TSMD, (ii) consolidated manufacturing
operations into its Palo Alto facility, (iii) reduced and reconfigured its sales
force, and (iv) reduced its work force from approximately 900 to 560 people, a
38% reduction. As a result, in 1995 selling, general and administrative expenses
decreased by $5,100,000, or 22.8%, as compared to 1994. In conjunction with this
ongoing restructuring, severance costs were incurred in varying amounts in each
of the years from 1994 through 1996 and during the six months ended June 30,
1997. Management believes Stellex Microwave derived significant benefits from
its rationalization efforts throughout 1995 and 1996, and that its production
capacity and work force are of sufficient size to efficiently conduct its
current level of operations.
33
<PAGE>
As part of its arrangements with certain OEMs, Stellex Microwave has from
time to time agreed to reduce prices in conjunction with receiving Value
Engineering ('VE') payments from such OEMs in advance of the ordering of single
or multiple year production requirements. This practice is designed to allow
Stellex Microwave to invest in process changes that result in lower production
costs. Beginning in 1995, in an attempt to improve operating efficiency by
increasing production volume, Stellex Microwave aggressively pursued VE payments
and increased volume from Raytheon, who at that time produced most of its
microwave subsystem requirements in-house. Stellex Microwave received a material
VE payment in December 1995. To win the production order, Stellex Microwave
redesigned the subsystem, reduced its average ship-set price, and gained the
sole source supplier position on three microwave subsystems previously produced
by Raytheon. This new supply contract was signed in June 1996 and Stellex
Microwave began shipping subsystems under the terms of the contract during the
fourth quarter of 1996. The contract was anticipated to cover shipments of
subsystems through the third quarter of 1997.
In addition to the effect of trends within the defense industry, operating
results of Stellex Microwave were materially impacted in 1996 and to a lesser
degree in the six months ended June 30, 1997 by operating difficulties
associated with the installation of a new materials and manufacturing management
software ('MRP') system. As a result of such difficulties, Stellex Microwave
failed to deliver a significant number of microwave component parts within time
frames specified by purchase orders and incurred significant additional labor
inefficiencies. In the third quarter of 1996, Stellex Microwave installed a new
manager for its higher volume microwave components business, retrained its
employees in the operation of the MRP system and aggressively monitored the
delivery status of its microwave components. As a result of such efforts, on
time delivery results began to improve in the six months ended June 30, 1997 and
management now believes that its materials management system is effective.
Nonetheless, management expects that the MRP difficulties experienced in 1996
will negatively impact sales of microwave component parts in the current year.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
Sales. Sales increased by $6,600,000, or 10.8%, in the nine months ended
September 30, 1997 over the nine months ended September 30, 1996. The increase
in sales was primarily attributable to an increase in sales of integrated
subsystems. The increase in sales of integrated subsystems was primarily the
result of higher shipments of subsystems for the AMRAAM program to Raytheon,
partially offset by lower pricing on such subsystems.
Gross profit. Gross profit increased by $4,100,000, or 25.8%, for the nine
months ended September 30, 1997 over the comparable period in the prior year.
Gross profit margin increased to 29.5% for the nine months ended September 30,
1997 from 25.9% for the comparable period in the prior year. The increase in
gross profit and gross profit margin was primarily attributable to the increase
in sales and the improved manufacturing efficiencies in the current period
resulting from the resolution of operating difficulties associated with the MRP
system and higher production volumes. These positive factors were partially
offset by the price declines on AMRAAM as a result of the new contract with
Raytheon.
Selling, general and administrative expenses. Selling, general and
administrative expenses (which includes independent research and development
costs) decreased by $1,900,000, or 17.3%, during the nine months ended September
30, 1997 over the comparable period in the prior year. This decrease resulted
from a reduction in research and development costs of $500,000 and a reduction
in selling, general and administrative expenses of $800,000. The reduction in
research and development costs was a result of a decrease in the number of
projects authorized. The reduction in selling, general and administrative
expenses was primarily attributable to headcount reductions implemented as part
of Stellex Microwave's continuing effort to streamline its administrative
operations.
Income before income taxes. Income before income taxes increased by
$6,000,000, or 122%, for the nine months ended September 30, 1997 over the
comparable period in the prior year. The increase in income before income taxes
was primarily attributed to the factors outlined above.
Income tax provision. The effective income tax rate was 38.5% for both the
nine months ended September 30, 1997 and 1996, respectively.
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Net income. As a result of the factors described above, net income
increased to $6,700,000 for the nine months ended September 30, 1997, an
increase of $3,700,000, or 108.8%, over the comparable period in the prior year.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Sales. Stellex Microwave's sales decreased by $8,400,000, or 8.6%, in 1996
over 1995. The decrease in sales was primarily due to lower sales volume on
integrated subsystems and, to a lesser extent, microwave devices. The decrease
in sales of integrated subsystems was due to an $8,000,000 decrease in product
sales related to the AMRAAM program, partially offset by increased sales of
subsystems for other missile programs. The decrease in sales for the AMRAAM was
primarily attributable to $4,700,000 of VE payments which were made in the
second half of 1995 relating to engineering design changes made that year for
production scheduled to begin in 1996. In addition, there was a reduction in the
number of AMRAAMs purchased by the DoD in 1996 and an even greater decrease in
the number purchased from Hughes, which is Stellex Microwave's primary subsystem
customer. Sales were also impacted by lower selling prices for Stellex
Microwave's AMRAAM-related products. These decreases were partially offset by
increased sales volume on AMRAAM subsystems to Raytheon under a supply contract
signed in June 1996. In addition, Stellex Microwave began shipping subsystems
for the upgraded Standard Missile-2, increased the production of the MFE, and
had an end-of-life sale of HARM subsystems. The decrease in sales of microwave
devices was caused by declines in the market for signals intelligence equipment
made for various intelligence agencies, partially offset by increased sales of
space-qualified and electronic warfare SFMs.
Gross profit. Gross profit decreased by $11,300,000, or 34.9%, in 1996
over 1995, and gross profit margin decreased to 23.7% in 1996 from 33.2% in
1995. The decrease in gross profit and gross profit margin resulted primarily
from the receipt of a substantial VE payment in December 1995 that related to
1996 and 1997 production, together with price reductions on AMRAAM-related
products. Additionally, (i) contract losses totaling $2,200,000 incurred on two
microwave tuner fixed price programs, (ii) obsolescence reserves on component
inventory totaling $1,500,000, (iii) severance costs aggregating $700,000
relating to purchasing, material handling and production labor reductions and
other labor inefficiencies, resulting primarily from the introduction of Stellex
Microwave's new MRP system and the continued automation and outsourcing of
production functions and (iv) continued focus on manufacturing process controls
and manufacturing inefficiencies resulting from implementation difficulties with
the new MRP system, all led to additional reductions in gross margins.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased by $2,700,000, or 15.6%, in 1996 over 1995.
This decrease resulted from a reduction of research and development costs of
$1,300,000 and a reduction in selling, general and administrative expenses of
approximately $1,400,000. The reduction in research and development spending
resulted from selective focus on higher probability production-worthy projects.
The reduction in selling, general and administrative costs represented a
continuation of a corporate strategy to streamline operations in response to the
contraction in defense spending as well as the significant level of
consolidation in its defense-related customer base.
Income before income taxes. Income before income taxes decreased by
$8,600,000, or 57.0%, in 1996 over 1995. The decrease in income before income
taxes resulted primarily from manufacturing inefficiencies resulting from the
implementation of the new MRP system, the receipt of a significant VE payment in
1995, a decrease in volume and pricing on the AMRAAM contract and non-recurring
losses incurred regarding certain loss contracts and inventory obsolescence
reserves. These costs were partially offset by reductions in selling, general
and administrative expenses.
Income tax provision. The effective tax rate for 1996 was 38.5%, while the
effective tax rate for 1995 was 39.1%.
Net income. As a result of the factors described above, net income
decreased to $4,000,000 in 1996, a decrease of $5,200,000, or 56.5%, over 1995.
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YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Sales. Sales decreased by $3,700,000, or 3.7%, in 1995 over 1994. The
decrease in sales was primarily attributable to a reduction in the sales of an
end-of-life product line and reduction in sales volume on certain missile
programs. Revenues from guided munitions programs remained constant as increases
in sales associated with the AMRAAM and other programs were offset by reduced
sales associated with the older HARM program.
Gross profit. Gross profit increased $3,400,000, or 11.7%, in 1995 over
1994, and gross profit margin increased to 33.2% in 1995 from 28.6% in 1994. The
increase in gross profit and gross profit margin was primarily due to a
reduction in direct labor and overhead expenses as a result of the consolidation
of plant facilities during April 1995. Successful development of a 'snap
together' type of subassembly fabrication technique was initiated during 1995
which, together with the plant consolidation effort, reduced direct labor costs.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased by $5,100,000, or 22.8%, in 1995 from 1994.
The decrease in selling, general and administrative expenses consisted of a
reduction in selling, general and administrative expenses of $4,400,000 and a
reduction of research and development costs totaling $700,000. The reduction of
the above costs resulted from headcount reductions and consolidation of Stellex
Microwave's plant facilities in Palo Alto.
Income before income taxes. Income before income taxes increased
$8,500,000, or 128.8%, in 1995 over 1994. The increase in income before income
taxes resulted primarily from reductions in production costs due to development
of less labor intensive fabrication techniques, reductions in headcount and
consolidation of plant facilities.
Income tax provision. The effective tax rate for 1995 was 39.1%, while the
effective tax rate for 1994 was 39.4%.
Net income. As a result of the foregoing, net income increased to
$9,200,000 in 1995, an increase of $5,200,000, or 130.0%, over 1994.
LIQUIDITY AND CAPITAL RESOURCES
Historical
Stellex generated (used) cash flows from operations of $2,130,400,
$1,866,100 and $2,657,000 for 1994, 1995 and 1996, respectively, and $1,570,700
and $423,400 for the nine months ended September 30, 1996 and September 30,
1997, respectively. Cash flows over the periods presented reflect a consistent
increase in earnings offset, in part, by a gradual buildup of inventories
supporting the growing level of sales.
Stellex used (provided) cash flows in investing activities, excluding cash
flows used in connection with the Kleinert Acquisition of ($285,100), $643,100
and $1,048,000 during 1994, 1995 and 1996, respectively, and $622,500 and
$1,374,000 for the nine months ended September 30, 1996 and September 30, 1997,
respectively. During 1994, cash flows were generated from collection of a note
receivable totaling $548,000. During 1995, 1996 and the nine months ended
September 30, 1997, investments in machinery were made in order to accommodate a
rising level of production orders resulting from increasing levels of aircraft
manufacturing activity.
Stellex used (provided) cash flows in financing activities, excluding net
cash provided in connection with the Kleinert Acquisition, of $2,359,800,
$1,431,900 and $1,406,600 in 1994, 1995 and 1996, respectively, and $695,000 and
($687,000) for the nine months ended September 30, 1996 and September 30, 1997,
respectively. For the three years 1994 through 1996, Stellex repaid outstanding
long term indebtedness in excess of $2,000,000 in each of these three years. Net
borrowings on a line of credit totaling $169,300, $765,000 and $735,000 for
1994, 1995 and 1996, respectively, and $730,000 for the nine months ended
September 30, 1997 provided working capital primarily used to build inventories
to support the growing level of business.
On July 1, 1997, KII Holding, through a wholly-owned subsidiary, acquired
all of the issued and outstanding capital stock of Kleinert for approximately
$26.5 million (including the assumption of $2.6 million of indebtedness and the
issuance to the seller of a note for approximately $1.75 million). The Company
also entered into the Prior Credit Facility in connection with the Kleinert
Acquisition. In connection with the Initial Offering, the Company repaid all
indebtedness outstanding under the Prior Credit Facility, together with $2.5
million of other indebtedness incurred in connection with the Kleinert
Acquisition.
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Stellex Microwave generated (required) cash flows from operations of
$21,000,000 and ($2,800,000) in 1995 and 1996, respectively, and $14,700,000 in
the nine months ended September 30, 1997. Cash flows for 1995 were impacted
primarily by favorable earnings and a significant reduction in inventories
representing final shipments on Lot 8 of the AMRAAM contract. Cash flows for
1996 were impacted primarily by the buildup of Lots 9 and 10 of the AMRAAM
contract and an increase in trade receivables resulting from system conversion
inefficiencies, offset partially by contract advances on the AMRAAM. Cash flows
for the nine months ended September 30, 1997 were favorably impacted by
increased collections on trade receivables primarily due to a more focused
effort on collections. This came in response to an unusually high level of
delinquent accounts which resulted from MRP system conversion inefficiencies
during 1996.
Stellex Microwave used cash flows for property additions of $2,200,000 and
$1,700,000 in 1995 and 1996, respectively, and $600,000 in the nine months ended
September 30, 1997. Stellex Microwave is an engineering, design and assembly
oriented business which does not require significant capital expenditures on an
ongoing basis.
Following the Initial Offering
Upon the consummation of the Initial Offering and the W-J Acquisition, the
Company entered into the New Credit Facilities, which provide for borrowings in
a principal amount at any one time outstanding of up to $25.0 million under the
Revolving Credit Facility (as defined) and $25.0 million under the Acquisition
Facility (as defined). The Company borrowed $2.5 million under the Revolving
Credit Facility upon consummation of the W-J Acquisition and the Initial
Offering. Included in the initial borrowing under the Revolving Credit Facility
was a working capital advance totaling $370,000 for Stellex Microwave. The
Company's borrowings under the Revolving Credit Facility are subject to a
borrowing base consisting of the aggregate sum of 85% of eligible accounts
receivable and 50% of eligible inventories, each as defined in the Revolving
Credit Facility. Borrowings under the Acquisition Facility are available to the
Company to fund future acquisitions, subject to certain specified conditions.
The New Credit Facilities require prepayments in the amount of 50% of Excess
Cash Flow (as defined therein), 100% of net cash proceeds from certain asset
sales, and 100% of net cash proceeds from the issuance of debt and/or equity
securities. The New Credit Facilities mature in 2003. See 'Description of
Certain Indebtedness--New Credit Facilities.'
Interest payments on the Notes together with interest and principal
payments on other existing indebtedness, including indebtedness under the New
Credit Facilities, represent significant cash requirements for the Company. The
Notes require semiannual interest payments of $4,750,000 commencing in May 1998.
Existing indebtedness consists of (i) the Kleinert Seller Note in the amount of
$1,750,000 bearing interest at 8% per annum and maturing in July 1999 and (ii)
the Paragon Note in the amount of $2,639,000 as of September 30, 1997 bearing
interest at 7.875% per annum and maturing in December 2001. See 'Description of
Certain Indebtedness.'
The Company's remaining liquidity demands will be for capital expenditures
and working capital needs. In connection with the W-J Acquisition, the Company
purchased certain assets exclusive of certain working capital accounts such as
trade receivables and trade payables. As a result, the Company will require
significant amounts of working capital particularly within the initial three
months following the Initial Offering and additional amounts may be required to
be borrowed under the New Credit Facilities. For 1998, the Company expects to
spend approximately $3,300,000 on capital projects primarily to maintain its
facilities and expand its production capacity in order to take advantage of
profitable market opportunities. In connection with the W-J Acquisition, Stellex
Microwave entered into a Gallium Arsenide and Thin Film Supply and Services
Agreement, pursuant to which Stellex Microwave will purchase gallium arsenide
and thin film parts used in the manufacture of microwave subsystems and modules.
Pursuant to this agreement, Stellex Microwave is responsible for certain product
development and process costs associated with the maintenance of
Watkins-Johnson's gallium arsenide and thin film fabrication facility. For 1998,
the Company's total costs for parts, product development and processes under
such agreement will equal a minimum of approximately $5.8 million. See
'Business--Supply Contracts.' To the extent cash flow from operations is
insufficient to cover the Company's capital expenditure, debt service, working
capital and other capital requirements, it expects to utilize its borrowing
availability under the New Credit Facilities.
The Company believes that, based on its current level of operations and
anticipated growth, its cash flow from operations, together with borrowings
available under the New Credit Facilities, will be adequate to meet its
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anticipated requirements for working capital, capital expenditures, interest
payments and any scheduled principal payments in the foreseeable future.
INFLATION AND CHANGING PRICES
Inflation has not been material to the Company's operations for the periods
presented.
BACKLOG
The Company's pro forma backlog of orders as of September 30, 1997 and
December 31, 1996 was $99.8 million ($70.1 million of which was related to
products for the defense industry) and $89.8 ($72.8 million of which was related
to products for the defense industry), respectively. The Company includes in its
backlog only those orders for which it has accepted purchase orders. However,
backlog is not necessarily indicative of future sales. A substantial amount of
the Company's backlog can be canceled at any time without penalty, except, in
most cases, for the recovery of the Company's actual committed costs and profit
on work performed up to the date of cancellation. A substantial portion of the
purchase orders comprising backlog at September 30, 1997 include product
specifications not yet achieved by the Company. A failure to develop products
meeting such specifications could lead to a cancellation of the related purchase
orders. See 'Risk Factors--Backlog.'
ENVIRONMENTAL MATTERS
The Company and its operations are subject to extensive federal, state, and
local Environmental Laws that may change frequently. See 'Risk
Factors--Environmental Matters.' The Company can be expected to incur capital
and operating expenses to maintain compliance with and to meet new applicable
Environmental Laws. Based upon the underlying facts giving rise to its
environmental regulatory obligations and technical reports prepared on the
Company's facilities, the Company does not anticipate that any such capital or
operating expenses will have a material adverse effect on the Company's results
of operations. There can be no assurance, however, that unanticipated, future
Environmental Laws or previously unidentified environmental conditions will not
result in the Company having to incur material capital or operating expenses.
In connection with the W-J Acquisition, the Company entered into a
three-year sublease agreement with Watkins-Johnson for two buildings and a
portion of a third building located at the Stanford Research Park in Palo Alto,
California. Groundwater contamination was discovered in or about 1982 at the
real property upon which these buildings are located. Watkins-Johnson has been
remediating the groundwater under a portion of the property subleased by the
Company pursuant to an order issued in 1990 by the California Department of
Toxic Substances Control of the California Environmental Protection Agency (the
'DTSC'). Furthermore, Watkins-Johnson and other potentially responsible parties
have entered into another order with the DTSC pursuant to which they are
remediating a regional groundwater contamination problem on the Palo Alto
property (the 'Hillview-Porter Site') that also underlies a portion of the
property that the Company subleases. Under the terms of the W-J Stock Purchase
Agreement (as defined), Watkins-Johnson has generally retained liability for
contamination at the property that occurred on or prior to the consummation of
the W-J Acquisition and has agreed to indemnify the Company in connection
therewith. While management believes the Company will not incur material costs
or liability in connection with such contamination, there can be no assurance
that it will not.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ('FASB') issued
Statement of Financial Accounting Standards ('SFAS') No. 130, 'Reporting
Comprehensive Income'. The standard establishes guidelines for the reporting and
display of comprehensive income and its components in financial statements.
Disclosure of comprehensive income and its components will be required beginning
with the Company's fiscal year ending 1998.
Also in June 1997, the FASB issued SFAS No. 131, 'Disclosures About
Segments of an Enterprise and Related Information'. The standard requires that
companies disclose 'operating segments' based on the way management
disaggregates the company for making internal operating decisions. The new rules
will be effective for the Company's 1998 fiscal year end. The Company has not
evaluated the impact, if any, of the new standard.
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BUSINESS
OVERVIEW
The Company, through its subsidiaries Stellex Microwave and Stellex
Aerospace, is a leading provider of highly engineered subsystems and components
for the aerospace, defense and space industries. Stellex Microwave is a
worldwide leader in the design, manufacture and marketing of fully integrated
and proprietary microwave electronic subsystems for radar-guided tactical
missile systems and a broad line of high radio frequency and microwave frequency
single function modules. Stellex Microwave products are used in the generation,
reception and translation of communication, data and radar signals. Stellex
Aerospace is a leader in the machining of turbomachinery, aircraft hinges and
other structural components for the aerospace and space industries. For the year
ended December 31, 1996 and the nine months ended September 30, 1997, after
giving pro forma effect to the Transactions, the Company would have had sales of
$113.5 million and $91.1 million, respectively, and Adjusted EBITDA of $15.2
million and $16.9 million, respectively. As of September 30, 1997, after giving
pro forma effect to the Transactions, the Company would have had $99.8 million
in order backlog. See 'Risk Factors--Backlog' and 'Management's Discussion and
Analysis of Financial Condition and Results of Operations--Backlog.'
The Company's objective is to provide extensive engineering, low cost
manufacturing and systems integration to the consolidated base of OEMs within
its industries. The Company believes that it is well positioned to benefit from
certain trends in its markets including increases in the production of
high-priority platforms, airframes and spare parts, the use of sophisticated
electronics, the consolidation of OEM suppliers, and the outsourcing of
subsystems.
Stellex Microwave
Stellex Microwave is a worldwide leader in the design, manufacture and
marketing of proprietary microwave electronic subsystems for use in radar-guided
munitions and signal intelligence equipment. As the largest independent supplier
of microwave subsystems for tactical missiles, Stellex Microwave's products are
critical to the onboard navigation, communications and target location systems
of many of the highest priority missile systems developed by the DoD. The
Company's proprietary products, low cost manufacturing and extensive engineering
capabilities have enabled it to become the sole or primary source for the
principal programs it supplies. These programs include the AMRAAM, the Patriot
missile and the Standard Missile, the most widely used radar-guided missiles of
their type in the U.S. armed forces. In addition, the Company is currently
participating in production programs for the AEGIS radar system and the TARTAR
fire control system, and has been recently selected to participate in the
program to produce the Longbow Hellfire missile, one of the U.S. Army's most
significant new missile systems.
Stellex Microwave is also a leading manufacturer of MFMs and SFMs, such as
high radio frequency mixers, amplifiers, tuners, converters, filters and
oscillators, which are sold to system designers and manufacturers. Stellex
Microwave has provided the intelligence, electronic warfare, space and
communication markets with a broad assortment of such devices since 1957. For
the year ended December 31, 1996 and the nine months ended September 30, 1997,
Stellex Microwave had sales of $89.2 million and $67.9 million, respectively.
Stellex Aerospace
Stellex Aerospace is a leading provider of high precision products and
services to certain niche markets within the aerospace and space industries.
Through Bandy, Stellex Aerospace is the world's leading contract manufacturer of
commercial and military precision aircraft hinges. Hinges manufactured by Bandy
are installed on every type of aircraft currently produced by the leading
aircraft OEMs, including Boeing, McDonnell Douglas, Airbus, Lockheed Martin, and
Northrop Grumman. Through Paragon, Stellex Aerospace is a leader in the
machining of complex turbomachinery. Paragon's flexible manufacturing operations
permit the production of both (i) highly engineered, close tolerance prototype
components, which are generally manufactured from expensive, exotic alloys and
are found in high performance gas turbine engines and liquid fuel rocket
engines, and (ii) higher volume standard components used in aircraft and
industrial power actuation systems and high performance turbine engines. Through
SEAL and GIL, Stellex Aerospace also provides a comprehensive range of services
for testing of sophisticated manufactured aerospace components. For the year
ended December 31, 1996 and the nine months ended September 30, 1997
(collectively comprised of Kleinert (predecessor) sales for the six
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months ended June 30, 1997 and Stellex (successor) for the three months ended
September 30, 1997), Stellex Aerospace had sales of $24.3 million and $23.2
million, respectively.
COMPETITIVE STRENGTHS
The Company believes that its competitive position in the markets it serves
is based on superior product design and performance and a consistent record of
meeting rigorous DoD and OEM contract performance criteria. Specifically, the
Company believes that its position is primarily attributable to the following
competitive strengths:
Strong Partnering Relationships with Major OEMs. As an incumbent preferred
supplier on high-priority, long-term programs, the Company has over many years
solidified its relationships with major OEMs. The Company participates in
concurrent design, engineering and development of new programs and provides cost
and performance enhancement for existing programs. Stellex Microwave often
serves as the sole source supplier of mission-critical subsystems to Hughes,
Raytheon, Rockwell, Boeing and Lockheed Martin. Stellex Microwave was selected
by Hughes as subcontractor of the year for each of 1994, 1995 and 1996. Paragon
is a preferred supplier, often as a sole or primary source, of a variety of
turbomachinery and turbine engine components to such OEMs as AlliedSignal,
Aerojet and Rocketdyne. Bandy also has received the highest quality awards from,
and is a preferred supplier to, many of its customers, including Boeing,
McDonnell Douglas, Airbus, Lockheed Martin, and Northrop Grumman.
Integration Leadership. Stellex Microwave has developed proprietary
technology, products and manufacturing processes which integrate the electronic
functions as well as the mechanical and packaging requirements of microwave
subsystems into 'snap-together' designs that eliminate the need for expensive
and less reliable external cables and connectors. The Company's proprietary
packaging and substrate materials and manufacturing processes were developed
over a period of many years and are instrumental in the superior performance of
its integrated microwave subsystems. The Company believes that the leading edge
technology and manufacturing processes which it has developed for high
production volume missile subsystems will provide a significant competitive
advantage in developing integrated products for certain commercial markets.
Low Cost Manufacturing. By following systematic design parameters that
balance the need for multi-functionality, cost reduction and reliability and by
using a modularized automated manufacturing process, the Company is able to
manufacture subsystems in high volume and achieve the highest percentage of
usable product in its industry. The Company believes that its manufacturing
processes enable it to reduce unit costs and shorten development and production
cycles, thereby providing the Company with a significant cost advantage in
competing for high volume subsystem programs.
Reputation for High Quality. The Company's individual microwave devices
are well known among designers of high performance electronic equipment, and the
catalogs used by Stellex Microwave have been standard reference materials since
1978. Paragon is one of five companies in the United States which competes for
and produces sophisticated, close tolerance machined prototypes of rotating
turbine components for use in aircraft jet engines and other components for use
in spacecraft rocket engines. Management believes that the 'Bandy' name is the
most recognized name in precision aircraft hinges in the world. GIL is one of
the leading independent, full-service NDT laboratories in the United States.
SEAL is one of three companies in the United States approved by NASA to perform
destructive physical analysis on high-reliability space electronic components.
INDUSTRY OVERVIEW
Defense Industry
United States defense budget appropriations are forecasted to remain
relatively constant or increase slightly in the near term, reversing the recent
decline in spending which precipitated the dramatic consolidation among prime
contractors. In order to enhance readiness and modernize their forces, military
agencies are expected to continue to maximize resources by modifying and
upgrading existing systems and platforms and relying upon sophisticated
electronic equipment for existing and new systems. In furtherance of their
objectives, agencies are expected to require enhanced performance and cost
reductions from their prime contractors. The Company believes that this cost and
technology pressure will cause continued consolidation of the defense industry's
supply base and cause prime contractors to (i) focus on the design and
manufacture of overall weapon systems
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and (ii) outsource the manufacture and integration of subsystems to independent
commercially-oriented suppliers. The Company believes that the current
procurement environment favors the Company's proprietary design and
manufacturing processes, which are characterized by limited reliance on
government funded research and development.
Historically, many microwave systems for defense, intelligence and space
applications were assembled on a component by component basis. Prime contractors
integrated these components with cables, connectors and older packaging
technologies. The inherent manufacturing inefficiencies and reliability issues
of this process have led OEMs and prime contractors to require increased
integration and functionality from their suppliers. In addition to improved
reliability, such integration has reduced the cost of microwave subsystems to
the prime contractor and of the overall program to the DoD. Management believes
that the benefits made apparent by the trend toward subsystem integration in the
defense market will lead to a similar trend in a variety of commercial
applications.
Aerospace Industry
The commercial aircraft industry experienced severe difficulties in the
early 1990s. Airplane deliveries as a percentage of the world airline fleet
peaked at 9% in 1991 and fell to 4.7% by 1994. However, since 1994, the
commercial aerospace market has shown significant signs of recovery. According
to the Boeing Report, annual deliveries of commercial aircraft will increase
from approximately 400 in 1996 to more than 600 in 1997 and will be between 700
and 800 in 1998. In addition, for the period from 1996 through 2000, revenue
passenger miles are expected to increase from 1.6 trillion to 2.1 trillion and
the worldwide fleet of aircraft are expected to increase from 11,500 at the end
of 1996 to approximately 14,000 at the end of 2001 (net of approximately 1,375
retirements). The Company believes that the following factors, among others, are
causing this increase in new aircraft orders: (i) projected worldwide airline
traffic growth of 5.5% per year over the next decade (including growth of 6.7%
per year in the Southeast Asia region and 11.8% per year in China); (ii)
projected cargo traffic growth of 6.6% per year; (iii) projected increase in the
load factor of aircraft currently in service; (iv) the aging of the current
commercial aircraft fleet; (v) the cost effectiveness of using new aircraft; and
(vi) the improved operating performance of airlines worldwide.
In the military segment of the aerospace market, demand for aircraft
components declined significantly in the early 1990's, largely as a result of
reductions in defense budgets. The DoD and other government agencies responded
to decreases in their budgets by utilizing substantial built-up inventories of
replacement parts, which in many cases satisfied existing demand for several
years. The Company believes that current inventories of military aircraft
replacement parts and components are at the lowest levels in several decades and
that increased purchasing is likely over the next several years.
BUSINESS STRATEGY
The Company's objective is to strengthen its position as a leading supplier
of highly engineered subsystems and components to its customers in the
aerospace, defense and space industries and to expand its business to contiguous
commercial markets. The following are the key strategies the Company intends to
employ to achieve this objective:
Exploit Outsourcing Trend. The Company estimates that approximately 50% of
the subsystems used on all types of radar-guided missiles are still produced
internally by OEMs. The Company believes it is well positioned to compete
effectively for this remaining in-house production by capitalizing on its
proprietary products and low cost manufacturing processes. For example, Stellex
Microwave has increased its share of the individual microwave subsystems onboard
the AMRAAM from approximately 50% in 1992 to over 90% in 1997. Many of these
AMRAAM subsystems had previously been produced by the in-house microwave
component groups of Hughes and Raytheon. In addition, the design of one of the
Company's subsystems produced for the Standard Missile was incorporated in the
1997 Raytheon design of the Advanced Sea Sparrow missile. Overall program costs
of these missiles were substantially reduced as a result of this outsourcing.
The Company also believes that it has opportunities to capture new business in
the commercial aerospace industry as a result of additional outsourcing.
Capture Share in Commercial Markets. The Company believes that its
experience and expertise in high frequency microwave subsystem integration
provide it with significant opportunities to develop integrated products for
commercial applications. The Company's current defense and aerospace customers
are also the world's largest manufacturers of satellites. These manufacturers
currently purchase subsystems for their defense
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platforms but only purchase SFMs for space applications. Using its existing
technologies, the Company intends to modify and market MFMs and, eventually,
entire microwave subsystems for space applications to supplement or replace such
SFM sales.
Leverage Prototype Expertise. The Company will seek to gain a larger share
of the production volume for turbomachinery parts for which it develops the
prototype. In response to customer requests, the Company has, and plans to
continue to, selectively increase its production capacity such that it can
manufacture efficiently at higher volumes. The Company is a member of the
Strategic Advisory Council of the Satellite Communications Division of Motorola,
Inc. ('Motorola').
Acquire Selected Businesses. The Company anticipates that the
consolidation of the historically fragmented aerospace component manufacturing
industry will provide opportunities for selective acquisitions. In addition, in
response to growing demand for microwave products, the Company will pursue
selective acquisitions that can broaden its microwave product offering or
provide it with enhanced technological or strategic capabilities. Such
acquisitions offer the opportunity to broaden the Company's product lines and
manufacturing capabilities, diversify its customer base, improve its absorption
of corporate overhead and enhance its attractiveness as a leading supplier to
OEMs in the aerospace, defense and space industries.
MARKETS, PRODUCTS AND SERVICES
The following is a description of the principal markets served by the
Company as well as the products and services the Company delivers for those
markets.
Markets
Guided Munitions. With advances in radar technology increasing the
likelihood that launching platforms will be detected and destroyed, military
forces are demanding that future missiles be longer-range than present models
and contain more sophisticated guidance systems. Because radar-guided missiles
are able to engage targets at a greater distance than other tactical weapons,
the radar-guided missile has become the tactical weapon of choice of the world's
military forces. The Electronic Industries Association estimates that the value
of guided missiles manufactured in the U.S. for sale throughout the world, as
well as the electronic content of such missiles, will increase from 1996 to
2001. This increase in value is expected to result from sales to the governments
of the U.S. and foreign nations. Sales to foreign governments are primarily
driven by the sales of U.S. manufactured warplanes and the increased willingness
of the U.S. government to permit the foreign sale of more sophisticated
weaponry. As the world's largest merchant supplier of integrated microwave
subsystems for radar-guided tactical missiles, Stellex Microwave has been
recognized as a leader in designing and manufacturing high-performance,
fully-integrated guidance, communications and fusing subsystems for defense
applications which strive to meet these evolving requirements. Subsystems such
as these are produced in high volume, since combat aircraft carry eight to ten
missiles each, and are continually upgraded, since guided missiles act as
cost-effective force multipliers by defending significantly more expensive
aircraft and ships. Approximately 50% of the $450 million guided munitions
microwave electronics market is held captive at the large missile prime
contractors, and in light of the industry trend toward outsourcing and Stellex
Microwave's competitive position, the Company believes it can significantly
increase its estimated current 25-30% market share.
Electronic Warfare and Radar. Military forces worldwide are dependent on
sophisticated electronic equipment. Military aircraft and naval vessels
generally contain extensive electronic countermeasure equipment for defense
against enemy missile and radar systems. These systems typically provide
protection for the aircraft or the ship from incoming enemy missiles by jamming
the missiles' tracking systems through various high radio frequency and
microwave signal processing techniques. According to industry sources,
electronic warfare spending will increase both domestically and internationally
as forces seek greater protection for their smaller fleets of combat systems
from the proliferation of increasingly lethal threat systems. The Company
addresses the electronic warfare and radar market through a combination of
catalog microwave devices and electronic equipment in which these devices are
integrated.
Space Applications. Commercial revenues in the global space industry
exceeded government expenditures for the first time in 1996. For the period from
1996 to 2000, Via Satellite, an industry publication, estimates that the value
of the launched satellites will increase from approximately $9 billion to $14.5
billion and that revenues generated by the manufacture and operation of ground
equipment, including receivers and transmitters, will increase from
approximately $22 billion to $27 billion. The largest commercial space
companies, including
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Hughes Aircraft Company, Lockheed Martin, and Loral Space Systems, are expanding
their commercial space activities to take advantage of this anticipated growth.
The Company is currently a preferred supplier to Hughes and Lockheed
Martin's space businesses as well as their defense businesses. The Company is
also a member of the Strategic Advisory Council of Motorola's Satellite
division. Management believes that major space system integrators, which
currently purchase the majority of their microwave equipment on a component by
component basis from a fragmented supply base, will seek lower costs by moving
from the purchase of individual components to integrated subsystems. The Company
believes that it can develop MFMs and, eventually, entire subsystems for space
applications similar to those for its guided munitions markets and use these
products to increase its space-related market share.
The Company presently addresses the space market with products from its
microwave devices product line, principally amplifiers and mixers for use in
military and commercial satellites. Most of its products currently sold in this
market are customized, space-level quality adaptions of the Company's standard
microwave devices.
Commercial Applications. The global subscriber base of wireless telephony
users is expected to continue its rapid growth, having increased due primarily
to increasing competition among service providers, decreasing prices for
handsets, a more favorable regulatory environment and greater availability of
services and radio frequency spectrum. The growth in wireless communications has
required substantial investment by service providers in infrastructure
equipment. According to industry sources, spending by wireless service providers
on infrastructure equipment was approximately $26 billion in 1996 and will
increase to approximately $42 billion in 2001.
The Company believes that the superior transmission capacity of high
frequency microwave equipment and the lower cost of integrated systems can
facilitate the large increases in wireless and PCS transmission volume and the
cost effective construction of communication infrastructures. The Company
therefore expects increased use of integrated microwave technology for many
infrastructure applications.
The Company's current commercial products include a combination of catalog
microwave devices and electronic equipment in which these devices are
integrated. The Company's components are used in commercial products such as
microwave frequency test equipment, communications equipment such as amplifiers
in fiber-optic transmission systems, and avionics products.
Intelligence Applications. The Company's broadband microwave tuners and
signal-analysis equipment are used by military and other governmental agencies
to perform range-monitoring, frequency-measurement, signal localization and
interference-analysis functions, often in complex, high-signal-density
environments. Stellex Microwave continues to sustain its technological and
marketing leadership in this market through Company-funded design and
development efforts producing advanced receivers and related equipment featuring
the small-size, light-weight and low-power-consumption characteristics demanded
by its customers at competitive prices.
Niche Aerospace Manufacturing. Stellex Aerospace's niche manufacturing
operations have focused on discrete, growth-oriented markets in the aerospace
industry having limited competition and which utilize the Company's
sophisticated machining capabilities. Over the past two decades, Paragon has
applied its machining and production expertise to three distinct business
segments: spacecraft and prototype components, engine airfoil components and
engine and power actuation components. Bandy markets standard hinges, custom
hinges, and access doors and panels to four main business segments in the
aircraft market, commercial OEM production, commercial spare parts, military OEM
production and military spare parts.
Testing and Engineering Services. Through GIL and SEAL the Company
performs a broad range of material defect testing and analysis on a variety of
materials used in the aerospace, plastics and other industries. The Company is
actively involved in research and development and general engineering services
for new product development, the improvement of existing products and
value-added engineering services. The Company's services to the aerospace
industry include destructive physical analysis for the space station, the
testing of space shuttle components and space satellites and non-destructive
testing of materials used in commercial and military aircraft.
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Products and Services
The following chart provides summary information regarding the Company's
principal product and service lines, the markets which these products and
services serve, and the Company's principal programs and customers by product
and service line.
<TABLE>
<CAPTION>
PRINCIPAL
PRODUCT/SERVICE LINE* PRINCIPAL MARKETS PROGRAMS/CUSTOMERS
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
INTEGRATED SUBSYSTEMS
(38% OF PRO FORMA SALES)
Missile Subsystems Guided munitions AMRAAM/Hughes and Raytheon
Standard Missile/Hughes and
Raytheon
Longbow Hellfire/Lockheed Martin
Patriot PAC-3/Boeing
Intelligence Subsystems Intelligence applications JASA tuner/TRW, Inc.
Multi-Function Modules** Space applications Potential to integrate components in
('MFMs') space and other applications/
Motorola, Hughes and Boeing
MICROWAVE DEVICES
(36% OF PRO FORMA SALES)
Modular Components Space applications, electronic ICO/Hughes
warfare and radar, commercial Transmission amplifiers/Northern
applications Telecom Limited
Single Function Modules Electronic warfare and radar, guided F/A-18 radar/Hughes
('SFMs') munitions, commercial applications AEGIS/Raytheon
Test equipment/Marconi Instruments,
Ltd.
Electronic Equipment Intelligence applications, Intelligence tuners/U.S. and
electronic warfare and radar foreign government agencies
TARTAR/Raytheon
TURBOMACHINERY AND ENGINE COMPONENTS Commercial and military aviation, X-33 Space Plane/Rocketdyne
(9% OF PRO FORMA SALES) satellite and space station Space Shuttle/Rocketdyne
Titan/Aerojet
Atlas/Pratt & Whitney
TFE-1042/AlliedSignal
Delta/Aerojet and Rocketdyne
STRUCTURAL AEROSPACE PARTS Niche aerospace manufacturing, 737, 747, 757, 767 and 777/Boeing
(10% OF PRO FORMA SALES) including hinges and door assemblies A300 and A310/Airbus
F-15, F-18, C-17, MD-80, MD-90 and
MD-11/McDonnell Douglas
F-16 and C-130/Lockheed Martin
TESTING AND ENGINEERING SERVICES Aerospace, plastics, medical devices Space station/NASA
(7% OF PRO FORMA SALES) Testing/All major OEMs
</TABLE>
- ------------------
* All pro forma sales information is for the nine months ended September 30,
1997.
** Not currently sold as a separate product.
Integrated Subsystems
Missile Subsystems. The Company's core business is the manufacture and
marketing of fully operational and proprietary integrated microwave subsystems
for tactical radar guided missiles. In recent years the microwave content of
complete missile systems has remained fairly stable at approximately 10% even as
microwave subsystems have continued to become more integrated to achieve higher
performance. Representative programs for which the Company produces missile
subsystems include:
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o AMRAAM. The AMRAAM is an air-to-air missile for which the Company
produces the operational signal generator, target detection devices and
pilot/missile data link. AMRAAM is a next-generation weapon for fighter
aircraft, capable of being launched from beyond visual range, in day or
at night and in all weather. The most significant difference between
AMRAAM and earlier radar-guided missiles is that earlier missiles homed
to the radar emissions sent from the launching aircraft and reflected by
the target, whereas AMRAAM has an active radar of its own and can guide
itself to the target during the terminal phase of flight. This
'fire-and-forget' radar guidance system allows the pilot to break away
immediately after launch, enhancing survivability and acting as a force
multiplier by permitting engagement of other targets. AMRAAM is
operational with the U.S. military's front-line fighters and has been
procured by fourteen countries. To date more than 8,000 AMRAAMs have been
produced, and production is expected to continue at 500-1,000 systems per
year for the next five to seven years.
The AMRAAM is currently produced by Hughes and Raytheon. Stellex
Microwave has been involved with the AMRAAM since its inception in 1978,
when it was invited to become a member of the Hughes AMRAAM development
team based on its pioneering development of integrated microwave
subsystem technology. Stellex Microwave initially developed and produced
two of the AMRAAM's four microwave subsystems for Hughes. In 1985,
Stellex Microwave partnered with Hughes on an Air Force-funded value
engineering program which resulted in the capture by Stellex Microwave of
the remaining two subsystems for Hughes. In 1996 Raytheon, the AMRAAM
second source, elected to reduce costs by outsourcing the manufacture of
all but one of the AMRAAM's microwave subsystems to Stellex Microwave.
Today Stellex Microwave produces more than 90% of the microwave
subsystems onboard the AMRAAM.
o Standard Missile. Standard Missile is a ship-launched missile for which
the Company produces the antenna receiver assembly, the rear receiver and
the data link. Standard Missile, an all-weather, medium-to long-range
missile, is the primary surface-launched, area air-defense weapon for the
U.S. Navy and many allied countries, offering protection from airborne
threats for an entire fleet area at a range of nearly 80 miles. The
next-generation Standard Missile, the SM-2 Block IV, is now entering
low-rate initial production, with full production typically running
between 200 and 300 units per year.
Stellex Microwave has been active on the Standard Missile program since
the 1970s, when it began supplying the prime contractor with SFMs. When
Raytheon was selected as an alternate source for the Block IV version of
the Standard Missile in 1986, it chose Stellex Microwave to develop the
missile's complex antenna receiver assembly. The prime contractor
unsuccessfully attempted to produce this subsystem in-house, and Stellex
Microwave is now the sole source supplier of this subsystem.
o Longbow Hellfire. Longbow Hellfire is an air-to-ground missile for which
the Company produces the GaAs MIMIC millimeter wave transmitter. Longbow
Hellfire provides an autonomous 'fire-and-forget' capability in
adverse-weather and high obscurant environments and features a
state-of-the-art tandem shaped-charge warhead, providing highly effective
lethality against current and projected reactive tank armors. Longbow
Hellfire, the first 'fire-and-forget' missile mounted on a helicopter, is
the principal air-to-ground weapon for the Apache helicopter, is
qualified on the Kiowa Warrior and Cobra helicopters and is cleared for
flight on the Blackhawk helicopter. Longbow Hellfire is entering low-rate
production, with over 13,000 U.S. Army units planned.
Lockheed Martin initially selected TRW, Inc. ('TRW') as vendor for the
Longbow Hellfire transmitter assembly, largely based on TRW's GaAs chip
manufacturing capability. Based on its ability to manufacture reliably
the volumes required by the procurement contract, Stellex Microwave was
selected as the new vendor in July 1997 as the program moved to low-rate
production. Today, Stellex Microwave is moving into a dominant position
as the only qualified vendor for the transmitter subsystem, with a firm
backlog of more than $8.8 million as of September 30, 1997. As the
program enters full production, the Company anticipates material
increases in production rates.
o Patriot PAC-3. Patriot is the cornerstone of the U.S. Army's integrated
air defense system, for which the Company produces the Ka band down
converter. The Patriot surface-launched air defense missile system is a
long range, all altitude, all weather system which recorded an historic
first wartime intercept of a tactical ballistic missile during Operation
Desert Storm. The new Patriot Advanced Capability (PAC-3) kinetic energy,
high-altitude anti-missile missile has no warhead and uses 'hit-to-kill'
technology to
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<PAGE>
destroy incoming advanced aircraft, tactical ballistic missiles and
cruise missiles. To date, approximately 9,000 Patriot missiles have been
delivered.
At the outset of the Patriot missile program, the prime contractor
initially selected a subsidiary of another major prime contractor as
vendor for the Ka band down converter. After this manufacturer failed to
produce the converter after a development period of several years,
Stellex Microwave, at the invitation of the prime contractor, produced a
working prototype in six months. Stellex Microwave is now the sole source
supplier of the Ka band converter for the Patriot missile.
Intelligence Subsystems. The Company builds miniature broadband microwave
tuners with high quality phase noise performance to pick up signals that are
transmitted with more advanced, high-data modulation techniques. The Company's
intelligence subsystems, which feature Stellex Microwave's unique MFM and
subsystem manufacturing technologies, employ highly integrated 'snap-together'
packaging to create size and weight advantages over competitors. These products
are used in intelligence applications requiring sophisticated technology, such
as the Joint Airborne SIGINT Architecture program which monitors electronic
transmission over a wide range of frequency.
Multi-Function Modules ('MFMs'). MFMs combine mixers, amplifiers,
limiters, switches, and oscillators in a single hermetic package. In their
manufacture the Company uses patented packaging technology to optimize its
time-to-market and manufacturing cost advantages. Although MFMs are not
currently marketed as stand-alone products, the Company integrates multiple MFMs
with control circuiting and mechanical interface housings to produce subsystems.
In addition, the Company is developing plans to configure MFMs for specific
space satellite applications. Management believes that Stellex Microwave's
record of high-reliability and first pass qualification testing of its MFM
design methodology provides the Company with significant opportunities to
satisfy the requirements of its targeted space customers.
Microwave Devices
Modular Components. The Company's modular components, produced for a
variety of microwave applications, consist primarily of single function mixers,
amplifiers and frequency doublers, as well as custom designs, operating in a
frequency range from DC to 44 Ghz. These products are built to inventory with
published specifications and sell for prices ranging from approximately $20 to
several hundred dollars each. Because of the inherent high levels of quality of
these products, they are often used for high-reliability and space-qualified
applications such as satellites. For these applications, requirements for parts
traceability and extensive screening result in superior product quality and
reliability, often at a premium price when compared to the standard catalog
version of the same part.
Single Function Modules ('SFMs'). The Company's SFMs consist primarily of
connectorized components such as frequency converters, VCOs, YIG devices and
microwave amplifiers for use in older applications or where minimized size and
weight are not critical. Representative programs for which the Company produces
SFMs include:
o APG-73 Radar System. The APG-73, utilized in the F/A-18 Hornet, is a
pulse-doppler radar for which the Company produces the frequency
converter used in the radar receiver. The APG-73 is an all-weather
search-and-track sensor that uses programmable digital processors to
provide the features and flexibility needed for both air-to-air and
air-to-surface missions. Doppler radar permits a pilot to identify
targets against the ground clutter to intercept low flying targets. The
APG-73 radar supports multi-target tracking which enables the launch and
support of several AMRAAM missiles simultaneously.
o AEGIS SPY Radar System. The AEGIS SPY is an automatic detect and track,
multi-function phased-array radar system for which the Company produces a
frequency converter. This high powered (four megawatt) radar is able to
protect an entire aircraft carrier group by performing search, track and
missile guidance functions simultaneously with a track capacity of over
100 targets. Its computer-based command and decision interface makes the
AEGIS combat system capable of simultaneous operation against a multi-
mission threat involving anti-air, anti-surface and anti-submarine
warfare. The combat-proven, shock-capable, and reliable SPY missile
protection radar is operational aboard all 27 cruisers and 16 destroyers
in the U.S. Navy's AEGIS fleet.
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<PAGE>
Electronic Equipment
Electronic equipment combines the Company's microwave devices with operator
interface, digital commands and control electronics. Because the devices are
typically interconnected using cables, these products are larger in size and
weight than those built using modular subsystem technology. These larger
products continue to be used for many older systems, especially those based on
land and ships. Management believes that over time the Company's electronic
equipment products will incorporate more sophisticated MFM and subsystem design
technology. Representative programs for which the Company produces electronic
equipment include:
o Microwave Receivers. The W-J8969 2-18 GHz microwave receiver has been
selected by several U.S. and international intelligence agencies to
monitor both communications and electronic intelligence signals. In
production since 1989, this receiver features high sensitivity and low
phase distortion.
o TARTAR. The MK-74 TARTAR, the U.S. Navy's first line of defense against
anti-ship cruise missiles, is a fire control system for which the Company
produces the mast-mounted phase coherent five-channel receiver assembly.
There are over 70 MK-74 systems operational around the world.
Turbomachinery and Engine Components
The Company, through Paragon, specializes in sophisticated five-axis
machining of turbomachinery components. Paragon's flexible manufacturing
operations permit the production of both (i) highly engineered, close tolerance
prototype components which are generally manufactured from expensive, exotic
alloys and are found in high performance gas turbine engines and liquid fuel
rocket engines and (ii) higher volume standard components used in aircraft and
industrial power actuation systems and high performance turbine engines.
Paragon's turbomachinery components include engine rotors, impellers, stators,
valve bodies, actuator housings and intricate blades and vanes used in jet
engines. Paragon currently produces eight different part numbers for the
TFE-1042 turbofan engine manufactured by AlliedSignal and is the sole source
provider of twelve parts for Aerojet's Titan engines. Paragon is also a primary
source supplier for Rocketdyne on several projects including six parts for its
first stage Delta rocket engine and numerous turbomachinery components for the
space shuttle's main engine.
Structural Aerospace Parts
The Company, through Bandy, manufactures precision hinges, access doors and
panels, specialty machined structural and interior aircraft components, and
other custom machined parts. Bandy produces more than 20,000 different hinge
designs ranging from one inch to more than 40 feet in length for such
applications as aircraft galleys, access, cargo and passenger doors, flaps,
racks, ramps, cases, landing gear, seats and lavatories. Bandy's 'special' or
'custom' hinges are used extensively on aircraft, helicopters, jet engine
systems, missiles and many other commercial, industrial and military
applications ranging from the space shuttle to nuclear submarines. Bandy's door
products range in size from two inches up to 36 inches in length and are made
for the F-16 airplane, among others, as well as missiles, unmanned aerial
vehicles, torpedoes, precision instrument housings and many other applications
to provide inspection visibility and servicing access. Bandy's specialty
machined components include spars, stringers, support rails, posts and related
items for aircraft.
Testing and Engineering Services
Stellex Aerospace performs testing and engineering services through SEAL
and GIL. SEAL offers a comprehensive range of material defect testing and
analysis, utilizing electron microscopy, residual gas analysis and other highly
sophisticated processes, on a variety of materials used in the aerospace,
plastics, medical device and other industries. In addition, SEAL is actively
involved in research and development and general engineering services for new
product development, the improvement of existing products and value-added
engineering services. SEAL is one of only three engineering companies approved
by NASA to conduct destructive physical analysis for the space station and has
been actively involved in the testing of space shuttle components, commercial
and military satellites and liquid fuel tanks on several NASA rocket booster
programs. SEAL provides services through a staff of over 50 employees, which
includes experts in the fields of materials and metallurgical science,
electronic components, failure analysis, analytical techniques and related
sciences.
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<PAGE>
GIL is a full-service inspection and metal treatment laboratory,
specializing in non-destructive testing and inspection of materials and
manufactured components using advanced analytical techniques and
state-of-the-art equipment. GIL's testing processes, including radiography,
ultrasound, liquid and magnetic particle penetrant and pressure testing, assist
in determining internal or external flaws, fractures, material containments or
manufacturing defects in materials and/or component parts to ensure component
quality. GIL, which primarily services the aerospace industry, is one of the
leading independent, full-service NDT laboratories in the United States.
TECHNOLOGY
Microwaves are electromagnetic waves with wavelengths in the centimeter
range and frequencies ranging from 300 MHz to 40 Ghz. The high frequency nature
of microwaves is preferred in many electronic equipment applications because it
permits the design of smaller equipment, provides for high-speed data
transmission and accurate positioning information, and operates under all
weather conditions. As a result, microwave transmission technology has been used
for many years in the defense, space, intelligence and telecommunications
markets for various purposes, including missile guidance, identification of
targets or other aircraft, navigation, radar, electronic countermeasures and
high volume point to point communications.
A representative example of the application of microwave technology is the
microwave assembly subsystem of the AMRAAM. The microwave assembly's function is
to generate the microwave signals that are used by the missile's onboard
navigation, communications and target location microwave subsystems. The
individual components of the microwave assembly which permit it to perform its
signal generation function include the oscillators, which create the signals,
the amplifiers which set the proper power level, switches for channeling the
signals and mixers which are used for frequency conversion. The microwave
assembly is typical of a high-performance subsystem, in that it includes many of
the typical building blocks for a microwave system. In addition to those found
within the microwave assembly, individual components used in a system might
include filters, couplers and isolators. These types of components are the
building blocks of complex MFMs and subsystems used in a variety of
applications.
Historically, many microwave systems were assembled on a component by
component basis. Prime contractors integrated these components with cables,
connectors and older packaging techniques. The resulting inefficiencies and
reliability issues of this process led to increased integration in certain
applications. A fully integrated subsystem refers to a collection of MFMs
packaged together on a mechanical mounting structure and integrated with control
and power conditioning electronics. Each MFM is a hermetically sealed structure
containing a custom substrate base, which is used as a transmission medium,
along with active chips such as diodes and transistors. The single integrated
subsystem performs all of the functions otherwise performed by up to 20
individual electronic components. The development of integrated subsystems has
resulted in microwave systems which, relative to assembled components, provide
the OEM with a product which is:
o Physically smaller and lighter. The elimination of connectors, cables and
extraneous packaging allows the size and weight of the system to be
significantly reduced.
o More reliable during operation. Subsystem packaging is better suited for
heat dissipation and meeting shock and vibration requirements. In
addition, because fewer individual packages and components are used, the
number of interconnects and hermetic seals are greatly reduced.
Connectors and seals are the source of a large percentage of performance
failures in microwave subsystems.
o Easier for the OEM to test and assemble. Because the system is fully
functional when received from the supplier, the OEM only needs to test
one system instead of a series of components, and because the system is
fully assembled and a single system performs many functions, the OEM only
needs to fit it into the application instead of assembling a series of
packages with fewer functions.
o Less expensive. More reliable manufacturing processes produce greater
yields, which reduce costs for the manufacturer.
o More functional. The elimination of cables and connectors directly
results in the improvement of key performance parameters such as phase
and amplitude stability.
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<PAGE>
The manufacture of integrated subsystems affords the supplier several
advantages when competing for high volume, high performance microwave subsystem
supply contracts. Strict adherence to a rigorous set of proven design rules
results in faster product development times and greater yields when programs
move from the development phase into high volume production. Because this design
methodology has been proven in many applications, a high rate of first-pass
qualification testing is often achieved. In addition, technologies developed
during the design of a particular system are often useful in follow-on
applications.
The level of integration in certain applications, particularly in the space
segment of the aerospace industry, remains relatively low. Management believes
that the same benefits which led to the integration of microwave products for
the guided munitions market are achievable in other commercial markets such as
space satellites and certain high-frequency microwave equipment used for
telecommunications infrastructures. See '--Markets, Products and Services.'
Stellex Microwave had company-sponsored research and development expenses
of $5.5 million, $4.8 million and $3.5 million for the years ended December 31,
1994, 1995 and 1996, respectively; customer-sponsored research and development
at Stellex Microwave was estimated to be approximately $7.6 million, $10.4
million and $8.0 million, respectively, for such periods. Research and
development expenses at Stellex Aerospace for such periods were not significant.
MANUFACTURING
Stellex Microwave
Stellex Microwave designs, manufactures and tests microwave subsystems and
components at its manufacturing facilities located in Palo Alto, California.
Stellex Microwave's integrated subsystem factory consists of a 6,000 square foot
modern 'clean room' facility which contains highly automated manufacturing and
testing equipment. This facility currently produces 400 complex microwave
subsystems per week, employs a flexible manufacturing line process capable of
thin-film and solder assembly as well as full microwave testing and data
analysis. High reliability and space qualified microwave components are also
produced at the Company's Palo Alto facility. In addition, Stellex Microwave
utilizes contract manufacturers in the Philippines, Thailand and China for high
volume, labor intensive microwave components such as cascadable amplifiers and
mixers.
The subsystem approach to microwave system design seeks improved
performance at lower cost by transferring to the microwave supplier the
responsibility for the inter-operability of the individual microwave components.
Beginning in the mid-1970's, numerous suppliers have claimed this capability.
However, the design and manufacture of subsystems has posed several key
challenges to suppliers. For example, a broad range of microwave component
capabilities is required to address subsystem engineering requirements. Most
suppliers lack extensive component expertise, especially in the area of
frequency converters. In addition, while many suppliers have solved electrical
problems associated with subsystem development and production, few have been
effective in addressing mechanical issues such as substrate attachment. Finally,
many suppliers have focused on satisfying subsystem functional requirements
without adequate attention to manufacturing requirements, leading to a lack of
manufacturing standardization, costly design changes and high manufacturing
costs.
Stellex Microwave has successfully addressed many of the problems facing
microwave subsystem suppliers. Stellex Microwave has maintained a broad
capability of microwave component design. The technology leadership of Stellex
Microwave mixers is particularly important, as the components are vital to
low-distortion frequency conversion. In addition, Stellex Microwave's Mechanical
Design Department has created a uniform packaging methodology that solved
mechanical issues and led to high-yield manufacturing. The management of Stellex
Microwave enforces the use of this design methodology. All new product designs
utilize qualified design techniques and can be manufactured in a
highly-automated factory. For example, despite their different geometric shapes
and electronic designs, modules for AMRAAM, Standard Missile and Longbow
Hellfire are all assembled on the same line, using common processes.
An example of the successful implementation of the Company's integrated
design methodology and advanced manufacturing techniques can be seen in Stellex
Microwave's experience in supplying the microwave
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subsystems for the AMRAAM missile. The AMRAAM missile program began in 1980,
with Stellex Microwave working in close technical partnership with Hughes, the
primary supplier of the missile to the DoD. Since 1992, the Company has been the
sole source supplier to Hughes of four parts for the AMRAAM. Since the inception
of the program, Stellex Microwave has been able to integrate various functions
into increasingly smaller modules. For example, the missile's radio frequency
processor, which was originally comprised of 11 separate modules, is now
contained in one fully-integrated subsystem. This one subsystem provides
significant benefits to the missile's performance due to its increased
functionality, smaller size and greater reliability. Moreover, while increasing
functionality, Stellex Microwave has also been able to significantly reduce
costs through the use of a variety of proprietary processes. For example,
Stellex Microwave has developed a metal injection molding process for the
production of microwave subassembly housings used in the AMRAAM microwave
subsystem. Housings can require dimensional tolerances of less than a thousandth
of an inch and, therefore, constitute one of the largest cost components of the
subsystem. Traditionally, the housing had been manufactured by machine cutting,
which was expensive and time-consuming. The metal injection molding process has
dramatically reduced the cost of manufacturing the housing and shortened
production cycles. Raytheon, which is the second source supplier of the AMRAAM
and which originally had manufactured the missile's microwave assemblies
internally, now outsources most of its microwave requirements for the missile to
Stellex Microwave.
As a result of the Company's integrated design approach and manufacturing
capabilities, management believes that Stellex Microwave is well-positioned to
participate in the further integration of microwave components and modules both
in existing and future programs and in various commercial applications. Further,
because the Company's processes have been developed over a number of years and
are generally proprietary, management believes that they would be relatively
difficult to replicate by competitors.
Stellex Microwave produces its microwave devices in a separate facility
that is configured to support the wide variety of microwave components that it
manufactures. It is staffed by experienced manufacturing personnel, many of whom
are certified in multiple processes. The factory has been qualified to meet
rigorous reliability requirements imposed by the Company's customers and
government agencies, including requirements relating to satellite applications.
In an effort to increase the profitability of the microwave devices business,
the Company intends to increase its use of offshore independent contractors to
manufacture and test microwave components. Management believes that the
outsourcing of these responsibilities will significantly reduce labor costs and
increase production capabilities, without negatively affecting the quality of
its products or delivery requirements. In addition, by utilizing multiple
sources the Company can be assured of competitive rates and sufficient capacity.
For microwave devices that are required to meet high-reliability or
space-qualified standards, the Company intends to continue to conduct testing to
ensure compliance with these standards at its facilities in the United States.
In 1996, Stellex Microwave received ISO-9001 certification for its
microwave products manufacturing facilities. The Company's offshore independent
contractors have also received ISO-9001 certification. ISO-9001 is a standard
established by the International Organization for Standardization that provides
a methodology by which manufacturers can obtain quality certification. Although
this certification is not currently required by any of its customers, the
Company believes that it will be beneficial to the acquisition of future
business, particularly as the consolidation and outsourcing trends in the
defense industry continue. To help ensure the highest product quality and
reliability and to maximize control over the complete manufacturing cycle and
costs, the Company seeks to achieve vertical integration in the manufacturing
process wherever appropriate.
Stellex Aerospace
Stellex Aerospace manufactures turbomachinery components for rocket booster
engines, precision aircraft hinges, structural and interior aircraft components,
access door assemblies, door panels and hinges for special industrial
applications. Stellex Aerospace's manufacturing facilities are highly automated
and incorporate a variety of quality control systems.
Paragon manufactures both highly sophisticated, close tolerance prototype
components, often machined from expensive metal alloys, as well as higher volume
standard components. As a result of the variety of products it manufactures,
Paragon's manufacturing operations are flexible and generally adaptable to a
variety of applications. It employs advanced machinery, including four and five
axis machining centers, multiple spindle
50
<PAGE>
high volume production machining centers, wire electrical discharge machining
('EDM') machines and computer numerical control ('CNC') turning centers.
Paragon's computerized CNC machines interface with a sophisticated
computer-aided-design/computer-aided-manufacturing ('CAD/CAM') network. As a
contract manufacturer, Paragon does not typically design or own the products it
manufacturers.
Bandy's manufacturing facility is geared toward high volume, low cost
production. Bandy has developed a high level of proprietary equipment and
automated manufacturing systems. A substantial portion of its equipment has been
redesigned, customized and/or upgraded in recent years to meet exacting
manufacturing requirements and to reduce production costs. Bandy combines the
use of numerical control equipment, vertical and universal milling machines and
custom-designed hinge equipment with other advanced, high production
manufacturing methods to produce standard or customized precision hinges and
machined parts. Bandy owns all of its own tooling, which historically has given
it a competitive advantage in obtaining spare and replacement part business.
Certain customers of Stellex Aerospace have developed their own design,
product performance, manufacturing process and quality standards and require
their suppliers, including Stellex Aerospace, to comply with such standards. As
a result, Stellex Aerospace has developed and implemented comprehensive quality
system policies and procedures which meet or exceed the requirements of its
customers. In addition, the Company is currently seeking ISO-9000 certification
for Stellex Aerospace's manufacturing facilities. In recognition of its high
quality standards, Stellex Aerospace has received numerous quality awards from
its customers, including Boeing and McDonnell Douglas, and the highest quality
designations from Lockheed Martin, Teledyne and Rohr.
SALES AND MARKETING
The Company employs distinctly different sales and marketing approaches in
each of its businesses, which are tailored to the needs of its customers. The
Company markets its products through its own sales force and a network of
independent sales representatives and distributors in the United States and
certain foreign countries. The Company's sales managers are responsible for
coordinating the efforts of the independent sales representatives and for
staying abreast of government and commercial programs in their respective
regions. They also keep the Company's engineering, manufacturing and management
personnel advised of possible future trends and requirements of customers.
Stellex Microwave--Tactical Subsystems
The Company's tactical subsystems are sold to a limited number of prime
contractors based on anticipated program funding of identified tactical missile
and intelligence systems. Marketing for tactical subsystems relies on extensive
direct interaction between Company personnel and their counterparts at prime
contractors and government agencies which comprise the tactical missile and
intelligence markets. Stellex Microwave uses a team-based sales approach to
facilitate close management by Company personnel of relationships at multiple
levels of the customer's organization, including management, engineering and
purchasing personnel. Trade shows and advertising are oriented to positioning
Stellex Microwave as the premier supplier of advanced microwave technology for
production volume tactical missiles and intelligence systems.
Sales of tactical subsystems begin with the identification of tactical
missile and intelligence programs that are expected to require medium to high
volume production of integrated microwave subassemblies. Stellex Microwave
focuses on those programs with a high probability of obtaining production
funding as targets for new business. Stellex Microwave avoids contracts for
one-of-a-kind products and limited production programs.
Once a program is identified as a target, Stellex Microwave typically works
closely with the customer during the product design and qualification phase.
Stellex Microwave also regularly becomes involved after initial product design
and development when a customer has encountered pre-production problems. Each
program is bid with a price proposal. New programs then enter a developmental
phase where Stellex Microwave's subassemblies are developed and tested and then
integrated into the missile system for further evaluation and testing. Upon
completion of the development phase, Stellex Microwave develops a proposal for
the production phase of the program. Existing production programs, such as
AMRAAM, frequently move through product update cycles which are rapidly
engineered and moved into production.
51
<PAGE>
Stellex Microwave--Microwave Devices
The Company's microwave devices are sold to a broad range of government
agencies and civilian contractors worldwide. Stellex Microwave sells and
distributes microwave devices worldwide using an internal sales force, sales
representatives and independent distributors. Stellex Microwave typically
processes more than 5,000 purchase orders a year from more than 400 different
customers. Marketing for microwave devices includes trade shows and advertising
focused on positioning Stellex Microwave as the highest quality supplier with
the broadest selection of microwave components. The Company uses a 500-page
parts catalog which is revised every two years. Catalog sales accounted for a
significant portion of the Company's microwave device pro forma sales for the
year ended December 31, 1996 and the nine months ended September 30, 1997. In
order to capitalize on its reputation developed under the Watkins-Johnson name,
pursuant to the terms of the W-J Acquisition, Stellex Microwave will retain the
right to sell its products through the 1997-98 device catalog produced by
Watkins-Johnson and will also have the right to identify its products as
'formerly made by Watkins-Johnson' until the expiration of the 1999-2000
catalog.
Stellex Aerospace
The Company believes that Paragon is one of only five companies in the
United States with the expertise to compete for and produce highly
sophisticated, close tolerance prototype component parts. As a result of recent
marketing efforts to broaden its customer base, Paragon now has approximately 20
active prototype customers. Although prototype work is normally associated with
short-term, low-volume work, Paragon is often able to secure a preferred
position for future production requirements by establishing a strong
relationship with the customer during the early prototype development stage.
Paragon intends to maximize these opportunities to become a competitive and
cost-effective producer of longer-term, higher-volume orders.
Bandy's sales effort was recently reorganized into a dedicated,
single-contact sales representative system. Previously, Bandy operated a pool
system whereby a customer's call to place an order or obtain information was
referred to the first available salesperson. The new system provides Bandy's
sales representatives with the opportunity to become more familiar with the
special and unique requirements of their particular accounts as well as ensure
that orders are properly processed and schedules maintained. Additional benefits
of the new system include a more even distribution of salesperson workload as
well as a reduction in the time required to process orders and respond to
requests. Bandy employs four persons in-house to answer sales questions and
process orders and uses outside sales agents to serve its international
customers.
CUSTOMERS
The Company's customers include many of the world's largest defense
contractors, aircraft OEMs and aircraft component manufacturers. The Company's
largest customers in 1996 based on sales were Hughes and Raytheon, which
together accounted for approximately 34% of the Company's total pro forma sales.
In January 1997, Raytheon announced plans to acquire the defense business of
Hughes. In October 1997, this proposed acquisition was approved by the U.S.
Department of Justice, subject to certain conditions. See 'Risk Factors--
Dependence on Defense Market.'
The vast majority of the Company's tactical subsystem sales, which
accounted for 39% of the Company's total pro forma sales in 1996, are derived
from contracts with a limited number of tactical missile and
intelligence/reconnaissance prime contractors, such as Raytheon, Hughes, Litton,
Lockheed Martin, Rockwell-Boeing and TRW. Microwave component sales, which
accounted for approximately 40% of the Company's total pro forma sales in 1996,
are made to a broad range of government agencies and civilian contractors.
Stellex Aerospace, whose sales accounted for approximately 21% of the Company's
total pro forma sales in 1996, sells primarily to aircraft OEMs, aircraft and
rocket engine manufacturers and government agencies. In 1996, approximately 62%
of the Company's pro forma sales were to government agencies and their prime
contractors. Such sales are subject to unique conditions and terms. See 'Risk
Factors--Uncertainty Associated with Government Contracts.'
52
<PAGE>
COMPETITION
Stellex Microwave
The markets for Stellex Microwave's microwave subsystems are characterized
by rapid technological change, new product development, product obsolescence and
evolving industry standards. In addition, as a result of significant development
costs associated with integration techniques and designs, these markets have
significant barriers to entry. Management believes that competition within the
microwave subsystem market is driven primarily by the ability to design and
deliver high performance and price competitive products in sufficient quantities
in a timely manner. Competition is also affected by the quality of technical
support and the ability to design customized products that address each
customer's particular requirements. Stellex Microwave faces competition in the
subsystems markets in which it competes from independent microwave equipment
manufacturers which have integration capabilities, but management believes that
its primary competition is from in-house manufacturing operations of OEMs and
prime contractors, many of whom are customers of the Company. Management
believes that Stellex Microwave's proprietary materials and manufacturing
techniques allow it to produce highly sophisticated, cost-effective and reliable
microwave subsystems that are not easily replicated. However, Stellex
Microwave's future success is dependent upon the extent to which OEMs and prime
contractors, many of which have greater financial and technical resources than
the Company, elect to purchase from outside sources rather than manufacture and
integrate their own subsystems, MFMs and components. See 'Risk
Factors--Competition.'
Stellex Aerospace
The narrowly defined niche markets within the aircraft industry served by
Stellex Aerospace are relatively fragmented, with few competitors for each of
the products provided by Stellex Aerospace. In the markets for the spacecraft
and prototype components which it produces, Paragon's competition is generally
limited to only two or three companies, due primarily to high entry costs and
significant technical requirements. In the markets for engine airfoil components
and power actuation components, Paragon faces numerous competitors including, in
many cases, the in-house manufacturing operations of its customers. In addition,
as airfoils represent a substantial cost component of aerospace engines,
customers are increasingly focused on reducing costs and increasing competition.
Paragon's major customers are intensely price competitive with each other, and
this price competition increases their incentives to reduce costs from their
suppliers.
Bandy faces competition in its hinge market business from a limited number
of international independent manufacturers and the in-house operations of
aircraft OEMs. Bandy also competes with small machine shops for specialty
machined components. As a result of recent economic and structural contraction
in the commercial and military hinge markets, the number of direct machine shops
dedicated to the production of hinges has been significantly reduced. The
Company believes that the key competitive factors in this changed market include
not only product quality and machining tolerance requirements, but also customer
relationships established over many years. The Company believes that Bandy's
reputation for high quality products and superior manufacturing capabilities
have made it the market share leader of the worldwide aircraft hinge market.
53
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PROPERTIES
The Company and its subsidiaries have an aggregate of six principal
operating facilities, all of which are located in California. Stellex
Microwave's facility is leased under a sub-lease from Watkins-Johnson entered
into in connection with the W-J Acquisition. Stellex Aerospace has five
facilities located in southern California. The following table sets forth
certain information relating to the Company's principal operating facilities.
<TABLE>
<CAPTION>
SQUARE
LOCATION DESCRIPTION FOOTAGE OWNED/LEASED
- --------------------------- ------------------------------------------------- ------- ------------------------
<S> <C> <C> <C>
Palo Alto, California Stellex Microwave's manufacturing, engineering 120,000 Leased
and testing facility and office
Woodland Hills, California Stellex Aerospace's office 1,475 Leased
Valencia, California Paragon's manufacturing facility, machine shop 54,000 Owned
and warehouse
Burbank, California Bandy's manufacturing facility, warehouse and 48,000 Leased
office
El Segundo, California SEAL's laboratory, testing facility and office 20,600 Leased
Cudahy, California GIL's laboratory, testing facility and office 32,400 Leased
</TABLE>
The Company believes that its properties are adequate to support its
operations for the foreseeable future. In connection with the W-J Acquisition,
Stellex Microwave entered into a sub-lease with Watkins-Johnson for its facility
in Palo Alto, California. Upon the termination of such sub-lease in October,
2000, Stellex Microwave will be required to relocate. The Company is in the
process of reviewing alternate sites for Stellex Microwave, and intends to
minimize any disruption caused by such relocation. All of the Company's other
leases, other than the lease relating to the Woodland Hills facility, which is
month-to-month, have remaining terms generally ranging from one to six years.
Substantially all of such leases contain renewal options pursuant to which the
Company may extend the lease terms in increments of five to ten years. The
Company does not anticipate any difficulties in renewing any of these leases as
they expire.
EMPLOYEES
As of September 30, 1997, the Company employed approximately 825 persons.
Virtually all of the Company's employees reside in the United States and none
are covered by collective bargaining agreements. The Company considers its
relations with its employees to be good.
GOVERNMENT CONTRACTS AND REGULATION
A substantial portion of the Company's sales result from contracts with the
U.S. government and its prime contractors. These contracts are generally
cost-reimbursement or fixed-price type contracts. Cost-reimbursement type
contracts provide for the payment of actual allowable costs, plus a fee. Under
fixed-price type contracts, the contractor benefits from or shares in cost
savings but generally bears or shares the risk of cost overruns. Cost-
reimbursement type contracts are normally priced to realize lower margins than
fixed-price type contracts. For the year ended December 31, 1996, approximately
6.3% of the Company's pro forma sales were derived from cost-reimbursement
contracts. A significant portion of the balance of the Company's pro forma sales
for the year ended December 31, 1996 were derived from fixed-price type
contracts.
Contracts with the U.S. government and its prime contractors contain
standard provisions for termination at the convenience of the U.S. government or
such prime contractor, pursuant to which the Company is generally entitled to
recover costs incurred, settlement expenses and profit on work completed prior
to termination. Contracts with the U.S. government do not provide for
renegotiation of profits.
Companies supplying products and services directly or indirectly to the
U.S. government are subject to other risks such as contract suspensions, changes
in policies or regulations and availability of funds. Any of these factors could
adversely affect the Company's business with the U.S. government in the future.
See 'Risk Factors--Uncertainty Associated with Government Contracts.'
54
<PAGE>
All of the Company's operations are subject to compliance with regulatory
requirements of federal, state and municipal authorities, including regulations
concerning employment obligations and affirmative action, workplace safety and
protection of the environment. While compliance with applicable regulations has
not adversely affected the Company's operations in the past, there can be no
assurance that the Company will continue to be in compliance in the future or
that these regulations will not change. See 'Risk Factors-- Environmental
Matters,' and 'Management's Discussion and Analysis of Financial Condition and
Results of Operations--Environmental Matters.'
In particular, the Company must comply with detailed government procurement
and contracting regulations and with United States government security
regulations, certain of which carry substantial penalty provisions for
nonperformance or misrepresentation in the course of negotiations. Failure of
the Company to comply with its government procurement, contracting or security
obligations could result in penalties or suspension of the Company from
government contracting, which could have a material adverse effect on the
Company's financial position and results of operations.
The Company is required to maintain a United States government facility
clearance at certain of its locations. This clearance could be suspended or
revoked if the Company were found not to be in compliance with applicable
security regulations. Any such revocation or suspension would delay the
Company's delivery of its products to customers. Although the Company has
adopted policies directed at ensuring its compliance with applicable
regulations, there can be no assurance that the approved status of the Company
facilities will continue without interruption. United States government
regulations require a license for the export of advanced weapons systems.
Changes in United States government policies towards the export of these systems
may impact the Company's international business.
SALES TO FOREIGN CUSTOMERS
For the year ended December 31, 1996, approximately $18.0 million, or 16%,
of the pro forma sales of the Company were attributable to sales where the
end-user was a foreign customer. The principal customers are governments of
those countries in Western Europe, the Middle East and the Pacific Rim region
which are generally deemed to be friendly to the government of the United States
and to have relatively stable governments. A substantial portion of the
Company's sales where the end-user is a foreign government involve weapon and
intelligence systems. These sales are generally subject to U.S. government
regulation and licensing. A change in U.S. government policy toward foreign
governments with whom the Company, directly or indirectly, conducts business
could affect the Company's sales. Although the loss of all of the Company's
foreign business could have a materially adverse impact on the Company's results
of operations and financial condition, it is management's opinion that this risk
is remote and that the loss of any single contract involving a foreign
government would not be material.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company's manufacturing operations require a wide variety of electronic
and mechanical components for which the Company has multiple commercial sources.
The Company's manufacturing operations also require raw materials which are
purchased in the open market and are normally available from a number of
suppliers. The Company has not experienced any significant delays in obtaining
timely deliveries of essential materials.
SUPPLY CONTRACTS
In connection with the W-J Acquisition, the Company and Watkins-Johnson
entered into a Gallium Arsenide and Thin Film Supply and Services Agreement (the
'GaAs Agreement'). Stellex Microwave depends on a steady supply of gallium
arsenide and thin film parts. These parts, and the technology associated with
these parts, are used in the manufacture of microwave subsystems and modules for
a variety of applications, including virtually every integrated subsystem
manufactured by Stellex Microwave. A gallium arsenide part is a wafer, die or
dice comprising one or more layers of gallium arsenide, on which is implemented
one or more transistors or diodes. A thin-film part is a part component,
interconnect, wafer, substrate, die or dice comprising one or more layers of
thin-film material such as tantalum nitride or gold deposited on a ceramic.
In the GaAs Agreement, Watkins-Johnson agreed to sell, and the Company
agreed to buy, parts manufactured in Watkins-Johnson's gallium arsenide and thin
film fabrication facility (the 'GaAs Facility').
55
<PAGE>
The GaAs Agreement will expire on December 31, 2000, unless earlier terminated
by the Company on one year's notice by the Company.
Under the GaAs Agreement, prices for parts are guaranteed through January
1, 1999. Thereafter, prices may be adjusted by no more than 10 percent. The
Company must also pay certain research and development and process costs
associated with the maintenance of the GaAs Facility. The Company must make
quarterly payments for research and developmment totalling at least $800,000 in
1998, $400,000 in 1999, and $300,000 in 2000. The share of process costs is
determined by a formula that measures the Company's use of the GaAs Facility.
For 1998, the Company will pay at least $2.2 million in process costs. For each
six month period thereafter, the Company's share will be recalculated based on
actual usage rates, but the Company's share of process costs will not change by
more than 10 percent from the Company's share six months before the
recalculation. For 1998, the Company's total payments for parts, research and
development, and process costs must equal at least $5.8 million.
In connection with the W-J Acquisition, Watkins-Johnson transferred to the
Company a Metal Injection Molding, Glass Seal and Hybrid Assembly facility (the
'MIM Facility'). The Company agreed to supply Watkins-Johnson with products and
services from the MIM Facility at prices specified in a supply agreement. This
supply agreement will run until December 31, 2000, unless earlier terminated on
one year's notice by Watkins-Johnson.
INTELLECTUAL PROPERTY
The Company owns patents on packaging and substrate materials,
manufacturing processes and other microwave technology which are significant in
the performance of its integrated microwave subsystems. The Company's
significant patents have terms expiring from 2000 to 2014. In addition, the
Company is a party to patent and other intellectual property licensing
agreements with various parties, including Watkins-Johnson.
In addition to the Company's patented and licensed technology, management
believes that the Company's research, development and engineering skills, as
well as its scientific and technical know-how, are instrumental to the Company's
business. The U.S. government typically receives royalty-free licenses on
inventions arising from government contracts, with each contractor retaining all
commercial rights with respect to such inventions.
In connection with the W-J Acquisition, the Company entered into a patent
cross license with Watkins-Johnson whereby patents transferred in connection
with the W-J Acquisition are licensed, on a royalty-free basis, to
Watkins-Johnson. In addition, pursuant to this cross license, Watkins-Johnson
licenses the patents it retains, other than specifically excluded patents, on a
royalty-free basis to the Company. Watkins-Johnson does not have license rights
relating to the Company's patents for microwave devices and electronic equipment
for the defense and space industries. The Company is not licensed to
Watkins-Johnson's patents to manufacture gallium arsenide parts for third
parties.
Intellectual property rights, including trade secrets and know how,
associated with the business of Stellex Microwave, were transferred or licensed
to the Company in connection with the consummation of the W-J Acquisition. These
intellectual property rights include the rights associated with gallium arsenide
and thin film parts and the MIM Facility.
Stellex Microwave is party to approximately 95 separate nondisclosure
agreements. Each of these agreements was entered into to restrict or prohibit
the disclosure of proprietary information shared with Stellex Microwave by other
companies in connection with certain proposed business relationships.
LEGAL PROCEEDINGS
The Company is involved in lawsuits and is subject to certain contingencies
incidental to its business. While the ultimate results of these matters cannot
be predicated with certainty, management does not expect them to have a material
adverse effect on the consolidated financial position or results of operations
of the Company.
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<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth information with respect to the directors,
executive officers and other key employees of the Company. All directors and
officers of the Company hold office until the annual meeting of stockholders
next following their election, or until their successors are elected and
qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Richard L. Kramer.................................... 48 Chairman of the Board of Directors and Director of
Stellex Industries, Inc.
William L. Remley.................................... 47 Vice Chairman, President, Chief Executive Officer,
Treasurer and Director of Stellex Industries, Inc.
P. Roger Byer........................................ 52 Chief Financial Officer of Stellex Industries, Inc.
Keith D. Gilbert..................................... 55 President and Chief Executive Officer of Stellex
Microwave Systems, Inc.
Bradley C. Call...................................... 54 President and Chief Executive Officer of Stellex
Aerospace
Timothy L. Boland.................................... 59 Vice President, Tactical Subsystems of Stellex
Microwave Systems, Inc.
John L. Martin....................................... 58 Vice President, Microwave Devices of Stellex
Microwave Systems, Inc.
Kevin R. Hunter...................................... 37 Vice President, Systems Engineering of Stellex
Microwave Systems, Inc.
Eric F. Richardson................................... 36 Vice President, Design Engineering of Stellex
Microwave Systems, Inc.
Julius E. Hodge...................................... 46 Chief Financial Officer of Stellex Aerospace
Lawrence R. Smith.................................... 52 President of Paragon Precision Products
John Barriatua....................................... 62 President of General Inspection Laboratories, Inc.
Roland H. Marti...................................... 52 President of Scanning Electron Analysis Laboratories,
Inc.
Thomas B. Fulton..................................... 49 President of Bandy Machining International
</TABLE>
- ------------------
Richard L. Kramer became the Chairman of the Board of Directors and a
director of the Company in September 1997, shortly after its formation. Mr.
Kramer is also Chairman and a director of Mentmore Holdings Corporation, Texfi
Industries Inc., a textile and apparel manufacturing firm, CPT Holdings. Inc., a
manufacturer of specialty structural steel profiles, Weldotron Corporation, a
packaging equipment manufacturer, Orion Acquisition Corp. II, an investment
company, MC Equities, Inc., an insurance holding company, Precise Technology,
Inc., a full-service, custom injection molder of precision plastic products, and
Republic Properties Corporation. Mr. Kramer is a director of J&L Structural,
Inc., Precise Holding Corporation, Trinity Investment Corp. and Sunderland
Industrial Holdings Corporation.
William L. Remley became the Vice Chairman, Chief Executive Officer and a
director of the Company in September 1997, shortly after its formation. Mr.
Remley is also President, Chief Executive Officer and a director of Mentmore
Holdings Corporation and Weldotron Corporation, Vice-Chairman, Chief Executive
Officer and a director of Texfi Industries Inc., President and a director of CPT
Holdings Inc., Orion Acquisition Corp. II and MC Equities, Inc. and Vice
Chairman, Treasurer and a director of Precise Technology, Inc., a full-service,
custom injection molder of precision plastic products. Mr. Remley is a director
of J&L Structural, Inc., Republic Properties Corporation, Precise Holding
Corporation, Trinity Investment Corp. and Sunderland Industrial Holdings
Corporation.
P. Roger Byer became the Chief Financial Officer of the Company in
September 1997, shortly after its formation. Prior to joining the Company, Mr.
Byer was employed by General Aquatics Corporation, and its predecessor, KDI
Corporation, as Chief Financial Officer from June 1986 until May 1997. Mr. Byer
is also Chief Operating Officer of Mentmore Holdings Corporation.
57
<PAGE>
Keith D. Gilbert became the President and Chief Executive Officer of
Stellex Microwave in October 1997 upon consummation of the W-J Acquisition.
Prior to joining Stellex Microwave, Mr. Gilbert held the positions of Executive
Vice President of Watkins-Johnson from November 1995 and acting President of
TSMD from April 1997, respectively, until the consummation of the W-J
Acquisition. Prior to this time, Mr. Gilbert was employed by Watkins-Johnson for
31 years in a variety of positions, including President of the Electronics Group
from March 1993 until February 1995 and Vice President of the Defense Group from
1990 until March 1993. Mr. Gilbert currently provides consulting services to
Watkins-Johnson.
Bradley C. Call became the President, Chief Executive Officer of Stellex
Aerospace in July 1997. Prior to joining Stellex Aerospace, Mr. Call was
employed by Kleinert as Chairman, President and Chief Executive Officer from
September 1988 until the consummation of the Kleinert Acquisition in July 1997.
Mr. Call has also held the position of President of Bandy from January 1994
until November 1997. Mr. Call is a director of Unihealth Pacificare Health
Systems.
Timothy L. Boland became the Vice President, Tactical Subsystems of Stellex
Microwave in October 1997 upon consummation of the W-J Acquisition. Prior to
joining Stellex Microwave, Mr. Boland held the position of Vice President,
Tactical Subsystems Sector of Watkins-Johnson from October 1993 until the
consummation of the W-J Acquisition. Prior to this time, Mr. Boland was employed
by Hughes Aircraft Company for 24 years in a variety of positions, including
Manager of AMRAAM Advanced Programs from January 1990 until October 1993.
John L. Martin became the Vice President, Microwave Devices of Stellex
Microwave in October 1997 upon consummation of the W-J Acquisition. Prior to
joining Stellex Microwave, Mr. Martin had been employed by Watkins-Johnson as
Vice President, Microwave Devices Sector and Acting Sales Director from October
1996 and June 1997, respectively, until the consummation of the W-J Acquisition.
In addition, Mr. Martin had been employed by Watkins-Johnson as Manager of
Product Assurance, Manager of Safety and Security and Department Manager of the
Integrated Assemblies Department from January 1992 until the consummation of the
W-J Acquisition.
Kevin R. Hunter became the Vice President, Systems Engineering of Stellex
Microwave in October 1997 upon consummation of the W-J Acquisition. Prior to
joining Stellex Microwave, Mr. Hunter held the position of Director, Tactical
Subsystems Engineering of Watkins-Johnson from July 1997 until the consummation
of the W-J Acquisition. Prior to this time, Mr. Hunter was employed by
Watkins-Johnson in a variety of positions, including Manager of the Tactical
Engineering Department from March 1995 until July 1997, Section Head of the
Subsystems Design Section from September 1993 until March 1995, Head of Missile
Subsystems Design from January 1993 until September 1993, and Head of Product
Development from March 1992 until January 1993.
Eric F. Richardson became the Vice President, Design Engineering of Stellex
Microwave in October 1997 upon consummation of the W-J Acquisition. Prior to
joining Stellex Microwave, Mr. Richardson held the position of Director,
Engineering of Watkins-Johnson from September 1995 until the consummation of the
W-J Acquisition. Prior to this time, Mr. Richardson was employed by
Watkins-Johnson in a variety of positions, including Manager of the Mechanical
Engineering Department from March 1992 until September 1995.
Julius E. Hodge became the Chief Financial Officer of Stellex Aerospace in
July 1997. Prior to joining Stellex Aerospace, Mr. Hodge was employed by
Kleinert as Chief Financial Officer from May 1989 until the consummation of the
Kleinert Acquisition in July 1997.
Lawrence R. Smith has held the position of President of Paragon since
November 1990. Prior to this time, Mr. Smith was employed by Rogerson Kratos,
Inc. as President from April 1985 until June 1990.
John Barriatua has held the position of President of GIL since June 1985.
Prior to this time, Mr. Barriatua was employed by GIL for 26 years in a variety
of positions.
Roland H. Marti has held the position of President of SEAL since February
1989. Prior to this time, Mr. Marti was employed by Kevex Instruments as
Director of Sales from 1984 until 1989, Director, Western Area for Princeton
Gamma-Tech from 1983 until 1984 and Worldwide Sales Manager for Bausch & Lomb
from 1980 until 1983.
Thomas B. Fulton has held the position of President of Bandy since November
1997. Prior to joining Bandy, Mr. Fulton was employed by Kaiser Compositek as
President from April 1995 until November 1997. Prior to this time, Mr. Fulton
was employed by Kade Composites as President from July 1986 until April 1997.
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DIRECTORS
Messrs. Kramer and Remley are non-employee directors of Stellex and do not
receive compensation for acting in such capacity other than reimbursement for
out-of-pocket expenses incurred to attend meetings of the Board of Directors and
visit the Company's offices or other locations on behalf of the Company for any
special purpose. Messrs. Kramer and Remley are the sole executive officers and
directors of Mentmore Holdings Corporation, which provides management services
to the Company. See 'Certain Transactions--Management Agreement with Mentmore.'
EMPLOYEE BENEFIT ARRANGEMENTS AND EXECUTIVE COMPENSATION
The Company has retained the firm of McDaniel & Associates, an employee
benefit consulting firm, to advise it in structuring an appropriate employee
compensation program for the officers and employees of Stellex Microwave and
Stellex Aerospace. The Company anticipates adopting a formal program in the near
future. In addition, the Company will seek to enter into employment agreements
with certain of its executive officers and key employees. The Company expects
that the terms of such employment agreements, as well as the terms of the
overall compensation program adopted by the Board of Directors of Stellex, will
be comparable to the compensation packages offered to officers and employees of
the Company under prior ownership and will be competitive with compensation
programs offered by other companies in the Company's industry.
The Company is newly formed. Accordingly, no historical executive
compensation information is included in this Prospectus. Pursuant to the Stellex
Aerospace Investor Agreement (as defined), certain Management Members (as
defined) were granted stock appreciation rights ('SARs') by KII Holding. A
portion of the SARs vest over a five year period. The vesting of the remaining
SARs is generally conditioned upon Stellex Aerospace meeting certain targeted
levels of annual and cumulative EBITDA (as defined therein) over a five year
period. See 'Certain Transactions--The Kleinert Acquisition.'
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's compensation policies are determined and executive officer
compensation decisions are made by the Board of Directors of Stellex.
RETENTION PLANS
In anticipation of the divestiture of its tactical subsystems and microwave
devices business units, Watkins-Johnson implemented an enhanced profit sharing
program designed to foster retention of employees of the business pending and
following the W-J Acquisition. This program provides for the doubling of
benefits payable under Watkins-Johnson's pre-existing profit sharing bonus plan
to all employees of the business who remain employed by Watkins-Johnson or are
employed by Stellex Microwave at the end of 1997 (the additional bonus amounts
being payable in March of 1998). Watkins-Johnson has estimated that the total
amount that will be payable to employees under this plan is approximately
$800,000.
Certain key employees of the business are also eligible for additional
individual retention bonuses, some of which are fixed dollar amounts and others
of which are based on the financial results of the business during 1997.
Watkins-Johnson has estimated that the total amount that will be payable to
these employees under these plans is approximately $1.5 million.
Pursuant to the W-J Stock Purchase Agreement, Stellex Microwave agreed to
assume Watkins-Johnson's obligation to make retention payments to employees of
the business and deposited into an escrow account an amount projected to be
sufficient to defray the costs of all such payments and related payroll taxes
and such amount was credited against the purchase price paid at the closing of
the W-J Acquisition.
EMPLOYEE LOANS
Stellex Microwave is the holder of a promissory note made by one of its
executive officers which was in the original principal amount of $100,000 (of
which $58,654 has been forgiven and $41,346 remains outstanding). This note was
made in connection with loans for relocation assistance.
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CERTAIN TRANSACTIONS
THE W-J ACQUISITION
On August 29, 1997, a wholly owned subsidiary of Stellex, TSMD Acquisition
Corp. (the 'Buyer'), entered into a Stock Purchase Agreement (the 'W-J Stock
Purchase Agreement') with Watkins-Johnson and W-J TSMD Inc. ('W-J TSMD'),
pursuant to which Watkins-Johnson agreed to contribute certain assets and
liabilities relating to its tactical subsystems and microwave devices businesses
(collectively the 'Business') to W-J TSMD, and the Buyer agreed to purchase all
of the issued and outstanding capital stock of W-J TSMD (the 'Stellex Microwave
Stock') for a net purchase price of approximately $82.2 million (after giving
effect to estimated purchase price adjustments). The closing of the W-J
Acquisition occurred on October 31, 1997 concurrently with the consummation of
the Initial Offering. In connection with the consummation of the W-J
Acquisition, the corporate name of W-J TSMD was changed to Stellex Microwave
Systems, Inc.
The W-J Stock Purchase Agreement contains representations and warranties
typical of agreements of like nature, including, without limitation, those
relating to corporate organization and capitalization, the valid authorization,
execution, delivery and enforceability of all transaction documents, the
financial statements, the absence of material adverse changes in the Business,
the absence of material undisclosed liabilities, tax matters, material
contracts, the quality and title of the property comprising the Business,
litigation and employee matters, governmental authorizations, licenses and
permits, insurance, compliance with laws, employee benefit plans, customers and
suppliers, compliance with environmental and other laws, and compliance with the
terms of government contracts. Generally, the representations and warranties of
Watkins-Johnson expire on the second anniversary of the closing date except that
(i) those relating to the corporate organization and capitalization of Stellex
Microwave, title to the Stellex Microwave Stock and its assets and the absence
of brokers remain in full force and effect indefinitely, (ii) those concerning
environmental matters generally survive until the tenth anniversary of the
closing date, (iii) certain representations regarding the good repair and
adequacy of the material tangible properties of the Business terminate on the
date which is six months following the closing date, (iv) certain
representations and warranties regarding the merchantability and quality of
inventory included in the Business terminate upon the final determination of the
Adjustment Amount (as defined in the W-J Stock Purchase Agreement) and (v) those
relating to tax matters generally survive until the expiration of the applicable
statute of limitations.
Pursuant to the W-J Stock Purchase Agreement, Watkins-Johnson agreed to
indemnify the Buyer and Stellex Microwave for all liabilities and other losses
arising from, among other things, any breach of its representations, warranties
or covenants contained in the W-J Stock Purchase Agreement, the Excluded
Liabilities (as defined in the W-J Stock Purchase Agreement), third party claims
or demands regarding conduct of the Business prior to the closing date,
violations of law that occur prior to the closing date and certain environmental
conditions. The Buyer agreed to indemnify Watkins-Johnson for all liabilities
and other losses arising from, among other things, any breach of its
representations, warranties or covenants contained in the W-J Stock Purchase
Agreement, the Assumed Obligations (as defined in the W-J Stock Purchase
Agreement), third party claims or demands regarding conduct of the Business
following the closing date and violations of law that occur after the closing
date. With certain exceptions, neither Watkins-Johnson nor the Buyer is required
to indemnify any other person for breaches of certain representations and
warranties unless the aggregate of all amounts for which indemnity would
otherwise be payable exceeds $500,000 and, in such event, the indemnifying party
will be responsible only for the amount in excess of $500,000. In addition, the
indemnification obligations for breaches of representations and warranties of
each of Watkins-Johnson and the Buyer are generally limited to a maximum of $20
million, except that there is no limit on Watkins-Johnson's obligations with
respect to breaches of certain representations and warranties, including those
relating to the corporate organization and capitalization of Stellex Microwave,
certain tax matters, title to the Stellex Microwave Stock and its assets, the
absence brokers and certain environmental matters. There is also no limit on
indemnification by Watkins-Johnson for specified pending claims and litigation.
The W-J Stock Purchase Agreement also contains non-competition and
non-solicitation agreements binding on Watkins-Johnson, the Buyer and Stellex
Microwave. Watkins-Johnson, on behalf of itself and its Affiliates (as defined
in the W-J Stock Purchase Agreement), agreed for a period of four years after
the date of such agreement that it will not, directly or indirectly participate
in the ownership, management or control of, or the financing of, or be employed
by, or consult for or otherwise render services to, or allow its name or
reputation to be used in or by any other present or future business enterprise
in the defense or space industries or that otherwise compete with the Business
or its products in each state of the United States and in each foreign
jurisdiction in which the
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Business is conducted or its products are sold as of the closing date; provided
that the foregoing provision expressly does not apply to certain intelligence
systems manufactured by Watkins-Johnson that are designed to monitor or
intercept communication signals, products for the telecommunications market
currently manufactured or in development by Watkins-Johnson and
Watkins-Johnson's ability to act as an outside GaAs foundry for third parties.
In addition, Watkins-Johnson generally agreed to refrain from soliciting
employees of Stellex Microwave for a period of four years from the closing date.
Similarly, the Buyer, on behalf of itself and its Affiliates, agreed for a
period of four years after the date of the W-J Stock Purchase Agreement that it
will not (i) manufacture Gallium Arsenide parts for third parties, (ii) disclose
to third parties confidential process and design rule information related to the
manufacture of Gallium Arsenide parts except as necessary for the manufacture of
parts solely for the Buyer and its Affiliates and (iii) manufacture for the
telecommunications market products that duplicate, in whole or with minor
modifications, the proprietary designs of products currently manufactured or in
development by Watkins-Johnson, including, without limitation, cellular and PCS
base station subsystems, wireless local loop customer premise equipment,
repeater subsystems for point to multi-point and medium power amplifiers. In
addition, the Buyer and Stellex Microwave generally agreed to refrain from
soliciting employees of Watkins-Johnson for a period of four years from the
closing date.
In connection with the W-J Acquisition, Watkins-Johnson and the Company
entered into a variety of ancillary agreements to accommodate the separation of
the Business from the businesses retained by Watkins-Johnson. Stellex Microwave
entered into a sub-lease with Watkins-Johnson for the facilities currently used
by the Business that allows the Company to continue to conduct the Business at
its existing site for a maximum of three years. In addition, Watkins-Johnson and
Stellex Microwave entered into a supply agreement that allows Stellex Microwave
to purchase from Watkins-Johnson, at agreed upon rates, products used in
connection with the Business from Watkins-Johnson's gallium arsenide foundry and
thin-film production substrate facility. Stellex Microwave also entered into an
agreement to furnish Watkins-Johnson, at agreed upon rates, with metal injection
molding services through a facility purchased from Watkins-Johnson in connection
with the W-J Acquisition. Finally, Watkins-Johnson and Stellex Microwave entered
into a license agreement covering certain common technology used in the
operation of the Business and the businesses being retained by Watkins-Johnson.
See 'Business--Properties,' '--Supply Agreements' and '--Intellectual Property.'
The foregoing summary of the material terms of the W-J Stock Purchase
Agreement and related matters does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all of the provisions of the
W-J Stock Purchase Agreement, including the definitions of certain terms therein
and the exhibits and schedules thereto.
THE KLEINERT ACQUISITION
On July 1, 1997, KII Acquisition Corp. ('Acquisition Corp.'), approximately
80% of the common stock of which is indirectly owned by Stellex, acquired all of
the issued and outstanding capital stock of Kleinert (currently known as Stellex
Aerospace) from Kleinert Industries Holding AG (the 'Seller'), for a purchase
price of approximately $26.5 million (including the assumption of $2.6 million
of indebtedness and the issuance by Acquisition Corp. to the Seller of a
promissory note (the 'Kleinert Seller Note') in the principal amount of
$1,750,000). The Kleinert Seller Note matures on July 1, 1999 and bears interest
at a rate of 8%. The Kleinert Seller Note is guaranteed by Stellex Aerospace and
each of its subsidiaries.
The Stock Purchase Agreement entered into in connection with the Kleinert
Acquisition (the 'Kleinert Stock Purchase Agreement') contains representations
and warranties typical of agreements of like nature, including, without
limitation, those relating to corporate organization and authorization, good
title to Kleinert's capital stock, violations of law and defaults under material
contracts, third party consents, Kleinert's financial statements, tax,
environmental and intellectual property matters, the absence of undisclosed
liabilities, title to and condition of assets, litigation, compliance with laws,
insurance, employee benefit plans, inventory and required permits and licenses.
Pursuant to the Kleinert Stock Purchase Agreement, the Seller agreed to
indemnify Acquisition Corp. for all liabilities and other losses arising from,
among other things, any breach of the representations, warranties or covenants
of the Seller or Kleinert contained in the Kleinert Stock Purchase Agreement.
Indemnification claims must be brought by Acquisition Corp. prior to June 30,
1999, except with respect to breaches of certain representations relating to tax
matters, which may be brought any time prior to the applicable statute of
limitations. Acquisition Corp. has agreed to indemnify the Seller for all
liabilities (including without limitation liabilities for Taxes), and other
losses arising from, among other things, the operation or conduct of Stellex
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Aerospace's business after the Closing Date and the breach of any
representation, warranty or covenant of Acquisition Corp. contained in the
Kleinert Stock Purchase Agreement. Indemnification claims brought by the Seller
generally must be made prior to June 30, 1999. With certain limited exceptions
(e.g., fraud), neither the Seller nor Acquisition Corp. is required to indemnify
any other person unless the aggregate of all amounts for which indemnity would
otherwise be payable exceeds $100,000 (the 'Basket Amount') and, in such event,
the indemnifying party shall be responsible for all Indemnified Losses,
including those comprising the Basket Amount. In addition, the indemnification
obligations of each Acquisition Corp. and the Seller are generally limited to a
maximum of $1,750,000. Pursuant to the Kleinert Seller Note, and subject to
certain conditions and procedures, Acquisition Corp. may offset amounts due
under the Kleinert Seller Note by indemnification claims and other amounts owing
by the Seller to Acquisition Corp. under the Kleinert Stock Purchase Agreement.
Pursuant to an Agreement entered into in connection with the Kleinert
Acquisition (the 'Stellex Aerospace Investor Agreement'), six senior members of
Stellex Aerospace's management team (the 'Buyers,' and together with a member of
management who received SARs as described below, the 'Management Members')
purchased 19.9% of the issued and outstanding shares of KII Holding Corp. ('KII
Holding'), the parent holding company of Stellex Aerospace, for approximately
$800,000. In addition, an entity beneficially owned by trusts established for
the benefit of Messrs. Kramer and Remley and certain members of their families
purchased KII Holding's remaining common stock for approximately $3.1 million
and 84 shares of KII Holding's Series A Preferred Stock, having a stated value
of $10,000 per share (the 'Series A Preferred Stock'), for $840,000. Pursuant to
the Stellex Aerospace Investor Agreement, the Buyers also agreed to purchase
shares of KII Holding's Series B Preferred Stock with the net bonus payments
received by the Buyers under their respective participation plan agreements with
the Seller.
Pursuant to the Stellex Aerospace Investor Agreement, KII Holding granted
SARs to certain Management Members. KII Holding has the right to redeem (the
'Redemption Right') all, but not less than all, of any common stock held by any
Management Member and to cause a liquidation and termination of any SAR held by
him to KII Holding upon the occurrence of certain events, including the death,
disability or termination of the Management Member, and for any reason after
July 1, 2002. Moreover, the Stellex Aerospace Investor Agreement gives each
Management Member the right to cause KII Holding to purchase all, but not less
than all, of any common stock of KII Holding held by him and/or to cause KII
Holding to liquidate and terminate any SARs held by him (hereinafter referred to
as the 'Put Right') upon the occurrence of certain events, including such
Management Member's death, disability, termination Without Cause (as defined in
the Stellex Aerospace Investor Agreement) or scheduled retirement, and for any
reason after July 1, 2002. The applicable purchase price to be received by a
Management Member upon the exercise of a Redemption Right or Put Right is based
upon a formula set forth in the Stellex Aerospace Investor Agreement. To the
extent KII Holding is prohibited under the terms of its existing indebtedness
from making payment to any Management Member for any shares of its common stock
or vested SARs purchased or liquidated pursuant to the Stellex Aerospace
Investor Agreement, then it is required to issue a promissory note to such
Management Member for the amount owing. Such note shall be payable when and to
the extent KII Holding is permitted to make such payment and bear interest at a
rate of 10% per annum. Such note shall also be unsecured and subordinated to all
other indebtedness of KII Holding, including KII Holding's Guarantee of the
Notes.
The Stellex Aerospace Investor Agreement further provides that subsequent
to the closing of the Kleinert Acquisition, each Management Member will enter
into a five year employment agreement with KII Holding or one of its
subsidiaries. The Company has engaged an employee benefits firm to advise it in
structuring its overall compensation program and anticipates implementing such
program and entering into the employment agreements with the Management Members
at its earliest opportunity.
The foregoing summary of the material terms of the Kleinert Stock Purchase
Agreement, the Stellex Aerospace Investor Agreement and related matters does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all of the provisions of the Kleinert Stock Purchase Agreement and
the Stellex Aerospace Investor Agreement, including the definitions of certain
terms therein and exhibits and schedules thereto.
TRINITY NOTE
In connection with the Kleinert Acquisition, KII Holding issued a
promissory note (the 'Trinity Note') in the principal amount of $2,500,000 to
Trinity Investment Corp. ('Trinity'). Richard L. Kramer and William L. Remley
are executive officers and directors of Trinity, which is a subsidiary of
entities owned by trusts
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established for the benefit of certain relatives of Messrs. Kramer and Remley.
The outstanding principal and accrued interest on the Trinity Note was repaid
with a portion of the proceeds of the Initial Offering.
MANAGEMENT AGREEMENT WITH MENTMORE
Mentmore provides management services to Stellex and the Subsidiary
Guarantors pursuant to the Amended and Restated Management Advisory Services
Agreement effective as of November 1, 1997 (the 'Management Agreement'), between
Stellex, the Subsidiary Guarantors and Mentmore. Pursuant to the Management
Agreement, Mentmore provides Stellex and the Subsidiary Guarantors with general
management, advisory, consulting and other services with respect to the
Company's business, including, without limitation, strategic planning, financial
planning, accounting and financial reporting, consulting and assistance with
respect to traditional treasury functions, general business development
services, and oversight and review of tax preparation, planning and audits.
Under the terms of the Management Agreement, Mentmore receives customary
indemnification, reimbursement of certain costs and an annual management fee of
$750,000, which is payable monthly, plus, after the first anniversary of the
consummation of the Initial Offering, the amount by which 1% of the Company's
total consolidated sales in any fiscal year exceeds such fee. The Management
Agreement has a term of 10 years and is automatically extended for one
additional year as of December 31 of each year during the term of the agreement
unless either party shall have previously notified the other in writing on or
before September 30 of its desire not to further extend the term. In addition,
Mentmore may terminate the Management Agreement at any time upon 90 days prior
written notice to the other parties thereto, and such parties may terminate the
Management Agreement 'for cause' (as defined in the Management Agreement). The
sole executive officers and directors of Mentmore are Richard L. Kramer and
William L. Remley.
In connection with the Kleinert Acquisition, Mentmore received investment
banking fees of $450,000, and reimbursement for certain expenses. Mentmore
received total fees of $1,000,000 and the reimbursement of certain expenses in
connection with financial advisory and other services rendered to the Company in
connection with the W-J Acquisition and the Initial Offering. In addition,
Michael D. Schenker Co. L.P.A., whose principal is an officer of Mentmore,
received customary fees in connection with services rendered in connection with
the Transactions.
TAX SHARING AGREEMENT
The Company's liability for taxes will be determined based upon a tax
sharing agreement (the 'Tax Sharing Agreement') entered into among Stellex and
the Subsidiary Guarantors. Under the Tax Sharing Agreement, Stellex and its
subsidiaries will generally be responsible for federal taxes based upon the
amount that would be due if Stellex and its subsidiaries filed federal tax
returns as a separate affiliated group of corporations rather than as part of
Stellex's consolidated federal tax returns. The combined state tax liabilities
will be allocated to Stellex and its subsidiaries based on similar principles.
RELATIONSHIP WITH EQUITY INVESTORS
In connection with the consummation of the Transactions, certain equity
investments in the Company were made by trusts or other entities owned by
trusts, the beneficiaries of which are relatives of Richard L. Kramer and
William L. Remley. Such investments consisted of the purchase for cash of shares
of the Company's Series A Preferred Stock for an aggregate consideration of
$7,450,000 and its Common Stock for an aggregate consideration of $50,000. In
addition, a $4,000,000 promissory note (the 'Sunderland Note') issued to
Sunderland Industrial Holdings Corporation ('Sunderland') in connection with the
Kleinert Acquisition was exchanged, in connection with the consummation of the
Transactions, for shares of the Company's Series A Preferred Stock having an
aggregate stated value of $4,000,000. The Company's Series A Preferred Stock is
not mandatorily redeemable at the option of the holder, and dividends thereunder
are payable in cash or in kind at the option of the Company's Board of
Directors, subject to restrictions under the Indenture. Richard L. Kramer and
William L. Remley are the principal executive officers and directors of
Sunderland, whose outstanding capital stock is held by trusts, the beneficiaries
of which are certain relatives of Messrs. Kramer and Remley.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information concerning the beneficial
ownership of Stellex's Common Stock as of December 1, 1997 by (i) each person
known to the Company to own beneficially more than 5% of Stellex's outstanding
Common Stock, (ii) by each director, executive officer and key employee of the
Company and (iii) all such directors, executive officers and key employees as a
group. All shares are owned with sole voting and investment power, unless
otherwise indicated.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY
OWNED
-------------
BENEFICIAL OWNER SHARES %
- ------------------------------------------------------------------------------- ------ ---
<S> <C> <C>
Cottingham Trust (1996)(a)..................................................... 900 90
Askrigg Trust (1996)(b)........................................................ 100 10
Richard L. Kramer.............................................................. 900 (c) 90
William L. Remley.............................................................. 1,000 (d) 100
P. Roger Byer.................................................................. -- --
Keith D. Gilbert............................................................... -- --
Bradley C. Call................................................................ -- --
Timothy L. Boland.............................................................. -- --
John L. Martin................................................................. -- --
Kevin R. Hunter................................................................ -- --
Eric F. Richardson............................................................. -- --
Julius E. Hodge................................................................ -- --
Total Executive Officers and Directors as a Group.............................. 1,000 100
</TABLE>
- ------------------
(a) The pool of contingent beneficiaries of Cottingham Trust (1996)
('Cottingham') is comprised of Richard L. Kramer and certain members of his
family. The trustees of Cottingham are Alhambra Holdings (Trustees) Inc.
('Alhambra') and William L. Remley. All powers with respect to investment or
voting of securities owned by Cottingham are exercisable by Mr. Remley. All
powers with respect to selection and removal of the beneficiaries of
Cottingham are exercisable by Alhambra. The administrative office address of
Cottingham and Alhambra is 2 Alhambra Plaza, Suite 1202, Coral Gables, FL
33134. Mr. Kramer, the Chairman of the Board of Directors and a director of
Stellex and the Subsidiary Guarantors, and Mr. Remley, Vice Chairman, Chief
Executive Officer and a director of Stellex and Vice Chairman and a director
of the Subsidiary Guarantors, are the sole executive officers and directors
of Mentmore, which provides management services to the Company.
(b) The pool of contingent beneficiaries of Askrigg Trust (1996) ('Askrigg') is
comprised of William L. Remley and certain members of his family. The
trustees of Askrigg are Richard L. Kramer and Gary R. Siegel. All powers
with respect to investment or voting of securities owned by Askrigg are
exercisable by Mr. Siegel. All powers with respect to selection and removal
of the beneficiaries of Askrigg are exercisable by Mr. Kramer. The
administrative office address of Askrigg is 201 Crandon Blvd., Apt. 643, Key
Biscayne, FL 33149, and an address of Mr. Siegel is c/o Mentmore Holdings
Corporation, 1430 Broadway, 13th Floor, New York, NY 10018-3308. Mr. Kramer,
the Chairman of the Board of Directors and a director of Stellex and the
Subsidiary Guarantors, and Mr. Remley, Vice Chairman, Chief Executive
Officer and a director of Stellex and Vice Chairman and a director of the
Subsidiary Guarantors, are the sole executive officers and directors of
Mentmore, which provides management services to the Company.
(c) Comprised of 900 shares of Stellex's Common Stock held of record by
Cottingham, as to which Mr. Kramer disclaims beneficial ownership. See
footnote (a) above.
(d) Comprised of 900 and 100 shares of Stellex's Common Stock held of record by
Cottingham and Askrigg, respectively, as to which Mr. Remley disclaims
beneficial ownership. See footnotes (a) and (b) above.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW CREDIT FACILITIES
Upon consummation of the Initial Offering, Stellex and its direct and
indirect subsidiaries (each a 'Borrower' and collectively, the 'Borrowers')
entered into a credit agreement (the 'New Credit Facilities') with Societe
Generale, as administrative agent (the 'Agent') for a syndicate of financial
institutions (the 'Lenders'). The following summary, which sets forth the
expected material terms of the New Credit Facilities, does not purport to be
complete and is subject to, and qualified by reference to, all of the provisions
of the New Credit Facilities, including all of the definitions therein of terms
not defined in this Prospectus.
General. The New Credit Facilities provide for borrowings in a principal
amount at any one time outstanding of up to $25.0 million under a revolving
credit facility (the 'Revolving Credit Facility') and $25.0 million under an
acquisition facility (the 'Acquisition Facility'). Borrowings under the
Revolving Credit Facility may be used to provide for working capital and other
general corporate purposes. Borrowings under the Acquisition Facility may be
used to fund future acquisitions on terms and conditions satisfactory to the
Lenders. Borrowings under the New Credit Facilities are collectively referred to
herein as the 'Loans.' See 'Capitalization' and 'Management's Discussion and
Analysis of Financial Condition and Results of Operations.'
Interest. For purposes of calculating interest, the Loans can be, at the
election of the relevant Borrower, Base Rate Loans or Eurodollar Rate Loans or a
combination thereof. Base Rate Loans under the Revolving Credit Facility bear
interest at Societe Generale's base rate plus 1%, and Eurodollar Rate Loans
under the Revolving Credit Facility bear interest at Societe Generale's
Eurodollar Rate plus 2%. Base Rate Loans under the Acquisition Facility bear
interest at Societe Generale's base rate plus 1.25%, and Eurodollar Rate Loans
under the Acquisition Facility bear interest at Societe Generale's Eurodollar
Rate plus 2.25%. The foregoing interest rates are effective through June 30,
1998, and thereafter are subject to adjustment based upon the Leverage Ratio (as
defined in the New Credit Facilities). Interest is payable monthly for Base Rate
Loans and at the end of each interest payment period, but not less frequently
than quarterly, for Eurodollar Rate Loans.
Availability and Repayment. Subject to the provisions of the New Credit
Facilities, the Borrowers may, from time to time, borrow, repay and reborrow
under the Revolving Credit Facility, subject to a borrowing base consisting of
the aggregate sum of 85% of eligible accounts receivable and 50% of eligible
inventories. Subject to the provisions of the New Credit Facilities, borrowings
under the Acquisition Facility may be made up to the full amount available
thereunder until the second anniversary of the closing of the New Credit
Facilities, subject to certain financial and non-financial conditions
satisfactory to the Lenders. At the second anniversary of the Closing Date (as
defined in the New Credit Facilities), all amounts borrowed under the
Acquisition Facility will convert to a term loan which will be repayable in 15
substantially equal quarterly installments of 4.17% of the outstanding Term Loan
Amount (as defined in the New Credit Facilities) commencing on February 1, 1999
and continuing through and including August 1, 2003, followed by a final payment
of all remaining unpaid amounts on the Maturity Date (as defined in the New
Credit Facilities). Borrowings under the Acquisition Facility will permanently
reduce by such amount the availability for further borrowings under the
Acquisition Facility, and amounts repaid under the Acquisition Facility may not
be reborrowed. The New Credit Facilities require, subject to certain exceptions,
prepayments in the amount of 50% of Excess Cash Flow (as defined in the New
Credit Facilities), 100% of net cash proceeds from certain asset sales, and 100%
of net cash proceeds from offerings of debt and/or equity securities, with such
prepayments to be applied pro rata to the remaining maturities of acquisition
loans. The entire unpaid balance under the New Credit Facilities is payable on
the sixth anniversary of the closing thereof.
Security. Borrowings under the New Credit Facilities are secured, for the
ratable benefit of the Lenders, by (i) a first priority perfected security
interest in favor of First Union Commercial Corporation, as collateral agent
(the 'Collateral Agent'), in (a) all of the capital stock of the Company's
direct and indirect subsidiaries owned by the Company and (b) all present and
future tangible and intangible property and interests in property of the Company
and its direct and indirect subsidiaries (other than certain real property owned
by Paragon (the 'Paragon Real Estate')) and (ii) a second priority perfected
mortgage on the Paragon Real Estate in favor of the Collateral Agent.
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Guarantees. Each Borrower's payment obligations under the New Credit
Facilities is jointly and severally guaranteed, on a senior secured basis, by
each other Borrower and Stellex's future direct and indirect subsidiaries.
Covenants. The New Credit Facilities contain financial covenants pursuant
to which the Company and its direct and indirect subsidiaries must, on a
consolidated basis, maintain (i) a Minimum Fixed Charge Coverage Ratio (as
defined in the New Credit Facilities); (ii) a Minimum Interest Coverage Ratio
(as defined in the New Credit Facilities); (iii) a Minimum Net Worth (as defined
in the New Credit Facilities) and (iv) a Maximum Leverage Ratio (as defined in
the New Credit Facilities).
In addition, the New Credit Facilities contain covenants pertaining to the
management and operation of the Company and its subsidiaries. These covenants
include, among others, requirements that each of the Company and its
subsidiaries (i) preserve its corporate existence and not amend its charter or
by-laws; (ii) maintain adequate insurance coverage; (iii) maintain its
properties and all necessary licenses, permits and intellectual property; (iv)
perform its obligations under leases, related documents, material contracts and
other agreements; and (v) comply with applicable laws and regulations, including
those related to tax, employee, pension and environmental matters.
The New Credit Facilities also subject the Company and its subsidiaries to
significant limitations on indebtedness, guarantees, capital expenditures, liens
or encumbrances, mergers, consolidations, divestitures, acquisitions,
investments, capital contributions, joint ventures, partnerships, creation of
new subsidiaries, changes of business, loans and advances, dividends and other
stock payments, repurchases or redemptions of equity, asset sales or transfers,
leases, voluntary prepayments or repurchases or redemptions of debt,
transactions with affiliates, management fees, and changes in accounting
treatment.
Events of Default. The New Credit Facilities provide for events of default
customarily found in facilities of this type, including: (i) failure to pay
principal or interest or fees when due; (ii) any representation or warranty
proving to have been materially incorrect when made; (iii) failure to perform or
observe covenants after any applicable grace period; (iv) cross-defaults to
other material indebtedness; (v) bankruptcy defaults; (vi) material judgment
defaults; (vii) change of control; (viii) ERISA defaults; (ix) any loan document
ceasing to be in full force and effect and (x) any interest created by the
related security documents ceasing to be enforceable and of the same effect and
priority purported to be created thereby.
KLEINERT SELLER NOTE
In connection with the Kleinert Acquisition, KII Acquisition Corp.
('Acquisition Corp.'), an indirect 80% owned subsidiary of Stellex, issued the
Kleinert Seller Note to Kleinert Industrie Holding AG, the former owner of
Stellex Aerospace. The principal amount of the Kleinert Seller Note is
$1,750,000, it matures on July 1, 1999 and it bears interest at a rate of 8%.
The Kleinert Seller Note is guaranteed by Stellex Aerospace and each of its
subsidiaries. Subject to certain conditions, Acquisition Corp. may offset
amounts due under the Kleinert Seller Note by indemnification claims and other
amounts owing by the Seller to Acquisition Corp. under the Kleinert Stock
Purchase Agreement. Interest on the principal amount of the Kleinert Seller
Note, as adjusted by any offset permitted thereunder, is payable annually in
arrears.
PARAGON NOTE
Paragon is the obligor under a promissory note (the 'Paragon Note') payable
to Farm Bureau Life Insurance Company in the original principal amount of
$2,850,000. The Paragon Note matures on December 1, 2001 and bears interest at a
rate of 7.875% per annum. The Paragon Note is secured by a security interest in
certain real property, and related fixtures and personal property, located at
Paragon's facility in Valencia, California. The Paragon Note is guaranteed on a
secured basis by Stellex Aerospace.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company to the Initial Purchasers
pursuant to the Purchase Agreement. The Initial Purchasers subsequently resold
the Old Notes to qualified institutional buyers in reliance on Rule 144A under
the Securities Act and to a limited number of accredited investors (as defined
in Rule 501(A)(1), (2), (3) or (7) under the Securities Act). As a condition to
the Purchase Agreement, the Company and the Subsidiary Guarantors entered into
the Registration Rights Agreement with the Initial Purchasers pursuant to which
the Company and the Subsidiary Guarantors have agreed, for the benefit of the
holders of the Old Notes, at the Company's cost, to (i) file the Exchange Offer
Registration Statement within 45 days after the date of the original issue of
the Old Notes with the Commission with respect to the Exchange Offer for the New
Notes; (ii) use their reasonable best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act within
120 days after the date of the original issuance of the Old Notes and (iii)
unless the Exchange Offer would not be permitted by applicable law or Commission
policy, commence the Exchange Offer and use their reasonable best efforts to
issue as soon as practicable, but in any event prior to 165 days after the date
of the original issue of the Old Notes, New Notes in exchange for all Old Notes
tendered prior thereto in the Exchange Offer. Upon the Exchange Offer
Registration Statement being declared effective, the Company will offer the New
Notes in exchange for surrender of the Old Notes. The Company will keep the
Exchange Offer open for not less than 20 business days (or longer if required by
applicable law) after the date on which notice of the Exchange Offer is mailed
to the holders of the Old Notes. For each Old Note surrendered to the Company
pursuant to the Exchange Offer, the holder of such Old Note will receive a New
Note having a principal amount equal to that of the surrendered Old Note. Each
New Note will bear interest from its issuance date. Holders of Old Notes that
are accepted for exchange will receive, in cash, accrued interest thereon to,
but not including, the issuance date of the New Notes. Such interest will be
paid with the first interest payment on the New Notes. Interest on the Old Notes
accepted for exchange will cease to accrue upon issuance of the New Notes.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the New Notes will in general be
freely tradeable after the Exchange Offer without further registration under the
Securities Act. However, any purchaser of Old Notes who is an 'affiliate' of the
Company or who intends to participate in the Exchange Offer for the purpose of
distributing the New Notes (i) will not be able to rely on the interpretation of
the staff of the Commission, (ii) will not be able to tender its Old Notes in
the Exchange Offer and (iii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or
transfer of the Old Notes, unless such sale or transfer is made pursuant to an
exemption from such requirements.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (i) the New Notes are to be
acquired by the holder or the person receiving such New Notes, whether or not
such person is the holder, in the ordinary course of business, (ii) the holder
or any such other person (other than a broker-dealer referred to in the next
sentence) is not engaging, and does not intend to engage, in a distribution of
the New Notes, (iii) the holder or any such other person has no arrangement or
understanding with any person to participate in the distribution of the New
Notes, (iv) neither the holder nor any such other person is an 'affiliate' of
the Company within the meaning of Rule 405 under the Securities Act, and (v) the
holder or any such other person acknowledges that if such holder or any other
person participates in the Exchange Offer for the purpose of distributing the
New Notes it must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale of the New
Notes and cannot rely on those no-action letters. Each Participating
Broker-Dealer that receives New Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such Participating Broker-Dealer as
a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. See 'Plan of Distribution.'
Upon the effectiveness of the Exchange Offer Registration Statement, the
Company will offer to the holders of Transfer Restricted Securities who are able
to make certain representations the opportunity pursuant to the Exchange Offer
to exchange their Transfer Restricted Securities for New Notes. If (i) any
change in law or
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applicable interpretations of the staff of the Commission do not permit the
Company to effect the Exchange Offer or (ii) any Holder (A) is not eligible to
participate in the Exchange Offer, (B) participates in the Exchange Offer and
does not receive freely tradeable New Notes in exchange for tendered Old Notes
or (C) is a broker-dealer and owns Old Notes acquired directly from the Company
or an affiliate of the Company, the Company will file with the Commission a
Shelf Registration Statement on or prior to the 30th day after such filing
obligation arises to cover resales of Transfer Restricted Securities by the
Holders thereof who satisfy certain conditions relating to, among other things,
the provision of information in connection with the Shelf Registration
Statement. The Company will use its reasonable best efforts to cause the
applicable registration statement to be declared effective as promptly as
possible by the Commission. For purposes of the foregoing, 'Transfer Restricted
Securities' means each Note until the earliest to occur of (i) the date on which
such Note has been exchanged by a person other than a broker-dealer for a New
Note in the Exchange Offer, (ii) the date on which such Note has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (iii) the date on which such Note is
distributed to the public pursuant to Rule 144 under the Securities Act or is
saleable pursuant to Rule 144(k) under the Securities Act.
The Company will, in the event of the filing of the Shelf Registration
Statement, provide to each holder of Old Notes covered thereby copies of the
prospectus which is a part of the Shelf Registration Statement, notify each such
holder when the Shelf Registration Statement has become effective and take
certain other actions as are required to permit unrestricted resale of the Old
Notes. A holder of the Old Notes that sells such Old Notes pursuant to the Shelf
Registration Statement generally would be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such a
holder (including certain indemnification obligations).
The Registration Rights Agreement provides that (i) the Company will file
an Exchange Offer Registration Statement with the Commission on or prior to 45
days after the closing date of the Initial Offering (the 'Closing Date'), (ii)
the Company will use its reasonable best efforts to have the Exchange Offer
Registration Statement declared effective by the Commission on or prior to 120
days after the Closing Date, (iii) unless the Exchange Offer would not be
permitted by applicable law or Commission policy, the Company will commence the
Exchange Offer and use its reasonable best efforts to issue as soon as
practicable, but in any event prior to 165 days after the Closing Date, New
Notes in exchange for all Old Notes tendered prior thereto in the Exchange Offer
and (iv) if obligated to file the Shelf Registration Statement, the Company will
use its reasonable best efforts to file the Shelf Registration Statement with
the Commission on or prior to 30 days after such filing obligation arises and to
cause the Shelf Registration Statement to be declared effective by the
Commission on or prior to 60 days after such obligation arises. If (a) the
Company fails to file any of the Registration Statements required by the
Registration Rights Agreement on or before the date specified for such filing,
(b) the Exchange Offer Registration Statement is not declared effective within
120 days after the Closing Date or the Shelf Registration Statement is not
declared effective on or prior to the 60th day after the shelf filing deadline,
(c) the Exchange Offer is not consummated on or prior to 165 days after the
Closing Date or (d) the Shelf Registration Statement is filed and declared
effective on or prior to the date specified for such effectiveness, but shall
thereafter cease to be effective (at any time that the Company is obligated to
maintain the effectiveness thereof) without being succeeded within 45 days by an
additional Registration Statement filed and declared effective (each such event
referred to in clauses (a) through (d) above, a 'Registration Default'), then
the Company will pay liquidated damages ('Liquidated Damages') to each Holder of
Transfer Restricted Securities, with respect to the first 90-day period
immediately following the occurrence of the first Registration Default in an
amount equal to $.05 per week per $1,000 principal amount of Notes that
constitute Transfer Restricted Securities held by such holder until the
applicable Registration Statement is filed or declared effective, the Exchange
Offer is consummated or the Shelf Registration Statement again becomes
effective. The amount of the Liquidated Damages will increase by an additional
$.05 per week per $1,000 principal amount of Notes with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages of $.20 per week per $1,000 principal
amount of Notes. All accrued Liquidated Damages will be paid by the Company in
the same manner as interest payments on the Notes on semi-annual payment dates
which correspond to interest payment dates for the Notes. Following the cure of
all Registration Defaults, the accrual of Liquidated Damages will cease.
Notwithstanding the foregoing, the Company may issue a notice that the Shelf
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Registration Statement is no longer effective or that the Prospectus included
therein is unusable pending the announcement of a material corporate transaction
and, in the event that the aggregate number of days in any consecutive
twelve-month period for which all such notices are issued and effective does not
exceed 45 days in the aggregate, then Liquidated Damages will not be payable as
described above as a result of such suspension.
Holders of Old Notes will be required to make certain representations (as
described in the Registration Rights Agreement) in order to participate in the
Exchange Offer and will be required to deliver information to be used in
connection with the Shelf Registration Statement within the time periods set
forth in the Registration Rights Agreement in order to have their Old Notes
included in the Shelf Registration Statement and benefit from the provisions
regarding Liquidated Damages set forth above.
The summary herein of certain provisions of the Registration Rights
Agreement, which contains the material terms relating to the registration rights
and related obligations of Holders of Old Notes, does not purport to be complete
and is subject to, and is qualified in its entirety by, all the provisions of
the Registration Rights Agreement, a copy of which is filed as an exhibit to the
Exchange Offer Registration Statement of which this Prospectus is a part.
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old Notes
will continue to be subject to certain restrictions on transfer. Accordingly,
the liquidity of the market for such Old Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of New Notes
in exchange for each $1,000 principal amount of Old Notes accepted in the
Exchange Offer. Holders may tender some or all of their Old Notes pursuant to
the Exchange Offer. However, Old Notes may be tendered only in integral
multiples of $1,000.
The form and terms of the New Notes are the same as the form and terms of
the Old Notes except that (i) the New Notes bear a Series B designation and a
different CUSIP number from the Old Notes, (ii) the New Notes have been
registered under the Securities Act and hence will not bear legends restricting
the transfer thereof and (iii) the holders of the New Notes will not be entitled
to certain rights under the Registration Rights Agreement, including the
provisions providing for the payment of Liquidated Damages in certain
circumstances relating to the timing of the Exchange Offer, all of which rights
will terminate when the Exchange Offer is terminated. The New Notes will
evidence the same debt as the Old Notes and will be entitled to the benefits of
the Indenture.
As of the date of this Prospectus, $100,000,000 aggregate principal amount
of Old Notes were outstanding. The Company has fixed the close of business on
, 1998 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than transfer taxes in certain circumstances, in connection with the
Exchange Offer. See '--Fees and Expenses.'
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EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term 'Expiration Date' shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company in its sole discretion extends the
Exchange Offer, in which case the term 'Expiration Date' shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will issue a notice of
such extension by press release or other public announcement prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date.
The Company reserves the right, in its sole discretion, prior to the
Expiration Date (i) to delay accepting any Old Notes, to extend the Exchange
Offer or to terminate the Exchange Offer if any of the conditions set forth
below under 'Conditions' shall not have been satisfied, by giving oral or
written notice of such delay, extension or termination to the Exchange Agent or
(ii) to amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the registered holders.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Old
Notes and any other required documents, to the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date. To be tendered effectively,
the Old Notes, Letter of Transmittal or an Agent's Message in connection with a
book-entry transfer and other required documents must be completed and received
by the Exchange Agent at the address set forth below under 'Exchange Agent'
prior to 5:00 p.m., New York City time, on the Expiration Date. Delivery of the
Old Notes may be made by book-entry transfer in accordance with the procedures
described below. Confirmation of such book-entry transfer must be received by
the Exchange Agent prior to the Expiration Date.
The term 'Agent's Message' means a message, transmitted by a book-entry
transfer facility to, and received by, the Exchange Agent forming a part of a
confirmation of a book-entry transfer, which states that such book-entry
transfer facility has received an express acknowledgment from the participant in
such book-entry transfer facility tendering the Notes that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal and
that the Company may enforce such agreement against such participant.
By executing the Letter of Transmittal, each holder will make the
representations set forth above in the third paragraph under the heading
'--Purpose and Effect of the Exchange Offer.'
Each Participating Broker-Dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See 'Plan of Distribution.'
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK
OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALER, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
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registered holder to tender on such beneficial owner's behalf. See 'Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner' included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined) unless
the Old Notes tendered pursuant thereto are tendered (i) by a registered holder
who has not completed the box entitled 'Special Registration Instructions' or
'Special Delivery Instructions' on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a member firm of the Medallion System (an
'Eligible Institution').
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Old Notes
with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Old Notes at DTC for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution that is a
participant in DTC's system may make book-entry delivery of Old Notes by causing
DTC to transfer such Old Notes into the Exchange Agent's account with respect to
the Old Notes in accordance with DTC's procedures for such transfer. Although
delivery of the Old Notes may be effected through book-entry transfer into the
Exchange Agent's account at DTC, an appropriate Letter of Transmittal properly
completed and duly executed with any required signature guarantee and all other
required documents must in each case be transmitted to and received or confirmed
by the Exchange Agent at its address set forth below on or prior to the
Expiration Date, or, if the guaranteed delivery procedures described below are
complied with, within the time period provided under such procedures. Delivery
of documents to DTC does not constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right in its sole discretion to waive
any defects, irregularities or conditions of tender as to particular Old Notes.
The Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old Notes received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through an Eligible Institution,
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand
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delivery) setting forth the name and address of the holder, the certificate
number(s) of such Old Notes and the principal amount of Old Notes tendered,
stating that the tender is being made thereby and guaranteeing that, within
three New York Stock Exchange trading days after the Expiration Date, the
Letter of Transmittal (or facsimile thereof) together with the
certificate(s) representing the Old Notes (or a confirmation of book-entry
transfer of such Notes into the Exchange Agent's account at DTC), and any
other documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at DTC), and
all other documents required by the Letter of Transmittal are received by
the Exchange Agent upon three New York Stock Exchange trading days after
the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
'Depositor'); (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case of
Old Notes transferred by book-entry transfer, the name and number of the account
at the DTC to be credited); (iii) be signed by the holder in the same manner as
the original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Old Notes are
to be registered, if different from that of the Depositor. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for purposes of the Exchange Offer and no New Notes will
be issued with respect thereto unless the Old Notes so withdrawn are validly
retendered. Any Old Notes which have been tendered but which are not accepted
for exchange will be returned to the holder thereof without cost to such holder
as soon as practicable after withdrawal, rejection of tender or termination of
the Exchange Offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described above under '--Procedures for Tendering' at any
time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange New Notes for, any Old Notes,
and may terminate or amend the Exchange Offer as provided herein prior to the
Expiration Date, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer or any
material adverse development has occurred in any existing action or
proceeding with respect to the Company or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
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(c) any governmental approval has not been obtained, which approval
the Company shall, in its reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable discretion that any of the
above conditions are not satisfied, the Company may (i) refuse to accept any Old
Notes and return all tendered Old Notes to the tendering holders, (ii) extend
the Exchange Offer and retain all Old Notes tendered prior to the expiration of
the Exchange Offer, subject, however, to the rights of holders to withdraw such
Old Notes (see '--Withdrawal of Tenders') or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn.
EXCHANGE AGENT
Marine Midland Bank has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
<TABLE>
<S> <C>
By Mail: By Overnight Courier:
MARINE MIDLAND BANK MARINE MIDLAND BANK
140 Broadway--Level A 140 Broadway--Level A
New York, New York 10005-1180 New York, New York 10005-1180
Attention: Corporate Trust Services Attention: Corporate Trust Services
(registered or certified mail recommended)
By Hand: Facsimile Transmission:
MARINE MIDLAND BANK (212) 658-2292
140 Broadway--Level A Confirm by Telephone:
New York, New York 10005-1180 (212) 658-5931
Attention: Corporate Trust Services
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is face value, as reflected in the Company's accounting records on the
date of exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The expenses of the Exchange Offer will be expensed
over the term of the New Notes.
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CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for New Notes pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such Old Notes may be
resold only (i) to the Company (upon redemption thereof or otherwise), (ii) so
long as the Old Notes are eligible for resale pursuant to Rule 144A, to a person
inside the United States whom the seller reasonably believes is a qualified
institutional buyer within the meaning of Rule 144A under the Securities Act in
a transaction meeting the requirements of Rule 144A, (iii) in accordance with
Rule 144 under the Securities Act, or pursuant to another exemption from the
registration requirements of the Securities Act (and based upon an opinion of
counsel reasonably acceptable to the Company), (iv) outside the United States to
a foreign person in a transaction meeting the requirements of Rule 904 under the
Securities Act, or (v) pursuant to an effective registration under the
Securities Act, in each case in accordance with any applicable securities laws
of any state of the United States.
RESALE OF THE NEW NOTES
With respect to resales of New Notes, based on interpretations by the staff
of the Commission set forth in no-action letters issued to third parties, the
Company believes that a holder or other person who receives New Notes, whether
or not such person is the holder (other than a person that is an 'affiliate' of
the Company within the meaning of Rule 405 under the Securities Act) who
receives New Notes in exchange for Old Notes in the ordinary course of business
and who is not participating, does not intend to participate, and has no
arrangement or understanding with any person to participate, in the distribution
of the New Notes, will be allowed to resell the New Notes to the public without
further registration under the Securities Act and without delivering to the
purchasers of the New Notes a prospectus that satisfies the requirements of
Section 10 of the Securities Act. However, if any holder acquires New Notes in
the Exchange Offer for the purpose of distributing or participating in a
distribution of the New Notes, such holder cannot rely on the position of the
staff of the Commission enunciated in such no-action letters or any similar
interpretive letters, and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction, unless an exemption from registration is otherwise available.
Further, each Participating Broker-Dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (i) the New Notes are to be
acquired by the holder or the person receiving such New Notes, whether or not
such person is the holder, in the ordinary course of business, (ii) the holder
or any such other person (other than a broker-dealer referred to in the next
sentence) is not engaging, and does not intend to engage, in the distribution of
the New Notes, (iii) the holder of any such other person has no arrangement or
understanding with any person to participate in the distribution of the New
Notes, (iv) neither the holder nor any such other person is an 'affiliate' of
the Company within the meaning of Rule 405 under the Securities Act, and (v) the
holder of any such other person acknowledges that if such holder or other person
participates in the Exchange Offer for the purpose of distributing the New Notes
it most comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale of the New Notes and cannot rely on
those no-action letters. As indicated above, each Participating Broker-Dealer
that receives a New Note for its own account in exchange for Old Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. For a description of the procedures for such resales by
Participating Broker-Dealers, see 'Plan of Distribution.'
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<PAGE>
DESCRIPTION OF NOTES
GENERAL
The New Notes are to be issued under an Indenture, dated as of October 31,
1997 (the 'Indenture'), between the Company, the Subsidiary Guarantors and
Marine Midland Bank, as Trustee (the 'Trustee').
The form and terms of the New Notes are the same as the form and terms of
the Old Notes (which they replace) except that (i) the New Notes bear a Series B
designation, (ii) the New Notes have been registered under the Securities Act
and, therefore, will not bear legends restricting the transfer thereof, and
(iii) the holders of New Notes will not be entitled to certain rights under the
Registration Rights Agreement, including the provisions providing for an
increase in the interest rate on the Old Notes in certain circumstances relating
to the timing of the Exchange Offer, which rights will terminate when the
Exchange Offer is consummated.
The following summary of the material provisions of the Indenture and the
New Notes does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part thereof by the
TIA. The New Notes are subject to all such terms, and holders of the New Notes
are referred to the Indenture and the TIA for a statement of them. A copy of the
Indenture has been filed as an exhibit to the Exchange Offer Registration
Statement of which this Prospectus is a part. See 'Available Information.'
Capitalized terms used herein and not otherwise defined have the meanings set
forth under '--Certain Definitions.' For purposes of this summary, the term
'Company' refers only to Stellex Industries, Inc. and not to any of its
Subsidiaries. The Old Notes and the New Notes are sometimes referred to herein
collectively as the 'Notes.'
Principal of, premium, if any, and interest and Liquidated Damages, if any,
on the Notes will be payable, and the Notes may be exchanged or transferred, at
the office or agency of the Company in the Borough of Manhattan, The City of New
York (which initially shall be the corporate trust office of the Trustee, at 140
Broadway--Level A, New York, New York 10005-1180), except that, at the option of
the Company, payment of interest and Liquidated Damages, if any, may be made by
check mailed to the registered holders of the Notes at their registered
addresses.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
The definition of 'Restricted Subsidiary' in the Indenture excludes any
'Unrestricted Subsidiary' and, as a result, Unrestricted Subsidiaries generally
will not be bound by the restrictive provisions of the Indenture and will not be
Subsidiary Guarantors. As of the Issue Date, all of the Company's Subsidiaries
were Restricted Subsidiaries.
TERMS OF THE NOTES
The Notes will be unsecured, senior subordinated obligations of the
Company, will be guaranteed on a senior subordinated basis by the Subsidiary
Guarantors, will be limited to $100 million aggregate principal amount and will
mature on November 1, 2007. Each Note will bear interest at a rate of 9 1/2% per
annum from the most recent date to which interest has been paid or provided for
or, if no interest has been paid or provided for, from the date of original
issuance. Interest is payable semi-annually in arrears on May 1 and November 1,
commencing May 1, 1998, to holders of record of the Notes at the close of
business on the immediately preceding April 15 and October 15, respectively.
Interest on the Notes will be computed on the basis of a 360-day year of twelve
30-day months.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole or in part,
at any time on or after November 1, 2002, and prior to maturity, upon not less
than 30 nor more than 60 days' prior notice mailed by first-class mail to each
Holder's registered address, at the following redemption prices (expressed as a
percentage of principal amount), plus accrued and unpaid interest and Liquidated
Damages, if any, to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the 12-month period commencing on
November 1 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- ----------------------------------------------------------------------- ----------
<S> <C>
2002................................................................... 104.750%
2003................................................................... 103.167%
2004................................................................... 101.583%
2005 and thereafter.................................................... 100.000%
</TABLE>
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<PAGE>
In addition, at any time and from time to time prior to November 1, 2000,
the Company may redeem in the aggregate up to 35% of the aggregate principal
amount of the Notes originally issued, with the proceeds of one or more Public
Equity Offerings at a redemption price (expressed as a percentage of principal
amount thereof) of 109.50% of the aggregate principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if any, to the redemption
date (subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided, however,
that at least 65% of the aggregate principal amount of the Notes originally
issued remains outstanding after each such redemption.
In addition, at any time prior to November 1, 2002, the Company may, at its
option, redeem the Notes, in whole but not in part, at a redemption price equal
to 100% of the principal amount thereof plus the applicable Make-Whole Premium.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount will be
redeemed in part. If any Note is to be redeemed in part only, the notice of
redemption relating to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note.
GUARANTEES
Each Subsidiary Guarantor fully and unconditionally guarantees, jointly and
severally, to each Holder and the Trustee, on a senior subordinated basis, the
full and prompt payment of principal of and interest on the Notes, and of all
other obligations of the Company under the Indenture.
The Indebtedness evidenced by each Subsidiary Guarantee (including the
payment of principal of, premium, if any, and interest on the Notes) will be
subordinated to Guarantor Senior Indebtedness on the same basis as the Notes are
subordinated to Senior Indebtedness. As of September 30, 1997, on a pro forma
basis after giving effect to the Transactions, there would have been
approximately $2.6 million of Guarantor Senior Indebtedness (exclusive of the
guarantees of the New Credit Facility). Although the Indenture contains
limitations on the amount of additional Indebtedness that the Company's
Restricted Subsidiaries, including the Subsidiary Guarantors, may incur, under
certain circumstances the amount of such Indebtedness could be substantial and,
in any case, such Indebtedness may be Guarantor Senior Indebtedness. See
'--Ranking and Subordination' and 'Certain Covenants--Limitation on Indebtedness
and Preferred Stock' below.
The obligations of each Subsidiary Guarantor are limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor (including, without limitation, any
guarantees under the New Credit Facility) and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Subsidiary Guarantee or pursuant to its contribution obligations under the
Indenture, result in the obligations of such Subsidiary Guarantor under the
Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law.
No Subsidiary Guarantor may consolidate with or merge with or into any
Person other than the Company or any other Subsidiary Guarantor or sell
substantially all of its assets unless: (i) subject to the provisions of the
following paragraph, the entity formed by or surviving any such consolidation or
merger (if other than the Subsidiary Guarantor) or to which such sale, lease,
conveyance or other disposition shall have been made is a corporation organized
and existing under the laws of the United States or any State thereof or the
District of Columbia; (ii) subject to the provisions of the following paragraph,
such entity assumes by supplemental indenture all of the obligations of the
Subsidiary Guarantor under the Indenture and the Subsidiary Guarantee; (iii)
immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; and (iv) immediately after giving
pro forma effect to such transaction either (A) the Company would have been able
to incur $1.00 of additional Indebtedness pursuant to paragraph (a) of the
covenant 'Limitation on Indebtedness and Preferred Stock' or (B) the Company's
Consolidated Coverage Ratio would be no less than such Consolidated Coverage
Ratio immediately prior to such transaction. Notwithstanding the foregoing, each
Subsidiary Guarantor may consolidate with or merge into or sell its assets to
the Company or another Subsidiary Guarantor.
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<PAGE>
Upon (i) the release by the lenders under the New Credit Facility, related
documents and future refinancings thereof of all guarantees of a Subsidiary
Guarantor and all Liens on the property and assets of such Subsidiary Guarantor
relating to such guarantees, or (ii) the sale or other disposition of all of the
assets of any Subsidiary Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the Capital Stock of any
Subsidiary Guarantor, in each case in accordance with the terms of the
Indenture, then such Subsidiary Guarantor (in the event of a sale or other
disposition, by way of such a merger, consolidation or otherwise, of all the
Capital Stock of such Subsidiary Guarantor) or the corporation acquiring the
property (in the event of a sale or other disposition of all or substantially
all of the assets of such Subsidiary Guarantor) shall be deemed released from
all of its obligations under the Indenture and the Subsidiary Guarantee;
provided that the Net Available Cash from such sale or other disposition is
applied in accordance with the applicable provisions of the Indenture. See
'--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock.'
RANKING AND SUBORDINATION
The payment of the principal of, premium (if any), and interest and
Liquidated Damages, if any, on the Notes is subordinated in right of payment, as
set forth in the Indenture, to the prior payment in full in cash of all Senior
Indebtedness of the Company, whether outstanding on the Issue Date or thereafter
incurred. However, payment from the money or the proceeds of U.S. Government
Obligations held in any defeasance trust described under 'Defeasance' below is
not subordinate to any Senior Indebtedness or subject to the restrictions
described herein. As of September 30, 1997, on a pro forma basis after giving
effect to the Transactions, the outstanding Senior Indebtedness of the Company
would have been approximately $2.1 million (exclusive of unused commitments).
Although the Indenture contains limitations on the amount of additional
Indebtedness that the Company may incur, under certain circumstances the amount
of such Indebtedness could be substantial and, in any case, such Indebtedness
may constitute Senior Indebtedness. See 'Certain Covenants--Limitation on
Indebtedness and Preferred Stock' below.
'Senior Indebtedness' is defined, whether outstanding on the Issue Date or
thereafter incurred, as (i) all Indebtedness of the Company under the New Credit
Facility, including, without limitation, obligations to pay principal and
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law),
reimbursement obligations under letters of credit, fees, expenses and
indemnities, and all Hedging Obligations with respect to Indebtedness under the
New Credit Facility, including, without limitation, Hedging Obligations entered
into with any lender under the New Credit Facility, whether outstanding on the
date of the Indenture or thereafter incurred, (ii) the principal of, premium, if
any, and interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other Obligations with respect to, any other
Indebtedness of the Company permitted to be incurred by the Company under the
terms of the Indenture, whether outstanding on the date of the Indenture or
thereafter incurred, unless the instrument under which such Indebtedness is
incurred expressly provides that it is on a parity with, or subordinated in
right of payment to, the Notes and (iii) all Obligations of the Company with
respect to the foregoing; provided, however, that Senior Indebtedness will not
include (1) any obligation of the Company to any Subsidiary, (2) any liability
for Federal, state, foreign, local or other taxes owed or owing by the Company,
(3) any accounts payable or other liability to trade creditors arising in the
ordinary course of business (including Guarantees thereof or instruments
evidencing such liabilities) or (4) any Indebtedness, Guarantee or obligation of
the Company that is expressly subordinate or junior in right of payment to any
other Indebtedness, Guarantee or obligation of the Company, including any Senior
Subordinated Indebtedness and any Subordinated Obligations.
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Notes in accordance with the provisions of the Indenture. The
Notes will in all respects rank pari passu with all other Senior Subordinated
Indebtedness of the Company. The Company has agreed in the Indenture that it
will not incur, directly or indirectly, any Indebtedness that is subordinate or
junior in ranking in any respect to Senior Indebtedness unless such Indebtedness
is Senior Subordinated Indebtedness or is contractually subordinated in right of
payment to Senior Subordinated Indebtedness. In addition, no Subsidiary
Guarantor shall incur any Indebtedness if such Indebtedness is subordinate or
junior in ranking in any respect to any Guarantor Senior Indebtedness of such
Subsidiary Guarantor unless such Indebtedness is Guarantor Senior Subordinated
77
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Indebtedness of such Subsidiary Guarantor or is contractually subordinated in
right of payment to Guarantor Senior Subordinated Indebtedness of such
Subsidiary Guarantor. Unsecured Indebtedness is not deemed to be subordinate or
junior to Secured Indebtedness merely because it is unsecured.
The Company and the Subsidiary Guarantors may not make any payment upon or
in respect of the Notes (except in Permitted Junior Securities or from the trust
described under 'Defeasance' below) and may not make any deposit pursuant to the
provisions described under 'Defeasance' below or otherwise purchase or retire
any Notes for cash or property (collectively, 'pay the Notes') if (i) a default
in the payment when due of Designated Senior Indebtedness occurs and is
continuing beyond any applicable period of grace or (ii) any other default on
Designated Senior Indebtedness occurs and is continuing with respect to
Designated Senior Indebtedness that permits the holders of the Designated Senior
Indebtedness as to which such default relates to accelerate its maturity and the
Trustee receives a notice of such default (a 'Payment Blockage Notice') from the
holders of any Designated Senior Indebtedness unless the default has been cured
or waived and any such Payment Blockage Notice has been rescinded or such Senior
Indebtedness has been paid in full in cash. Payments on the Notes may and shall
be resumed (a) in the case of a payment default, upon the date on which such
default is cured or waived in writing and (b) in the case of a nonpayment
default, the earlier of the date on which such nonpayment default is cured or
waived in writing and 179 days after the date on which the applicable Payment
Blockage Notice is received, unless the maturity of any Designated Senior
Indebtedness has been accelerated. No new Payment Blockage Notice may be sent
(irrespective of the number of defaults with respect to Designated Senior
Indebtedness at such time) unless and until 360 days have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice. No nonpayment
default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent
Payment Blockage Notice unless such nonpayment default shall have been waived
for a period of not less than 90 days (it being acknowledged that any subsequent
action, or any breach of any financial covenants for a period commencing after
the date of delivery of any Payment Blockage Notice, which, in either case,
would give rise to a default pursuant to any provision under which a default
previously existed or was continuing shall constitute a new default for this
purpose). Each Holder by his acceptance of a Note irrevocably agrees that if any
payment or payments shall be made pursuant to the Indenture and the amount or
total amount of such payment or payments exceeds the amount, if any, that such
Holder would be entitled to receive upon the proper application of the
subordination provisions of the Indenture, the payment of such excess amount
shall be deemed null and void, and the Holder agrees that it will be obliged to
turnover the amount of the excess payment to the holders of such Senior
Indebtedness.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization or bankruptcy of or
similar proceeding relating to the Company or the Subsidiary Guarantors or their
respective property, the holders of Senior Indebtedness will be entitled to
receive payment in full in cash of the Senior Indebtedness before the holders of
the Notes are entitled to receive any payment of any kind or character with
respect to the Notes, and until the Senior Indebtedness is paid in full in cash
or cash equivalents, any payment or distribution to which holders of the Notes
would be entitled but for the subordination provisions of the Indenture will be
made to holders of the Senior Indebtedness as their interests may appear (except
that Holders of Notes may receive Permitted Junior Securities and payments made
from the trust described under '--Defeasance' below). If a distribution is made
to holders of the Notes that, due to the subordination provisions, should not
have been made to them, such holders are required to turnover such amount to the
holders of Senior Indebtedness as their interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company and the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness or the Representative of such holders of the acceleration.
The Company may not pay the Notes until five Business Days after such holders or
the Representative of the Designated Senior Indebtedness receive notice of such
acceleration and, thereafter, may pay the Notes only if the subordination
provisions of the Indenture otherwise permit payment at that time.
By reason of such subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company and the Subsidiary Guarantors
who are holders of Senior Indebtedness may recover more, ratably, than the
Noteholders, and creditors of the Company and the Subsidiary Guarantors who are
not holders of Senior Indebtedness or of Senior Subordinated Indebtedness
(including the Notes) may recover less, ratably, than holders of Senior
Indebtedness.
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CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a 'Change of
Control') with respect to the Company, each Holder will have the right to
require the Company to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of such Holder's Notes at a purchase price in cash
equal to 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the date of repurchase (subject to the right of Holders of record on
the relevant record date to receive interest due on the related interest payment
date):
(i)(A) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
'person' (as such term is used in Sections 13(d) and 14(d) of the Exchange
Act), other than one or more Permitted Holders, is or becomes the
beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act), directly or indirectly, of more than 35% of the total voting power of
the Voting Stock of the Company and (B) the Permitted Holders 'beneficially
own' (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly
or indirectly, in the aggregate a lesser percentage of the total voting
power of the Voting Stock of the Company than such other person and do not
have the right or ability by voting power, contract or otherwise to elect
or designate for election a majority of the Board of Directors of the
Company;
(ii) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors;
(iii) any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all, or substantially all, the
assets of the Company and its Restricted Subsidiaries taken as a whole to
any 'person' or group of 'persons' for purposes of Section 13(d) of the
Exchange Act (other than to any Wholly Owned Subsidiary of the Company or
to one or more Permitted Holders); or
(iv) the adoption of a plan of liquidation of the Company.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase any or all of such Holder's Notes at a purchase price in cash equal
to 101% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the date of repurchase (subject to the right of Holders of record on a
record date to receive interest on the relevant interest payment date); (2) the
circumstances and relevant facts regarding such Change of Control; (3) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (4) the instructions determined by the
Company, consistent with this covenant, that a Holder must follow in order to
have its Notes purchased by the Company. Notwithstanding the occurrence of a
Change of Control, the Company shall not be obligated to repurchase the Notes
upon a Change of Control if the Company has irrevocably elected to redeem all of
the Notes under the provisions described under '--Optional Redemption' above,
provided that the Company does not default in its redemption obligations
pursuant to such election.
The phrase 'all or substantially all,' as used with respect to a sale of
assets in the definition in the Indenture of 'Change of Control,' varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under New York law (the law governing the Indenture)
and is subject to judicial interpretation. Accordingly, in certain
circumstances, there may be a degree of uncertainty in ascertaining whether a
particular transaction would involve a disposition of 'all or substantially all'
of the assets of a Person and therefore it may be unclear whether a Change of
Control has occurred.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this paragraph by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company could decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase
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the amount of indebtedness outstanding at such time or otherwise affect the
Company's capital structure or credit rating.
The New Credit Facility prohibits the Company from repurchasing any Notes
and also provides that change of control events with respect to the Company
would constitute a default thereunder. Any future credit agreements or other
agreements relating to Senior Indebtedness to which the Company becomes a party
may contain similar restrictions and provisions. In the event a Change of
Control occurs at a time when the Company is prohibited from repurchasing Notes,
the Company could seek the consent of its lenders to the repurchase of Notes or
could attempt to refinance or repay the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain prohibited from repurchasing Notes. In such
case, the Company's failure to repurchase tendered Notes would constitute an
Event of Default under the Indenture which would, in turn, constitute a default
under the New Credit Facility. In such circumstances, the subordination
provisions in the Indenture would likely restrict payments to the Holders of
Notes. Moreover, the exercise by the Holders of their right to require the
Company to repurchase the Notes could cause a default under such Indebtedness,
even if the Change of Control itself does not, due to the financial effect of
such repurchase on the Company. Finally, the Company's ability to pay cash to
the Holders upon a repurchase may be limited by the Company's then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any required repurchases.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness and Preferred Stock. (a) (i) The Company
will not Incur, and will not permit any Restricted Subsidiary to Incur, any
Indebtedness (including Acquired Indebtedness) or issue Disqualified Stock
and (ii) the Company will not permit any of its Restricted Subsidiaries
that are not Subsidiary Guarantors to issue any shares of Preferred Stock;
provided, however, that the Company or any Subsidiary Guarantor may Incur
Indebtedness (including Acquired Indebtedness) or issue Disqualified Stock
if on the date thereof (and after giving effect to the application of
proceeds therefrom) the Consolidated Coverage Ratio would be greater than
1.85:1 if such Incurrence shall occur on or prior to December 31, 1998 and
greater than 2.0:1 if such Incurrence shall occur thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness and issue the
following Disqualified Stock: (i) Indebtedness (including, without
limitation, letters of credit and Guarantees) of the Company or any
Subsidiary Guarantor under the New Credit Facility with respect thereto in
an aggregate principal amount outstanding at any time not to exceed $50
million, less the aggregate amount of all proceeds from all Asset
Dispositions that have been applied since the Issue Date to permanently
reduce the outstanding amount of such Indebtedness pursuant to the covenant
'Limitation on Sale of Assets and Subsidiary Stock'; (ii) Indebtedness of
the Company owing to and held by any Subsidiary Guarantor or Indebtedness
of a Restricted Subsidiary owing to and held by the Company or any
Subsidiary Guarantor; provided, however, that any subsequent issuance or
transfer of any Capital Stock or any other event which results in any such
Subsidiary Guarantor ceasing to be a Subsidiary Guarantor or any subsequent
transfer of any such Indebtedness (except to the Company or a Subsidiary
Guarantor or a pledge or other transfer thereof intended to create a
security interest therein) will be deemed to constitute the Incurrence of
such Indebtedness by the issuer thereof; (iii) Indebtedness represented by
the Notes (including the Subsidiary Guarantees) and any Indebtedness or
Disqualified Stock of the Company or any Restricted Subsidiary (other than
the Indebtedness described in clauses (i) and (ii) above) outstanding on
the Issue Date; (iv) Indebtedness of a Subsidiary Guarantor outstanding on
or prior to the date on which such Subsidiary Guarantor was acquired by the
Company or a Subsidiary Guarantor (other than Indebtedness Incurred in
connection with, or in contemplation of, the transaction or series of
related transactions pursuant to which such Subsidiary Guarantor became a
Subsidiary Guarantor or was otherwise acquired by the Company or a
Subsidiary Guarantor); provided, however, that the aggregate principal
amount, accreted value or liquidation preference, as applicable, of such
Indebtedness does not exceed $5 million at any one time outstanding; (v)
Indebtedness (A) in respect of performance bonds, bankers' acceptances,
workers' compensation claims, surety or appeal bonds, payment obligations
in connection with self-insurance or similar obligations, and bank
overdrafts (and letters of credit in respect thereof) provided
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by the Company or any Subsidiary Guarantor in the ordinary course of its
business and which do not secure other Indebtedness and (B) under Currency
Agreements and Interest Rate Agreements Incurred which, at the time of
Incurrence, is in the ordinary course of business; provided that such
agreements are entered into for bona fide hedging purposes, are not for
speculation or trading purposes and are designed to protect against
fluctuations in interest rates or currency exchange rates, as the case may
be, and, in the case of Interest Rate Agreements, any such Interest Rate
Agreement has a notional amount corresponding to the Indebtedness being
hedged thereby; (vi) Indebtedness represented by Guarantees by the Company
of Indebtedness otherwise permitted to be Incurred pursuant to this
covenant and Indebtedness represented by Guarantees by a Subsidiary
Guarantor of Indebtedness of the Company or of another Restricted
Subsidiary otherwise permitted to be Incurred pursuant to this covenant;
(vii) Indebtedness incurred by the Company or any Subsidiary Guarantor and
arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, from guarantees or letters of
credit, surety bonds or performance bonds securing any obligations of the
Company or any Restricted Subsidiary pursuant to such agreements, in each
case incurred in connection with the purchase or sale of a business or
assets otherwise permitted by the Indenture; (viii) Indebtedness of the
Company or any Subsidiary Guarantor in an aggregate principal amount not to
exceed $5 million at any time outstanding incurred in connection with the
purchase, redemption, acquisition, cancellation or other retirement for
value of Subsidiary Management Equity Interests; (ix) the incurrence by the
Company or any Subsidiary Guarantor of Indebtedness represented by
Capitalized Lease Obligations, mortgage financings or purchase money
obligations, in each case incurred for the purpose of financing all or any
part of the purchase price or cost of construction or improvement of
property, plant or equipment used in the business of the Company or such
Subsidiary Guarantor, in an aggregate principal amount not to exceed the
principal amount of such Capitalized Lease Obligations outstanding on the
date hereof plus $10 million at any time outstanding; (x) the issuance by
KII Holding of Series B Preferred Stock having an aggregate liquidation
preference not to exceed $200,000 at any one time outstanding to its
officers and employees; (xi) (A) Indebtedness of the Company or a
Subsidiary Guarantor represented by Put/Call Promissory Notes and (B)
Disqualified Stock of the Company or a Subsidiary Guarantor represented by
Put/Call Preferred Stock, in each case incurred or issued in exchange for
Management Equity Interests, in an aggregate amount not to exceed the value
(calculated in accordance with the respective agreements pursuant to which
such Management Equity Interests were issued or exchanged) of the
Management Equity Interests so exchanged; (xii) the issuance by the Company
or any Subsidiary Guarantor of Refinancing Indebtedness in exchange for, or
the net proceeds which are used to refund, refinance or replace,
Indebtedness that was permitted by paragraph (a) or by clauses (iii), (iv)
and (viii) of this paragraph (b) to be incurred; and (xiii) other
Indebtedness of the Company or any Subsidiary Guarantor in an aggregate
principal amount at any one time outstanding not to exceed $12.5 million.
(c) Notwithstanding the foregoing, neither the Company nor any
Restricted Subsidiary shall Incur any Indebtedness pursuant to the
foregoing paragraph (b) if the proceeds thereof are used, directly or
indirectly, to Refinance any Subordinated Obligations of the Company unless
such new Indebtedness shall be subordinated to the Notes to at least the
same extent as such Subordinated Obligations being Refinanced. No
Subsidiary Guarantor shall incur any Indebtedness pursuant to the foregoing
paragraph (b) if the proceeds thereof are used, directly or indirectly, to
Refinance any Guarantor Subordinated Obligation of such Subsidiary
Guarantor unless such Indebtedness shall be subordinated to the obligations
of such Subsidiary Guarantor under the Subsidiary Guarantee to at least the
same extent as such Guarantor Subordinated Obligation of such Subsidiary
Guarantor.
(d) The Company will not permit any Unrestricted Subsidiary to Incur
any Indebtedness other than Non-Recourse Debt, provided, however, if any
such Indebtedness ceases to be Non-Recourse Debt, such event shall be
deemed to constitute an Incurrence of Indebtedness by the Company or a
Restricted Subsidiary.
(e) For purposes of determining compliance with the foregoing
covenant, (i) in the event that an item of Indebtedness meets the criteria
of more than one of the types of Indebtedness described above, the Company
will classify (and may reclassify from time to time) such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of the above clauses and (ii) an item of Indebtedness
may be divided and classified in more than one of the types of Indebtedness
described above.
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Limitation on Liens. The Indenture provides that the Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, assume or suffer to exist any Lien (other than Permitted Liens)
securing Indebtedness or trade payables on any asset now owned or hereafter
acquired, or any income or profits therefrom or assign or convey any right to
receive income therefrom, unless contemporaneously therewith effective provision
is made to secure the Notes equally and ratably with such Indebtedness or trade
payable for so long as such Indebtedness or trade payable is secured by a Lien.
Limitation on Layering. The Company shall not Incur any Indebtedness if
such Indebtedness is by its terms contractually subordinate or junior in ranking
in any respect to any Senior Indebtedness unless such Indebtedness is Senior
Subordinated Indebtedness or is contractually subordinated in right of payment
to Senior Subordinated Indebtedness. No Subsidiary Guarantor shall Incur any
Indebtedness if such Indebtedness is by its terms subordinate or junior in
ranking in any respect to any Guarantor Senior Indebtedness of such Subsidiary
Guarantor unless such Indebtedness is Guarantor Senior Subordinated Indebtedness
of such Subsidiary Guarantor or is contractually subordinated in right of
payment to Guarantor Senior Subordinated Indebtedness of such Subsidiary
Guarantor.
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, (i) declare or pay
any dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any merger or consolidation involving
the Company) except dividends or distributions payable solely in its Capital
Stock (other than Disqualified Stock) or in options, warrants or other rights to
purchase such Capital Stock and except dividends or distributions payable to the
Company or another Restricted Subsidiary (and, if such Restricted Subsidiary
making such dividend or distribution is not wholly owned, to its other
shareholders on a pro rata basis), (ii) purchase, repurchase, redeem, retire or
otherwise acquire or retire for value any Capital Stock of the Company or any
Restricted Subsidiary held by Persons other than the Company or another
Restricted Subsidiary, (iii) purchase, repurchase, redeem, defease or otherwise
acquire or retire for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment any Subordinated Obligations (other than regular
scheduled payments of interest and the purchase, repurchase or other acquisition
of Subordinated Obligations in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of such purchase, repurchase or acquisition) or (iv) make any
Investment (other than a Permitted Investment) in any Person (any such dividend,
distribution, purchase, redemption, repurchase, defeasance, other acquisition,
retirement, payment or Investment being herein referred to as a 'Restricted
Payment') if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default or Event of Default shall have occurred and be
continuing (or would result therefrom); (2) the Company and its Restricted
Subsidiaries could not Incur at least $1.00 of additional Indebtedness under
paragraph (a) of the covenant described under '--Limitation on Indebtedness and
Preferred Stock;' or (3) the aggregate amount of such Restricted Payment and all
other Restricted Payments (the amount so expended, if other than in cash, to be
determined in good faith by the Board of Directors of the Company) made
subsequent to the Issue Date (excluding Restricted Payments permitted by clauses
(i), (ii), (iv) and (vii) of the following paragraph), would exceed the sum of:
(A) 50% of the Consolidated Net Income with respect to the period (treated as
one accounting period) from the beginning of the fiscal quarter in which the
Issue Date occurs) to the end of the most recent fiscal quarter for which
internal financial statements are available ending at least 30 days prior to the
date of such Restricted Payment (or, in case such Consolidated Net Income is a
deficit, minus 100% of such deficit); (B) the aggregate Net Cash Proceeds
received by the Company from the issue or sale of Capital Stock (other than
Disqualified Stock) subsequent to the Issue Date (other than an issuance or sale
to a Subsidiary) and, without duplication, the aggregate amount of any other
capital contributions received by the Company in cash subsequent to the Issue
Date and on or prior to the date the Restricted Payment occurs; (C) the amount
by which Indebtedness of the Company is reduced on the Company's balance sheet
upon the conversion or exchange (other than by a Restricted Subsidiary)
subsequent to the Issue Date of any Indebtedness of the Company convertible or
exchangeable for Capital Stock (other than Disqualified Stock) of the Company
(less the amount of any cash or other property distributed by the Company upon
such conversion or exchange); and (D) the amount equal to the net reduction in
Investments in Unrestricted Subsidiaries resulting from (i) repayments of the
principal of loans or advances or other transfers of assets to the Company or
any Restricted Subsidiary from Unrestricted Subsidiaries or (ii) the
redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries or (iii)
the sale or liquidation of any Unrestricted Subsidiaries (valued in each case as
provided in the definition of 'Investment') not to exceed, in the case of any
Unrestricted
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Subsidiary, the amount of Investments previously made by the Company or any
Restricted Subsidiary in such Unrestricted Subsidiary, which amount was
previously included in the calculation of the amount of Restricted Payments.
(b) The provisions of the foregoing paragraph (a) will not prohibit: (i)
any purchase, redemption, defeasance or other acquisition of Capital Stock of
the Company or Subordinated Obligations made by exchange for, or out of the net
proceeds of the substantially concurrent sale of, Capital Stock of the Company
(other than Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary); provided, however, that (A) such purchase, redemption, defeasance
or other acquisition will be excluded in the calculation of the amount of
Restricted Payments pursuant to clause (3) of paragraph (a) above and (B) the
Net Cash Proceeds from such sale will be excluded from clause (3)(B) of
paragraph (a) above; (ii) any purchase, redemption, defeasance or other
acquisition of Subordinated Obligations made by exchange for, or out of the net
proceeds of the substantially concurrent sale of, Subordinated Obligations of
the Company; provided, however, that (A) the principal amount of such new
Indebtedness does not exceed the principal amount (or accreted value, if
applicable) of the Subordinated Obligations being so redeemed, repurchased,
defeased, acquired or retired for value (plus the amount of any premium required
to be paid under the terms of the instrument governing the Subordinated
Obligations being so redeemed, repurchased, defeased, acquired or retired and
related fees and expenses) (except to the extent such excess is a result of a
simultaneous incurrence of additional Indebtedness permitted to be incurred
under the Indenture), (B) such new Indebtedness is subordinated to the Notes on
terms substantially the same as those contained in the instrument or agreement
governing or evidencing such Subordinated Obligations so purchased, exchanged,
redeemed, repurchased, defeased, acquired or retired for value, (C) such new
Indebtedness has a final scheduled maturity date no earlier than the final
scheduled maturity date of such Subordinated Obligations (or, if earlier, the
Notes) purchased, exchanged, redeemed, repurchased, defeased, acquired or
retired for value and (D) such new Indebtedness has an Average Life equal to or
greater than the Average Life of such Subordinated Obligations purchased,
exchanged, redeemed, repurchased, defeased, acquired or retired for value;
provided further, however, that such purchase, redemption, defeasance or other
acquisition will be excluded in the calculation of the amount of Restricted
Payments pursuant to clause (3) of paragraph (a) above; (iii) dividends paid
within 60 days after the date of declaration thereof if at such date of
declaration such dividend would have complied with this covenant; provided,
however, that the amount of such dividend will be included in the calculation of
the amount of Restricted Payments pursuant to clause (3) of paragraph (a) above;
(iv) Investments in securities not constituting cash or Temporary Cash
Investments received in connection with an Asset Disposition made pursuant to
the provisions of the covenant described under '--Certain Covenants--Limitation
on Sales of Assets and Subsidiary Stock' below; provided that such amounts will
be excluded in the calculation of the amount of Restricted Payments pursuant to
clause (3) of paragraph (a) above; (v) the payment of scheduled dividends on, or
the scheduled or mandatory redemption, repurchase or retirement of, any
Disqualified Stock (other than Put/Call Preferred Stock) issued after the date
hereof in compliance with the provisions of the Indenture; provided that such
amounts will be included in the calculation of the amount of Restricted Payments
pursuant to clause (3) of paragraph (a) above; (vi) payments made with respect
to the repurchase, redemption or other acquisition or retirement for value of
Management Equity Interests (A) prior to the third anniversary of the Issue Date
in an aggregate principal amount not to exceed $500,000 in any twelve-month
period and (B) subsequent to the third anniversary of the Issue Date in an
aggregate principal amount not to exceed $2 million in any twelve month period;
provided that (1) subsequent to the third anniversary of the Issue Date, the
Company may make an additional $2 million of such payments in any such
twelve-month period if, after giving pro forma effect to all such payments, the
Consolidated Coverage Ratio would be greater than 2.5:1, and (2) to the extent
such Management Equity Interests have been exchanged for Put/Call Promissory
Notes or Put/Call Preferred Stock incurred or issued in accordance with clause
(xi) under 'Limitation on Indebtedness and Preferred Stock,' such amounts may be
applied toward the repurchase of or payment on such Put/Call Promissory Notes
and Put/Call Preferred Stock; and provided further that such amounts will be
included in the calculation of the amount of Restricted Payments pursuant to
clause (3) of paragraph (a) above; (vii) the repurchase of Management Equity
Interests in exchange for Put/Call Promissory Notes and Put/Call Preferred Stock
incurred or issued in accordance with clause (xi) under 'Limitation on
Indebtedness and Preferred Stock'; provided that such repurchase will be
excluded in the calculation of the amount of Restricted Payments pursuant to
clause (3) of paragraph (a) above; and (viii) other Restricted Payments in an
aggregate amount not to exceed $5 million; provided that such amounts will be
included in the
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calculation of the amount of Restricted Payments pursuant to clause (3) of
paragraph (a) above; provided, however, that at the time of, and after giving
effect to, any Restricted Payment permitted by clauses (v), (vi), and (viii) no
Default or Event of Default shall have occurred and be continuing. In addition,
payments and transactions permitted pursuant to clauses (v), (vi), (vii),
(viii), (ix) and (x) of paragraph (b) under 'Certain Covenants--Limitation on
Transactions with Affiliates' below shall not be deemed to be Restricted
Payments.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness or other obligation owed to the Company, (ii) make
any loans or advances to the Company or (iii) transfer any of its property or
assets to the Company or any Restricted Subsidiary, except: (1) any encumbrance
or restriction pursuant to an agreement in effect at or entered into on the
Issue Date (including pursuant to the New Credit Facility); (2) any encumbrance
or restriction with respect to a Restricted Subsidiary pursuant to an agreement
relating to any Capital Stock of such Restricted Subsidiary or Indebtedness
Incurred by such Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary was acquired by the Company or a Restricted Subsidiary and
outstanding on such date (other than Indebtedness Incurred in connection with,
or in contemplation of, the transaction or series of related transactions
pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or
was acquired by the Company or a Restricted Subsidiary); (3) any encumbrance or
restriction contained in agreements or instruments with respect to purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired; (4) any encumbrance or restriction pursuant to an
agreement effecting a Refinancing of Indebtedness Incurred pursuant to an
agreement referred to in clause (1), (2) or (3) of this covenant or contained in
any amendment to an agreement referred to in clause (1), (2) or (3) of this
covenant; provided, however, that the encumbrances and restrictions contained in
any such refinancing agreement or amendment are not, taken as a whole,
materially less favorable to the Noteholders than the encumbrances and
restrictions contained in any such agreement as determined in good faith by the
Company; (5) in the case of clause (iii), any encumbrance or restriction (A)
that restricts in a customary manner the subletting, assignment or transfer of
any property or asset that is subject to a lease, license or similar contract,
(B) by virtue of any transfer of, agreement to transfer, option or right with
respect to, or Lien on, any property or assets of the Company or any Restricted
Subsidiary not otherwise prohibited by the Indenture or (C) contained in
security agreements, mortgages or Capitalized Lease Obligations securing
Indebtedness of a Restricted Subsidiary to the extent such encumbrance or
restrictions restrict the transfer of the property subject to such security
agreements, mortgages or Capitalized Lease Obligations; (6) any restriction with
respect to a Restricted Subsidiary imposed pursuant to an agreement entered into
for the sale or disposition of Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition; (7) any encumbrance
or restriction arising under or by reason of applicable law; (8) any encumbrance
or restriction contained in the Indenture; and (9) customary net worth
provisions contained in leases and other agreements entered into by a Restricted
Subsidiary in the ordinary course of business; and (10) customary restrictions
contained in any agreements or documentation governing Indebtedness issued
pursuant to clause (xiii) of paragraph (b) of the covenant described above under
the caption '--Certain Covenants--Limitation on Indebtedness and Preferred
Stock'; provided that such restrictions are no more restrictive, taken as a
whole, than those pursuant to the New Credit Facility.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company will
not, and will not permit any Restricted Subsidiary to, make any Asset
Disposition unless (i) the Company or such Restricted Subsidiary receives
consideration at the time of such Asset Disposition at least equal to the fair
market value, as determined in good faith by the Board of Directors of the
Company (including as to the value of all non cash consideration), of the shares
and assets subject to such Asset Disposition, (ii) at least 75% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash or Temporary Cash Investments and (iii) an amount equal to
100% of the Net Available Cash from such Asset Disposition is applied by the
Company or such Restricted Subsidiary, as the case may be, within 365 days from
the later of the date of such Asset Disposition or the receipt of such Net
Available Cash (A) first, to the extent the Company or any Restricted
Subsidiary, as the case may be, elects (or is required by the terms of the New
Credit Facility or any Senior Indebtedness), to prepay, repay or purchase
Indebtedness under the New Credit Facility or other Senior Indebtedness or
Indebtedness (other than Disqualified Stock) of a Wholly Owned Subsidiary (in
each case other than Indebtedness owed to the Company or an Affiliate of the
Company); (B) second to the extent of any remaining balance of Net Available
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Cash after any election in accordance with clause (A) (or in any combination
with clause (A)), to the extent the Company or such Restricted Subsidiary, as
the case may be, elects, to the investment by the Company or any Wholly Owned
Subsidiary in Additional Assets; (C) third to the extent of any remaining
balance of such Net Available Cash after any election in accordance with clauses
(A) and (B), to make an Offer (as defined below) to purchase Notes pursuant to
and subject to the conditions set forth in paragraph (b) of this covenant within
45 days from the 365th day after the later of the date of such Asset Disposition
and the receipt of such Net Available Cash; and (D) fourth to the extent of any
remaining balance of such Net Available Cash after election or application in
accordance with clauses (A), (B) and (C), to general corporate purposes;
provided, however, that in connection with any prepayment, repayment, purchase
or other acquisition of Indebtedness pursuant to clause (A) above, the Company
or such Restricted Subsidiary will retire such Indebtedness and will cause any
related loan commitment or availability (if any) to be permanently reduced in an
amount equal to the principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions, the Company and its Restricted
Subsidiaries shall not be required to apply any Net Available Cash in accordance
herewith except to the extent that the aggregate Net Available Cash from all
Asset Dispositions exceeds $2,000,000. The Company shall not be required to make
an Offer for Notes pursuant to this covenant if the Net Available Cash available
therefor (after application of the proceeds as provided in clauses (A) and (B))
is less than $5,000,000 (which lesser amounts shall be carried forward for
purposes of determining whether an Offer is required with respect to the Net
Available Cash from subsequent Asset Dispositions).
For the purposes of this covenant, the following are deemed to be cash: (x)
the assumption by the transferee of Indebtedness of the Company or any
Restricted Subsidiary (other than Indebtedness that is subordinated to the Notes
or the Subsidiary Guarantees) and the release of the Company or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition, and (y) securities received by the Company or any Restricted
Subsidiary from the transferee that are promptly converted by the Company or
such Restricted Subsidiary into cash or Temporary Cash Investments.
(b) In the event of an Asset Disposition that requires the purchase of
Notes pursuant to clause (a)(iii)(C) of this covenant, the Company will be
required to purchase Notes tendered pursuant to an offer by the Company for the
Notes (the 'Offer') at a purchase price of 100% of their principal amount plus
accrued interest and Liquidated Damages, if any, to the date of purchase in
accordance with the procedures (including prorating in the event of
oversubscription) set forth in the Indenture. If the aggregate purchase price of
Notes tendered pursuant to the Offer is less than the Net Available Cash
allotted to the purchase of the Notes, the Company will apply the remaining Net
Available Cash in accordance with clause (a)(iii)(D) above.
(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this covenant by virtue thereof.
Limitation on Transactions with Affiliates. (a) The Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter into
or conduct any transaction or series of transactions (including the purchase,
sale, lease or exchange of any property, or rendering of any service) with any
Affiliate of the Company or a Restricted Subsidiary (an 'Affiliate Transaction')
unless (i) the terms of such transaction are no less favorable to the Company or
such Restricted Subsidiary, as the case may be, than those that could be
obtained at the time of such transaction in arm's-length dealings with a Person
who is not such an Affiliate; (ii) in the event such Affiliate Transaction
involves an aggregate amount in excess of $1,000,000, the terms of such
transaction shall have been approved by a majority of the members of the Board
of Directors of the Company (and such majority determines that such Affiliate
Transaction satisfies the criteria in clause (i) above) and (iii) in the event
such Affiliate Transaction involves an aggregate amount in excess of $5,000,000,
the Company has received a written opinion from a nationally recognized
independent investment banking, accounting or appraisal firm that such Affiliate
Transaction is fair to the Company or such Restricted Subsidiary from a
financial point of view.
(b) The foregoing shall not apply to (i) any Restricted Payment permitted
to be made pursuant to 'Limitation on Restricted Payments,' (ii) any issuance of
securities, or other payments, awards or grants in cash, securities or otherwise
pursuant to, or the funding of, employment arrangements, stock options and stock
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ownership plans approved by the Board of Directors of the Company, (iii) any
fees, indemnities, loans or advances to employees in the ordinary course of
business, (iv) any transaction between the Company and a Restricted Subsidiary
or between Restricted Subsidiaries, (v) any agreement in effect on the Issue
Date or any amendment thereto or transaction contemplated thereby (and any
replacement or amendment of any such agreement so long as any such amendment or
replacement thereof is not materially less favorable to the Holders than the
original agreement in effect on the Issue Date), (vi) payments by the Company or
any of its Restricted Subsidiaries to Mentmore and/or its Affiliates made for
any financial advisory, financing, underwriting or placement services or in
respect of other investment banking activities, including, without limitation,
in connection with acquisitions or divestitures, which payments are approved a
majority of the members of the Board of Directors of the Company in good faith;
(vii) payments under any tax sharing agreement to the extent such payments do
not otherwise exceed the tax liability the Company would have had were it not
party to such tax sharing agreement; (viii) any other payment or reimbursement
of reasonable and customary fees and expenses incurred by an Affiliate for
services rendered to the Company or any of its Restricted Subsidiaries not to
exceed $250,000 in any twelve-month period (without duplication for any amounts
paid pursuant to any other clause of this covenant); (ix) the application of the
proceeds of the Initial Offering and the transactions entered into in connection
therewith in the manner contemplated thereby; and (x) (A) payments under the
Management Agreement in an amount not to exceed $750,000 in any fiscal year and
(B) after the first anniversary of the Issue Date, additional payments under the
Management Agreement in an amount not to exceed 1% of the Company's total
consolidated sales in any fiscal year less any amount paid pursuant to the
preceding clause (A), provided, in the case of clause (B) above, that the
Company's Consolidated Coverage Ratio, after giving pro forma effect to such
payment, is equal to or greater than 2.25 to 1, in each case plus reasonable
expenses incurred in connection with and reimbursable under the Management
Agreement.
Limitation on Sales of Subsidiary Capital Stock. The Company (i) will not,
and will not permit any Restricted Subsidiary of the Company to, transfer,
convey, sell, lease or otherwise dispose of any Capital Stock of any Restricted
Subsidiary to any Person (other than to the Company or a Wholly Owned
Subsidiary) and (ii) will not permit any Restricted Subsidiary to issue any of
its Capital Stock (other than to management of such Restricted Subsidiary and,
if necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to the Company or a Wholly Owned Subsidiary,
unless (a) after any such transfer, conveyance, sale, lease, disposition or
issuance, such Restricted Subsidiary continues to be a Restricted Subsidiary and
(b) the net cash proceeds from such transfer, conveyance, sale, lease,
disposition or issuance are applied in accordance with the covenant described
above under 'Limitation on Sales of Assets and Subsidiary Stock'; provided,
however, that this provision shall not prohibit the transfer, conveyance, sale,
lease or other disposition of all of the Capital Stock of any Restricted
Subsidiary or the retention of Preferred Stock which is not Disqualified Stock
in connection with any such transfer, conveyance, sale, lease or other
disposition.
SEC Reports. Notwithstanding that the Company may not be required to
remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company will file with the SEC (unless the SEC will not accept
such a filing) and provide the Trustee and Noteholders with the annual reports
and such information, documents and other reports which are specified in
Sections 13 and 15(d) of the Exchange Act. The Company also will comply with the
other provisions of TIA Section 314(a). Notwithstanding the foregoing, the
Company shall not be required to make any such filings prior to the date on
which the Company's annual report on Form 10-K for the fiscal year ended
December 31, 1997 would have been required to be filed if, at the time such
filings would have been required to be made with the Commission, either (i) the
Company shall have provided to each Holder the information that would have been
required to be filed or (ii) the Exchange Offer Registration Statement has been
filed with the Commission but has not yet been declared effective and copies of
the Exchange Offer Registration Statement and any amendments thereto (to the
extent such registration statement and/or amendments contain additional
information not disclosed in the Offering Memorandum that would have been the
subject of a filing required to be made under Section 13 or 15(d) of the
Exchange Act) have been provided to each Holder, provided that any exhibits to
the Exchange Offer Registration Statement (or any amendments thereto) need not
be delivered to any Holder of the Notes, but sufficient copies thereto shall be
furnished to the Trustee as reasonably requested to permit the Trustee to
deliver any such exhibits to any Holder upon request. In addition, the Company
and the Subsidiary Guarantors have agreed that, for so long as any Notes remain
outstanding, they will furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144(d)(4) under the Securities Act.
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Future Guarantors. The Company shall cause each new Subsidiary having
either net assets or stockholders' equity in excess of $50,000 (other than (i) a
new Subsidiary designated as an Unrestricted Subsidiary and (ii) Foreign
Subsidiaries) to become a Subsidiary Guarantor under the Indenture and thereby
Guarantee the Notes on the terms and conditions set forth in the Indenture.
MERGER AND CONSOLIDATION
The Company will not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its consolidated assets to, any
Person, unless: (i) the resulting, surviving or transferee Person (the
'Successor Company') will be a corporation organized and existing under the laws
of the United States of America, any State thereof or the District of Columbia
and the Successor Company (if not the Company) will expressly assume, by
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the Notes
and the Indenture; (ii) immediately after giving pro forma effect to such
transaction (and treating any Indebtedness which becomes an obligation of the
Successor Company or any Restricted Subsidiary as a result of such transaction
as having been Incurred by the Successor Company or such Restricted Subsidiary
at the time of such transaction), no Default or Event of Default will have
occurred and be continuing; (iii) immediately after giving pro forma effect to
such transaction, the Successor Company would be able to Incur an additional
$1.00 of Indebtedness under paragraph (a) of the covenant described under
'--Limitation on Indebtedness and Preferred Stock;' (iv) immediately after
giving effect to such transaction, the Successor Company will have a
Consolidated Net Worth in an amount which is not less than the Consolidated Net
Worth of the Company immediately prior to such transaction; and (v) the Company
will have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with the Indenture, as set forth in the
Indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture, but the
predecessor Company in the case of a lease of all or substantially all its
assets will not be released from the obligation to pay the principal of and
interest on the Notes.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in any
payment of interest on or Liquidated Damages, if any, with respect to, any Note
when due, and continuance of such default for a period of 30 days, whether or
not such payment is prohibited by the provisions described under 'Ranking and
Subordination' above (ii) a default in the payment of principal of any Note when
due at its Stated Maturity, upon optional redemption, upon required repurchase,
upon declaration or otherwise, whether or not such payment is prohibited by the
provisions described under 'Ranking and Subordination' above (iii) the failure
by the Company to comply with its obligations under '--Merger and
Consolidation,' (iv) the failure by the Company to comply for 30 days after
notice with any of its obligations under the covenants described under '--Change
of Control' or '--Certain Covenants' (in each case, other than a failure to
purchase Notes), (v) the failure by the Company to comply for 60 days after
notice with its other agreements contained in the Indenture, (vi) the failure by
the Company or any Significant Subsidiary of the Company to pay any interest or
principal of or premium on Indebtedness within any applicable grace period
provided in such Indebtedness after final maturity or the acceleration of any
such Indebtedness by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $10 million or its
foreign currency equivalent (the 'cross acceleration provision'), (vii) certain
events of bankruptcy, insolvency or reorganization of the Company or any
Significant Subsidiary of the Company (the 'bankruptcy provisions'), (viii) any
final, non-appealable judgment or decree by a court of competent jurisdiction
for the payment of money in excess of $10 million is rendered against the
Company or any Significant Subsidiary of the Company and such judgment or decree
remains outstanding for a period of 60 day following such judgment and is not
discharged, waived or stayed (the 'judgment default provision') or (ix) except
as permitted by the Indenture, a Subsidiary Guarantee ceases to be in full force
and effect or a Subsidiary Guarantor denies or disaffirms its obligations under
its Subsidiary Guarantee.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is 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.
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However, a default under clauses (iv) or (v) of the first paragraph above
will not constitute an Event of Default until the Trustee or the Holders of 25%
in aggregate principal amount of the outstanding Notes notify the Company as
provided in the Indenture of the default and the Company does not cure such
default within the time specified in clauses (iv) and (v) hereof after receipt
of such notice.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in aggregate principal amount of the outstanding Notes by notice
in writing to the Company and the Trustee specifying the respective Event of
Default and that it is a notice of acceleration may declare the principal of and
accrued but unpaid interest on all the Notes to be due and payable; provided
that, so long as any Designated Senior Indebtedness shall be outstanding, such
acceleration shall not be effective until the earlier of (i) an acceleration of
any such Designated Senior Indebtedness and (ii) five Business Days after
receipt by the Company and the Representative of written notice of such
acceleration. Upon such a declaration, such principal and interest will be due
and payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and accrued interest on all the Notes will become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holders. Under certain circumstances, the Holders of a
majority in aggregate principal amount of the outstanding Notes may rescind any
such acceleration with respect to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
shall have offered to the Trustee reasonable indemnity or security against any
loss, liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such Holder shall
have previously given the Trustee notice that an Event of Default is continuing,
(ii) Holders of at least 25% in aggregate principal amount of the outstanding
Notes shall have requested the Trustee to pursue the remedy, (iii) such Holders
shall have offered the Trustee reasonable security or indemnity against any
loss, liability or expense, (iv) the Trustee shall not have complied with such
request within 60 days after the receipt of the request and the offer of
security or indemnity and (v) the Holders of a majority in principal amount of
the outstanding Notes shall not have given the Trustee a direction inconsistent
with such request within such 60-day period. Subject to certain restrictions,
the Holders of a majority in principal amount of the outstanding Notes are given
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee or of exercising any trust or power
conferred on the Trustee. The Trustee, however, may refuse to follow any
direction that conflicts with law or the Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other Holder or that would
involve the Trustee in personal liability. Prior to taking any action under the
Indenture, the Trustee will be entitled to indemnification satisfactory to it in
its sole discretion against all losses and expenses caused by taking or not
taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
within the earlier of 90 days after it occurs or 30 days after it is known to a
Trust Officer or written notice of it is received by the Trustee. Except in the
case of a Default in the payment of principal of, premium (if any) or interest
on any Note, the Trustee may withhold notice if and so long as a committee of
its Trust Officers in good faith determines that withholding notice is in the
interests of the Noteholders. In addition, the Company is required to deliver to
the Trustee, within 120 days after the end of each fiscal year, a certificate
indicating whether the signers thereof know of any Default that occurred during
the previous year. The Company also is required to deliver to the Trustee,
within 30 days after the occurrence thereof, written notice of any event which
would constitute certain Defaults, their status and what action the Company is
taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding (including, without limitation, consents obtained in connection with
the purchase of, or tender offer or exchange offer for, Notes) and any past
default or compliance with any provisions may be waived with the consent of the
Holders of a majority in principal amount of the Notes then outstanding
(including, without limitation, consents obtained in connection with the
purchase of, or tender offer or exchange offer for, Notes). However, without the
consent of each Holder of an outstanding Note affected, no
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amendment may (with respect to any Notes held by a nonconsenting holder) (i)
reduce the amount of Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the rate of or extend the time for payment of
interest on any Note, (iii) reduce the principal of or extend the Stated
Maturity of any Note, (iv) reduce the premium payable upon the redemption of any
Note or change the time at which any Note may be redeemed as described under
'--Optional Redemption,' (v) make any Note payable in money other than that
stated in the Note, (vi) impair the right of any Holder to receive payment of
principal of and interest on such Holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such Holder's Notes or (vii) make any change in the foregoing
amendment provisions which require each Holder's consent.
Without the consent of any Holder, the Company and the Trustee may amend
the Indenture to cure any ambiguity, omission, defect or inconsistency, to
provide for the assumption by a successor corporation of the obligations of the
Company under the Indenture, to provide for uncertificated Notes in addition to
or in place of certificated Notes (provided that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Notes are as described in Section
163(f)(2)(B) of the Code), to add additional Guarantees with respect to the
Notes, to secure the Notes, to add to the covenants of the Company for the
benefit of the Noteholders or to surrender any right or power conferred upon the
Company, to make any change that does not adversely affect the rights of any
Holder and to comply with any requirement of the SEC in connection with the
qualification of the Indenture under the TIA. However, no amendment may be made
to the subordination provisions of the Indenture that adversely affects the
rights of any holder of Senior Indebtedness then outstanding unless the holders
of such Senior Indebtedness (or any group or representative thereof authorized
to give a consent) consent to such change.
The consent of the Noteholders is not necessary under the Indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Noteholders a notice briefly describing such amendment.
However, the failure to give such notice to all Noteholders, or any defect
therein, will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A Noteholder may transfer or exchange Notes in accordance with the
Indenture. Upon any transfer or exchange, the registrar and the Trustee may
require a Noteholder, among other things, to furnish appropriate endorsements
and transfer documents and the Company may require a Noteholder to pay any taxes
required by law or permitted by the Indenture, including any transfer tax or
other similar governmental charge payable in connection therewith. The Company
is not required to transfer or exchange any Note selected for redemption or to
transfer or exchange any Note for a period of 15 days prior to a selection of
Notes to be redeemed. The Notes will be issued in registered form and the
registered holder of a Note will be treated as the owner of such Note for all
purposes.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ('legal defeasance'), except for certain obligations,
including those with respect to the defeasance trust and obligations to register
the transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under the covenants
described under 'Certain Covenants' and 'Change of Control' and thereafter any
omission to comply with such obligations shall not constitute a Default or an
Event of Default with respect to the Notes. In addition, the operation of the
cross acceleration provision, the bankruptcy provisions with respect to
Significant Subsidiaries and the judgment default provision described under
'--Defaults' and the limitations contained in clauses (iii) and (iv) under
'--Merger and Consolidation' will not be applicable ('covenant defeasance').
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in
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clause (iv), (v), (vi), (vii) (with respect only to Significant Subsidiaries) or
(viii) under '--Defaults' above or because of the failure of the Company to
comply with clause (iii) or (iv) under '--Merger and Consolidation.'
In order to exercise either defeasance option, the Company must irrevocably
deposit or cause to be deposited in trust (the 'defeasance trust') with the
Trustee money or U.S. Government Obligations which through the scheduled payment
of principal and interest in respect thereof in accordance with their terms will
provide cash at such times and in such amounts as will be sufficient to pay
principal and interest and Liquidated Damages, if any, when due on all the Notes
(except lost, stolen or destroyed Notes which have been replaced or repaid) to
maturity or redemption, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that holders of the Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and defeasance and will
be subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable federal income tax law).
CONCERNING THE TRUSTEE
Marine Midland Bank is the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the Notes.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
'Acquired Indebtedness' of any specified Person means Indebtedness of any
other Person existing at the time such other Person is merged with or into or
becomes a Restricted Subsidiary of such specified Person, including Indebtedness
Incurred in connection with, or in contemplation of, such other Person's
becoming a Restricted Subsidiary of such specified Person.
'Additional Assets' means (i) any property or assets (other than
Indebtedness and Capital Stock) used in connection with the business of the
Company or any of its Restricted Subsidiaries on the Issue Date or in a Related
Business or (ii) the Capital Stock of a Person that is a Restricted Subsidiary
prior to the acquisition of such Capital Stock or becomes a Restricted
Subsidiary as a result of the acquisition of such Capital Stock by the Company
or another Restricted Subsidiary; provided, however, that, in the case of clause
(ii), such Restricted Subsidiary is primarily engaged in a Related Business.
'Affiliate' of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
'control' when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
'controlling' and 'controlled' have meanings correlative to the foregoing;
provided that the beneficial ownership of 10% or more of the Voting Stock of a
Person shall be deemed to be control.
'Asset Disposition' means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) of shares of
Capital Stock of a Restricted Subsidiary (other than directors' qualifying
shares), property or other assets, including by way of a Sale/Leaseback
Transaction (each referred to for the purposes of this definition as a
'disposition'), by the Company or any of its Restricted Subsidiaries, in each
case resulting in Net Available Cash of $1,000,000 or more (including any
disposition by means of a merger, consolidation or similar transaction, except
that the sale, lease, conveyance or other disposition of all or substantially
all of the assets of the Company and its Subsidiaries taken as a whole will be
governed by the provisions of the Indenture described above under the caption
'--Change of Control' and/or the provisions described above under the caption
'--Merger and Consolidation' and not by the provisions of the covenant
'Limitation on Sales of Assets and Subsidiary Stock') other than (i) a
disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Restricted Subsidiary, (ii) a disposition of property
or assets in the ordinary course of business, (iii) dispositions of inventory in
the ordinary course of
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business, (iv) for purposes of the 'Limitation on Sales of Assets and Subsidiary
Stock' covenant only, a disposition that constitutes a Restricted Payment
permitted by the 'Limitation on Restricted Payments' covenant and (v)
dispositions of obsolete or worn-out equipment.
'Average Life' means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the product of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
'Bank Indebtedness' means any and all Obligations, whether outstanding on
the Issue Date or thereafter incurred, payable by the Company or its
Subsidiaries under or in respect of the New Credit Facility and any related
notes, collateral documents, letters of credit and guarantees, including,
without limitation, principal, premium (if any), interest (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company whether or not a claim for post filing
interest is allowed in such proceedings), fees, charges, expenses, reimbursement
obligations, guarantees, indemnities and all other amounts payable thereunder or
in respect thereof.
'Board of Directors' means the Board of Directors or equivalent governing
body of a Person (or the general partner of such Person, as the case may be) or
any committee thereof duly authorized to act on behalf of such Board of
Directors or equivalent governing body.
'Business Day' means a day other than a Saturday, Sunday or other day on
which banking institutions in New York State are authorized or required by law
to close.
'Capitalized Lease Obligation' of a Person means an obligation of such
Person that is required to be classified and accounted for on the balance sheet
of such Person as a capitalized lease for financial reporting purposes in
accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease.
'Capital Stock' of any Person means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person, in each case, including Preferred Stock.
'Code' means the Internal Revenue Code of 1986, as amended.
'Consolidated Coverage Ratio' as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters for which internal financial information is
available ending at least 30 days prior to the date of such determination to
(ii) Consolidated Interest Expense for such four fiscal quarters; provided,
however, that, without duplication, (1) if the Company or any Restricted
Subsidiary has Incurred any Indebtedness (other than in the case of Indebtedness
arising under revolving credit borrowings, in which case Consolidated Interest
Expense shall be computed based upon the average daily balance of such
Indebtedness during the period) since the beginning of such period that remains
outstanding or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving effect on a pro forma basis to such Indebtedness as if such Indebtedness
had been Incurred on the first day of such period and the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Indebtedness as if such discharge had occurred on the first
day of such period, (2) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition or if the
transaction giving rise to the need to calculate the Consolidated Coverage Ratio
is an Asset Disposition, the EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive) directly attributable to the assets
which are the subject of such Asset Disposition for such period, or increased by
an amount equal to the EBITDA (if negative) directly attributable thereto for
such period and Consolidated Interest Expense for such period shall be reduced
by an amount equal to the Consolidated Interest Expense directly attributable to
any Indebtedness of the Company or any Restricted Subsidiary repaid,
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repurchased, defeased or otherwise discharged with respect to the Company and
its continuing Restricted Subsidiaries in connection with such Asset Disposition
for such period (and, if the Capital Stock of any Restricted Subsidiary is sold,
the Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale), (3) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary)
or an acquisition of assets, including any acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit of a business, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence or retirement of any
Indebtedness) as if such Investment or acquisition occurred on the first day of
such period and EBITDA for such period shall be calculated without giving effect
to clause (ii) set forth in the definition of Consolidated Net Income and (4) if
since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary or was merged with or into the Company or any Restricted
Subsidiary since the beginning of such period) shall have made any Asset
Disposition or any Investment that would have required an adjustment pursuant to
clause (2) or (3) above if made by the Company or a Restricted Subsidiary during
such period, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto as if such Asset Disposition or
Investment occurred on the first day of such period. For purposes of this
definition, whenever pro forma effect is to be given to an acquisition of
assets, the amount of income or earnings relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting officer of the Company. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to
such Indebtedness).
'Consolidated Interest Expense' means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such interest expense, (i) interest expense
attributable to capital leases, (ii) amortization of debt discount and debt
issuance cost (excluding the amortization of deferred financing fees), (iii)
capitalized interest, (iv) non-cash interest expense, (v) commissions, discounts
and other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, (vi) interest actually paid by the Company or any such
Restricted Subsidiary under any Guarantee of Indebtedness or other obligation of
any other Person, (vii) net costs associated with Hedging Obligations (including
amortization of fees), (viii) (A) Disqualified Stock dividends and (B) Preferred
Stock dividends of a Restricted Subsidiary that is not a Subsidiary Guarantor,
in each case other than dividends paid in Capital Stock (except Disqualified
Stock) and only in respect of such Disqualified Stock or Preferred Stock held by
Persons other than the Company or a Wholly Owned Subsidiary and (ix) the cash
contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or fees
to any Person (other than the Company) in connection with Indebtedness Incurred
by such plan or trust; provided, however, that there shall be excluded therefrom
(A) any such interest expense of any Unrestricted Subsidiary to the extent the
related Indebtedness is not Guaranteed or paid by the Company or any Restricted
Subsidiary, (B) interest on Put/Call Promissory Notes and (C) dividends on
Put/Call Preferred Stock.
'Consolidated Net Income' means, for any period, the net income (loss) of
the Company and its consolidated Subsidiaries; provided, however, that there
shall not be included in such Consolidated Net Income:
(i) any net income (loss) of any Person (other than the Company) if
such Person is not a Restricted Subsidiary, except that (A), subject to the
limitations contained in clause (iv) below, the Company's equity in the net
income of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the
case of a dividend or other distribution paid to a Restricted Subsidiary,
to the limitations contained in clause (iii) below) and (B) the Company's
equity in a net loss of any such Person (other than an Unrestricted
Subsidiary) for such period shall be included in determining such
Consolidated Net Income,
(ii) any net income (loss) of any Person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition,
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(iii) any net income of any Restricted Subsidiary to the extent such
Restricted Subsidiary is prohibited, directly or indirectly, from paying
dividends or distributions, directly or indirectly, to the Company or any
other Restricted Subsidiary, except that (A), subject to the exclusion
contained in clause (iv) below, the Company's equity in the net income of
any such Restricted Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Restricted Subsidiary during such period to the Company
or another Restricted Subsidiary as a dividend or other distribution
(subject, in the case of a dividend paid to another Restricted Subsidiary,
to the limitation contained in this clause) and (B) the Company's equity in
a net loss of any such Restricted Subsidiary for such period shall be
included in determining such Consolidated Net Income,
(iv) any gain or loss realized upon the sale or other disposition of
any property, plant or equipment of the Company or its consolidated
Subsidiaries (including pursuant to any Sale/Leaseback Transaction) which
is not sold or otherwise disposed of in the ordinary course of business and
any gain or loss realized upon the sale or other disposition of any Capital
Stock of any Person,
(v) any extraordinary gain or loss,
(vi) the cumulative effect of a change in accounting principles,
(vii) foreign currency exchange gains and losses, and
(viii) any income (loss) from discontinued operations.
Notwithstanding the foregoing, for the purpose of the covenant described
under 'Certain Covenants-- Limitation on Restricted Payments' only, there shall
be excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to the
Company or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a)(3)(D) thereof.
'Consolidated Net Worth' means the total of the amounts shown on the
balance sheet of the Company and its Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 30 days prior to the taking of any
action for the purpose of which the determination is being made, as (i) the par
or stated value of all outstanding Capital Stock of the Company plus (ii)
paid-in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.
'Continuing Directors' means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the Issue Date or (ii) was nominated by either of the Principals to
serve on such Board of Directors.
'Currency Agreement' means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement or arrangement as
to which such Person is a party or a beneficiary.
'Default' means any event which is, or after notice or passage of time or
both would be, an Event of Default.
'Designated Senior Indebtedness' means (i) the Bank Indebtedness in the
case of the Company, (ii) any Guarantee by a Subsidiary Guarantor of the Bank
Indebtedness in the case of such Subsidiary Guarantor and (iii) any other Senior
Indebtedness in the case of the Company or Guarantor Senior Indebtedness in the
case of such Subsidiary Guarantor which, at the date of determination, has an
aggregate principal amount outstanding of, or under which, at the date of
determination, the holders thereof are committed to lend up to, at least $10
million and is specifically designated by the Company or such Subsidiary
Guarantor as 'Designated Senior Indebtedness' for purposes of the Indenture.
'Disqualified Stock' means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (i) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable automatically or at the option of the holder
thereof for Indebtedness or other Disqualified Stock or (iii) is redeemable at
the option of the holder thereof, in whole or in part, in each case on or prior
to the 91st day following the Stated Maturity of the Notes.
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'EBITDA' for any period means the Consolidated Net Income for such period,
plus the following (without duplication) to the extent deducted in calculating
such Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense, (iv) amortization expense (including
amortization of goodwill and other intangibles), (v) non-cash management
compensation expense, (vi) any increase in cost of sales resulting from the
write-up of inventory in accordance with Accounting Principles Board Opinion No.
16 (or a successor provision) and (vii) all other non-cash items reducing
Consolidated Net Income (excluding any non-cash item to the extent it requires
an accrual of or reserve for cash disbursements for any future period), in each
case for such period, (viii) any extraordinary, non-recurring or unusual loss
plus any net loss realized in connection with an asset disposition and (ix) all
premiums or prepayments of Indebtedness and minus (x) all non-cash items
increasing Consolidated Net Income.
'Exchange Act' means the Securities Exchange Act of 1934, as amended.
'Foreign Subsidiary' means any Subsidiary which is incorporated or
otherwise organized under the laws of any jurisdiction other than the United
States of America, any state thereof or the District of Columbia.
'GAAP' means generally accepted accounting principles in the United States
of America as in effect as of the date of the Indenture, including those set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
the Indenture shall be computed in conformity with GAAP.
'Guarantee' means a guarantee, direct or indirect, in any manner
(including, without limitation, letters of credit and reimbursement agreements
in respect thereof), of all or any part of any Indebtedness; provided, however,
that the term 'Guarantee' shall not include endorsements for collection or
deposit in the ordinary course of business. The term 'Guarantee' used as a verb
has a corresponding meaning.
'Guarantor Senior Indebtedness' means, with respect to a Subsidiary
Guarantor, whether outstanding on the Issue Date or thereafter incurred, (i) any
Guarantee of Indebtedness of the Company and its Subsidiaries under the New
Credit Facility, including, without limitation, obligations of the Company to
pay principal and interest (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in the documentation
with respect thereto, whether or not such interest is an allowed claim under
applicable law), reimbursement obligations under letters of credit, fees,
expenses and indemnities, and all Hedging Obligations entered into with any
lender under the New Credit Facility, whether outstanding on the date of the
Indenture or thereafter incurred, (ii) the principal of, premium, if any, and
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on, and all other Obligations with respect to, any other Indebtedness of such
Subsidiary Guarantor permitted to be incurred by such Subsidiary Guarantor under
the terms of the Indenture, whether outstanding on the date of the Indenture or
thereafter incurred, unless the instrument under which such Indebtedness is
incurred expressly provides that it is on a parity with or subordinated in right
of payment to the obligations of such Subsidiary Guarantor under its Subsidiary
Guarantee and (iii) all Obligations of the Subsidiary Guarantor with respect to
the foregoing; provided, however, that Guarantor Senior Indebtedness shall not
include (1) any obligations of such Subsidiary Guarantor to the Company or any
other Subsidiary of the Company, (2) any liability for Federal, state, local or
other taxes owed or owing by such Subsidiary Guarantor, (3) any accounts payable
or other liability to trade creditors arising in the ordinary course of business
(including Guarantees thereof or instruments evidencing such liabilities) or (4)
any Indebtedness, Guarantee or obligation of such Subsidiary Guarantor that is
expressly subordinate or junior in right of payment to any other Indebtedness,
Guarantee or obligation of such Subsidiary Guarantor, including any Guarantor
Senior Subordinated Indebtedness and Guarantor Subordinated Obligations of such
Subsidiary Guarantor.
'Guarantor Senior Subordinated Indebtedness' means, with respect to a
Subsidiary Guarantor, the obligations of such Subsidiary Guarantor under the
Subsidiary Guarantee and any other Indebtedness of such Subsidiary Guarantor,
whether outstanding on the Issue Date or thereafter incurred, that specifically
provides that such Indebtedness is to rank pari passu in right of payment with
the obligations of such Subsidiary Guarantor under the Subsidiary Guarantee and
is not subordinated by its terms in right of payment to any Indebtedness or
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other obligation of such Subsidiary Guarantor which is not Guarantor Senior
Indebtedness of such Subsidiary Guarantor.
'Guarantor Subordinated Obligation' means, with respect to a Subsidiary
Guarantor, any Indebtedness of such Subsidiary Guarantor (whether outstanding on
the Issue Date or thereafter incurred) which is subordinate or junior in right
of payment to the obligations of such Subsidiary Guarantor under the Subsidiary
Guarantee pursuant to a written agreement.
'Hedging Obligations' of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
'Holder' or 'Noteholder' means the Person in whose name a Note is
registered on the Registrar's books.
'Incur' means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Disqualified Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be incurred by such
Subsidiary at the time it becomes a Subsidiary.
'Indebtedness' means, with respect to any Person on any date of
determination (without duplication),
(i) the principal of and, if any is due and payable at such time,
premium in respect of indebtedness of such Person for borrowed money,
(ii) the principal of and, if any is due and payable at such time,
premium in respect of obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments,
(iii) all obligations of such Person in respect of unreimbursed
drawings under letters of credit or other similar instruments (including
reimbursement obligations with respect thereto) (other than letters of
credit securing obligations entered into in the ordinary course of business
to the extent any drawings thereunder are reimbursed no later than the
fifth Business Day following receipt by such Person of a demand for
reimbursement following payment on the letter of credit),
(iv) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services (except Trade Payables), which
purchase price is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the completion
of such services,
(v) all Capitalized Lease Obligations of such Person,
(vi) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Restricted Subsidiary that is not a Subsidiary
Guarantor, the aggregate liquidation preference of any Preferred Stock (but
excluding, in each case, any accrued dividends),
(vii) all Indebtedness of other Persons secured by a Lien on any asset
of such Person, whether or not such Indebtedness is assumed by such Person;
provided, however, that the amount of such Indebtedness shall be the lesser
of (A) the fair market value of such asset at such date of determination
and (B) the amount of such Indebtedness of such other Person,
(viii) all Indebtedness of other Persons to the extent Guaranteed by
such Person,
(ix) to the extent not otherwise included in this definition, Hedging
Obligations and,
(x) Acquired Indebtedness.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above (or the
accreted value thereof, in the case of Indebtedness that does not require
current payments of interest) and the maximum liability, upon the occurrence of
the contingency giving rise to the obligation, of any contingent obligations at
such date. Indebtedness shall not include interest or commitment or other fees.
'Interest Rate Agreement' means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
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'Investment' in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person and advances
to employees of such Person and its Restricted Subsidiaries made in the ordinary
course of business) or other extension of credit (including by way of Guarantee
or similar arrangement) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition for consideration of
Capital Stock, Indebtedness or other similar instruments issued by such Person;
provided that if the sole consideration for any such investment is Capital Stock
of such Person or its Subsidiaries that is not Disqualified Stock, then such
investment shall not be deemed an Investment for purposes of the Indenture.
'Investment' shall exclude extensions of trade credit by the Company and its
Restricted Subsidiaries on commercially reasonable terms in accordance with such
Person's normal trade practices. For purposes of the definition of 'Unrestricted
Subsidiary' and the 'Limitation on Restricted Payments' covenant, (i)
'Investment' shall include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of any
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent 'Investment' in an Unrestricted Subsidiary in an amount (if
positive) equal to (x) the Company's 'Investment' in such Subsidiary at the time
of such original designation less (y) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of such Subsidiary at the time that such Subsidiary is so
re-designated a Restricted Subsidiary; and (ii) any property transferred to or
from an Unrestricted Subsidiary shall be valued at its fair market value at the
time of such transfer, in each case as determined in good faith by the Board of
Directors. For the purposes of calculating the amount of other 'Investments,'
including Permitted Investments, the amount of any Investment shall be the
original cost of such Investment plus the cost of all additional Investments by
the Company or any of its Restricted Subsidiaries, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment, reduced by the payment of dividends or distributions
in connection with such Investment or any other amounts received in respect of
such Investment; provided that no such payment of dividends or distributions or
receipt of any such other amounts shall reduce the amount of any Investment if
such payment of dividends or distributions or receipt of any such amounts would
be included in Consolidated Net Income.
'Issue Date' means the date on which the Notes are originally issued.
'KII Holding' means KII Holding Corp., a Restricted Subsidiary of the
Company on the Issue Date, and its successors and assigns.
'Kleinert' means Kleinert Industries, Inc., the predecessor to Stellex
Aerospace, Inc. and a Restricted Subsidiary of the Company on the Issue Date.
'Lien' means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
'Make-Whole Premium' means, with respect to a Note, an amount equal to the
greater of (i) 4.75% of the outstanding principal amount of such Note and (ii)
the excess of (a) the present value of the remaining interest, premium and
principal payments due on such Note as if such Note were redeemed on November 1,
2002, computed using a discount rate equal to the Treasury Rate plus 75 basis
points, over (b) the outstanding principal amount of such Note.
'Management Agreement' means the Management Advisory Services Agreement,
dated as of July 1, 1997, between the Company, certain of its Subsidiaries and
Mentmore, as it may be amended, modified, supplemented or restated from time to
time.
'Management Equity Interests' means shares of Capital Stock of the Company
or of a Subsidiary Guarantor, options, warrants or stock appreciation or similar
rights, in each case held by any current or former officer, employee or other
member of management (or their estates or beneficiaries under their estates) of
the Company or of such Subsidiary Guarantor pursuant to any management equity
subscription agreement, employment agreement, employee benefit plan, stockholder
agreement, stock option agreement or similar management investor agreement and
which may be required to be repurchased by the Company or such Subsidiary
Guarantor, or which may be repurchased at the option of the Company or such
Subsidiary Guarantor, in each case pursuant to the terms of any such agreement
under which such equity interests were issued.
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'Mentmore' means Mentmore Holdings Corporation and its successors.
'Net Available Cash' from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a Note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to such properties or assets or received in any other non-cash form) therefrom,
in each case net of (i) all legal, accounting, investment banking, financial
advisory, brokerage, consultant, title and recording tax expenses, commissions
and other fees and expenses incurred, and all Federal, state, provincial,
foreign and local taxes required to be paid or accrued as a liability under
GAAP, as a consequence of such Asset Disposition, (ii) all payments made on any
Indebtedness which is secured by any assets subject to such Asset Disposition,
in accordance with the terms of any Lien upon such assets, or which must by its
terms, or in order to obtain a necessary consent to such Asset Disposition, or
by applicable law be repaid out of the proceeds from such Asset Disposition,
(iii) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition and (iv) the deduction of appropriate amounts to be provided by the
seller as a reserve, in accordance with GAAP, against any liabilities associated
with the assets disposed of in such Asset Disposition and retained by the
Company or any Restricted Subsidiary after such Asset Disposition, including,
without limitation, in respect of sales price adjustments, pension and other
post-employment benefit liabilities and liabilities related to indemnification
obligations associated with the assets sold or disposed of in such Asset
Disposition.
'Net Cash Proceeds', with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
'New Credit Facility' means that certain credit facility entered into on
the Issue Date among the Company, the Subsidiary Guarantors, Societe Generale,
and the lenders from time to time party thereto, including all collateral
documents, instruments and agreements executed in connection therewith, and the
term New Credit Facility shall also include any amendments, supplements,
modifications, extensions, renewals, restatements or refundings thereof and any
credit facilities or agreements that replace, refund or refinance any part of
the loans, other credit facilities or commitments thereunder, including any such
replacement, refunding or refinancing facility that increases the amount
borrowable thereunder or alters the maturity thereof.
'Non-Recourse Debt' means Indebtedness (i) as to which neither the Company
nor any Restricted Subsidiary (a) provides any Guarantee or credit support of
any kind (including any undertaking, Guarantee, indemnity, agreement or
instrument that would constitute Indebtedness) or (b) is directly or indirectly
liable (as a guarantor or otherwise) and (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness of the Company or any
Restricted Subsidiary to declare a default under such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity.
'Obligations' means any principal, interest, penalties, fees, indemnities,
damages and other liabilities payable under the instruments governing, or under
agreements entered into in connection with, any Indebtedness.
'Permitted Holders' means (i) Richard L. Kramer and William L. Remley (the
'Principals'), (ii) any spouse or immediate family member of a Principal and any
child or spouse of any spouse or immediate family member of a Principal, (iii) a
trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding, directly or
indirectly, a controlling interest of which consists of a Principal and/or such
other Persons referred to in the immediately preceding clause (ii) or (iv) the
trustees of any trust referred to in clause (iii).
'Permitted Investment' means an Investment by the Company or any Restricted
Subsidiary in (i) the Company or in a Restricted Subsidiary or a Person which
will, upon the making of such Investment, become a Restricted Subsidiary;
provided, however, that the primary business of such Restricted Subsidiary is a
Related Business; (ii) another Person if as a result of such Investment such
other Person is merged or consolidated with or into, or transfers or conveys all
or substantially all its assets to, the Company or a Restricted Subsidiary;
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provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary, if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) payroll, travel, relocation and similar advances to cover
matters that are expected at the time of such advances ultimately to be treated
as expenses for accounting purposes and that are made in the ordinary course of
business; (vi) loans or advances to employees made in the ordinary course of
business of the Company or such Restricted Subsidiary; (vii) stock, obligations
or securities received in settlement of debts created in the ordinary course of
business and owing to the Company or any Restricted Subsidiary or in
satisfaction of judgments; (viii) Guarantees permitted to be made pursuant to
the covenant 'Limitation on Indebtedness and Preferred Stock'; (ix) Investments
in securities of trade creditors received in settlement of obligations or
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of any trade creditors of customers, (x) Currency
Agreements and Interest Rate Agreements entered into in the ordinary course of
business; provided that such agreements are entered into for bona fide hedging
purposes, are not for speculation or trading purposes and are designed to
protect against fluctuations in interest rates, currency exchange rates or
commodity prices, as the case may be, and, in the case of Interest Rate
Agreements, any such Interest Rate Agreement has a notional amount corresponding
to the Indebtedness being hedged thereby, (xi) Investments made by the Company
or a Restricted Subsidiary in connection with an Asset Disposition made in
compliance with the covenant 'Limitation on Sales of Assets and Subsidiary
Stock,' (xii) any acquisition of assets solely in exchange for the issuance of
Capital Stock (other than Disqualified Stock) of the Company; (xiii) any
Investment existing on the date of the Indenture; and (xiv) other Investments in
any Person having an aggregate fair market value, when taken together with all
other Investments made pursuant to this clause (xiv) that are at the time
outstanding, not to exceed $5 million.
'Permitted Junior Securities' means (A) Capital Stock of the Company or (B)
debt securities that (i) are subordinated to all Senior Indebtedness (and any
debt securities issued in exchange for Senior Indebtedness) to substantially the
same extent as, or to a greater extent than, the Notes are subordinated to
Senior Indebtedness and (ii) have a Stated Maturity no earlier than one year
after the Stated Maturity of the New Credit Facility (or, if earlier, the
Notes).
'Permitted Liens' means (i) Liens securing Senior Indebtedness and
Guarantor Senior Indebtedness that was permitted by the terms of the Indenture
to be incurred; (ii) Liens in favor of the Company or any Restricted Subsidiary;
(iii) Liens on property of a Person existing at the time such Person becomes a
Subsidiary of the Company or is merged into or consolidated with the Company or
any Subsidiary of the Company; provided that such Liens were in existence prior
to the time such Person becomes a Subsidiary or the contemplation of such merger
or consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company; (iv) Liens on property existing at
the time of acquisition thereof by the Company or any Subsidiary of the Company,
provided that such Liens were in existence prior to the contemplation of such
acquisition; (v) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (vi) Liens to secure Indebtedness
(including Capital Lease Obligations) permitted by clause (ix) of the second
paragraph of the covenant entitle '--Limitation on Indebtedness and Preferred
Stock' covering only the assets acquired with such Indebtedness; (vii) Liens
existing on the date of the Indenture; (viii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor; (ix)
statutory Liens or landlords', carriers', warehousemens', mechanics', suppliers'
or similar Liens incurred in the ordinary course of business of the Company or
any Subsidiary of the Company; (x) easements, minor title defects,
irregularities in title or other charges or encumbrances on property not
interfering in any material respect with the use of such property by the Company
or a Subsidiary of the Company; (xi) Liens incurred or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (xii) liens securing
industrial revenue bonds or other tax-favored financing; (xiii) deposit
arrangements entered into in connection with acquisitions or in the ordinary
course of business; (xiv) other Liens securing obligations incurred in the
ordinary course of business which obligations do not exceed $2 million at any
one time outstanding; and (xv) any extensions, substitutions, replacements or
renewals of the foregoing.
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'Person' means any individual, corporation, partnership joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
'Preferred Stock', as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
'Public Equity Offering' means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
'Put/Call Preferred Stock' means preferred stock which may be issued by the
Company or a Subsidiary Guarantor to the holders of any Management Equity
Interests of the Company or such Subsidiary Guarantor in exchange for such
Management Equity Interests held by such holders; provided that (a) payments on
such preferred stock, including pursuant to any redemption, repurchase or
default provision, and payments of dividends on such preferred stock, in each
case in cash, may be made only to the extent Restricted Payments would then be
permitted to be made in accordance with the covenant 'Limitations on Restricted
Payments,' with any such payment being included in the calculation of the amount
of Restricted Payments pursuant to clause (3) of paragraph (a) of such covenant
and (b) no failure to pay such preferred stock or failure to comply with any
other provision of such preferred stock or of the instrument governing such
preferred stock shall cause a default or event of default under any Indebtedness
of the Company and its Restricted Subsidiaries.
'Put/Call Promissory Notes' means promissory notes which may be issued by
the Company or a Subsidiary Guarantor to the holders of any Management Equity
Interests of the Company or such Subsidiary Guarantor in exchange for such
Management Equity Interests held by such holders; provided that (a) such notes
and any guarantees thereof are expressly subordinated to the Notes or the
applicable Subsidiary Guarantee pursuant to the terms of the instrument
governing such notes, (b) such notes are not secured by any Lien or any property
or assets of the Company or any of its Restricted Subsidiaries, (c) payments of
principal on such notes, including pursuant to any guarantee, redemption,
repurchase or default provision, and payments of interest on such notes,
including pursuant to any guarantee, in each case in cash, may be made only to
the extent Restricted Payments would then be permitted to be made in accordance
with the covenant 'Limitation on Restricted Payments,' with any such payment
being included in the calculation of the amount of Restricted Payments pursuant
to clause (3) of paragraph (a) of such covenant and (d) no failure to pay such
notes or failure to comply with any other provision of such notes or of the
instrument governing such notes shall cause a default or event of default under
any Indebtedness of the Company and its Restricted Subsidiaries.
'Refinancing Indebtedness' means Indebtedness issued in exchange for, or
that refunds, refinances, replaces, renews, repays or extends (including
pursuant to any defeasance or discharge mechanism) (collectively, 'refinances,'
and 'refinanced' shall have a correlative meaning) any Indebtedness existing on
the date of the Indenture or Incurred in compliance with the Indenture
(including Indebtedness of the Company that refinances Indebtedness of any
Restricted Subsidiary and Indebtedness of any Restricted Subsidiary that
refinances Indebtedness of another Restricted Subsidiary) including Indebtedness
that refinances other Refinancing Indebtedness; provided, however, that (i) the
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being refinanced (or, if earlier, the Notes), (ii)
the Refinancing Indebtedness has an Average Life at the time such Refinancing
Indebtedness is Incurred that is equal to or greater than the Average Life of
the Indebtedness being refinanced and (iii) such Refinancing Indebtedness is
Incurred in an aggregate principal amount (or if issued with original issue
discount, an aggregate issue price) that is equal to or less than the sum of the
aggregate principal amount (or if issued with original issue discount, the
aggregate accreted value) then outstanding of the Indebtedness being refinanced
plus the amount of reasonable fees and expenses and prepayment premiums incurred
in connection with such refinancing; provided further, however, that Refinancing
Indebtedness shall not include (x) Indebtedness of a Restricted Subsidiary which
is not a Subsidiary Guarantor that refinances Indebtedness of the Company or (y)
Indebtedness of the Company or a Restricted Subsidiary that refinances
Indebtedness of an Unrestricted Subsidiary (unless such Unrestricted Subsidiary
is concurrently redesignated a Restricted Subsidiary).
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'Related Business' means the businesses of the Company and the Restricted
Subsidiaries on the date of the Indenture and any business related, ancillary or
complementary thereto, or which is an extension thereof, in each case as
determined by the Company in good faith.
'Representative' means any trustee, agent or representative (if any) of an
issue of Designated Senior Indebtedness.
'Restricted Subsidiary' means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
'Sale/Leaseback Transaction' means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person (other than to the Company or a Restricted
Subsidiary) and the Company or a Restricted Subsidiary leases it from such
Person.
'SEC' means the U.S. Securities and Exchange Commission.
'Secured Indebtedness' means any Indebtedness of the Company or a
Subsidiary Guarantor secured by a Lien.
'Senior Subordinated Indebtedness' means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank pari passu with the Notes in right of payment and is not subordinated by
its terms in right of payment to any Indebtedness or other obligation of the
Company which is not Senior Indebtedness.
'Series B Preferred Stock' means Series B Preferred Stock of KII Holding
required to be issued to its officers and employees pursuant to the Agreement,
dated as of July 1, 1997, among KII Holding and the other parties thereto.
'Significant Subsidiary' means any Restricted Subsidiary that would be a
'Significant Subsidiary' of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
'Stated Maturity' means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
'Subordinated Obligation' means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement.
'Subsidiary' of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and one
or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such
Person.
'Subsidiary Guarantee' means the Guarantee by a Subsidiary Guarantor of the
Company's obligations with respect to the Notes.
'Subsidiary Guarantor' means each Subsidiary of the Company existing on the
Issue Date and each new Subsidiary (other than Foreign Subsidiaries and
Unrestricted Subsidiaries) that guarantees the Company's obligations with
respect to the Notes.
'Temporary Cash Investments' means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit, eurodollar
time deposits, bankers' acceptances and money market deposits maturing within
360 days of the date of acquisition thereof issued by a bank or trust company
which is organized under the laws of the United States of America, any state
thereof or any foreign country recognized by the United States of America having
capital, surplus and undivided profits aggregating in excess of $250,000,000 (or
the foreign currency equivalent thereof) and whose long-term debt is rated 'A'
(or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act), (iii) repurchase obligations with a term of not more than 30
days for underlying securities of the types described in clause (i) above
entered into with a bank
100
<PAGE>
meeting the qualifications described in clause (ii) above, (iv) investments in
commercial paper, maturing not more than 180 days after the date of acquisition,
issued by a corporation (other than an Affiliate of the Company) organized and
in existence under the laws of the United States of America or any foreign
country recognized by the United States of America with a rating at the time as
of which any investment therein is made of 'P-1' (or higher) according to
Moody's Investors Service, Inc. or 'A-1' (or higher) according to Standard &
Poor's Ratings Group, (v) investments in securities with maturities of six
months or less from the date of acquisition issued or fully guaranteed by any
state, commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least 'A' by
Standard & Poor's Ratings Group or 'A' by Moody's Investors Service, Inc. and
(vi) investment funds registered under the Investment Company Act of 1940, as
amended, investing at least 95% of their assets in securities of any of the
types described in clauses (i) through (v) above.
'TIA' means the Trust Indenture Act of 1939 (15 U.S.C.
SectionSection77aaa-77bbbb) as in effect on the date of the Indenture.
'Trade Payables' means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
'Unrestricted Subsidiary' means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, the Company or any other Subsidiary of the Company that
is not a Subsidiary of the Subsidiary to be so designated; provided, however,
that either (A) the Subsidiary to be so designated has total consolidated assets
of $10,000 or less or (B) if such Subsidiary has consolidated assets greater
than $10,000, then such designation would be permitted under 'Limitation on
Restricted Payments.' The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation (x) the Company could Incur $1.00 of
additional Indebtedness under clause (a) of 'Limitation on Indebtedness and
Preferred Stock' and (y) no Default shall have occurred and be continuing. Any
such designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
'U.S. Government Obligations' means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
'Voting Stock' of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
'Wholly Owned Subsidiary' means a Restricted Subsidiary of the Company all
the Capital Stock of which (other than directors' qualifying shares) is owned by
the Company or another Wholly Owned Subsidiary.
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the New Notes will initially be issued in the
form of one or more registered Notes in global form without coupons (each a
'Global Note'). Each Global Note will be deposited upon issuance with, or on
behalf of, The Depository Trust Company (the 'Depository') and registered in the
name of Cede & Co., as nominee of the Depository, or will remain in the custody
of the Trustee pursuant to the FAST Balance Certificate Agreement between the
Depository and the Trustee.
New Notes that are issued in respect of Notes that were (i) originally
issued to or transferred to institutional 'accredited investors,' as defined in
Rule 501(a) (1), (3) or (7) under the Securities Act ('Institutional Accredited
Investors'), who are not QIBs or to any other persons who are not QIBs or (ii)
issued as described below under 'Certificated Securities,' will be issued in
registered definitive form without coupons (the 'Certificated Securities'). Upon
the transfer to a QIB of Certificated Securities, such Certificated Securities
101
<PAGE>
may, unless the Global Note has previously been exchanged for Certificated
Securities, be exchanged for an interest in the Global Note representing the
principal amount of Notes being transferred.
The Depository has advised the Company that it is (i) a limited purpose
trust company organized under the laws of the State of New York, (ii) a member
of the Federal Reserve System, (iii) a 'clearing corporation' with the meaning
of the Uniform Commercial Code, as amended, and (iv) a 'Clearing Agency'
registered pursuant to Section 17A of the Exchange Act. The Depository was
created to hold securities for its participants (collectively, the
'Participants') and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes to the
accounts of its Participants, thereby eliminating the need for physical transfer
and delivery of certificates. The Depository's Participants include securities
brokers and dealers (including the Initial Purchasers), banks and trust
companies, clearing corporations and certain other organizations. Access to the
Depository's system is also available to other entities such as banks, brokers,
dealers and trust companies (collectively, the 'Indirect Participants') that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly. QIBs may elect to hold Notes purchased by them through
the Depository. QIBs who are not Participants may beneficially own securities
held by or on behalf of the Depository only through Participants or Indirect
Participants. Persons that are not QIBs may not hold Notes through the
Depository.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Note, the Depository will credit the
accounts of Participants designated by the Exchange Agent with an interest in
the Global Note and (ii) ownership of such interests in the Global Note will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by the Depository (with respect to the interest of
Participants), the Participants and the Indirect Participants. The laws of some
states require that certain persons take physical delivery in definitive form of
securities that they own and that security interests in negotiable instruments
can only be perfected by delivery of certificates representing the instruments.
Consequently, the ability to transfer Notes or to pledge the Notes as collateral
will be limited to such extent.
So long as the Depository or its nominee is the registered owner of the
Global Note, the Depository or such nominee, as the case may be, will be
considered the sole owner or Holder of the Notes represented by the Global Note
for all purposes under the Indenture. Except as provided below, owners of
beneficial interests in a Global Note will not be entitled to have Notes
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of Certificated Securities, and will
not be considered the owners or holders thereof under the Indenture for any
purpose, including with respect to giving of any directions, instruction or
approval to the Trustee thereunder. As a result, the ability of a person having
a beneficial interest in Notes represented by a Global Note to pledge such
interest to persons or entities that do not participate in the Depository's
system or to otherwise take action with respect to such interest, may be
affected by the lack of a physical certificate evidencing such interest.
Accordingly, each QIB owning a beneficial interest in a Global Note must
rely on the procedures of the Depository and, if such QIB is not a Participant
or an Indirect Participant, on the procedures of the Participant through which
such QIB owns its interest, to exercise any rights of a Holder under the
Indenture or such Global Note. The Company understands that under existing
industry practice, in the event the Company requests any action of holders or a
QIB that is an owner of a beneficial interest in a Global Note desires to take
any action that the Depository, as the Holder of such Global Note, is entitled
to take, the Depository would authorize the Participants to take such action and
the Participant would authorize QIBs owning through such Participants to take
such action or would otherwise act upon the instruction of such QIBs. Neither
the Company nor the Trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of Notes by the
Depository, or for maintaining, supervising or reviewing any records of the
Depository relating to such Notes.
Payments with respect to the principal of, premium, if any, and interest on
any Notes represented by a Global Note registered in the name of the Depository
or its nominee on the applicable record date will be payable by the Trustee to
or at the direction of the Depository or its nominee in its capacity as the
registered Holder of the Global Note representing such Notes under the
Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names the Notes, including the Global Note, are
registered as the owners thereof for the purpose of receiving such payment and
for any and all other purposes whatsoever. Consequently, neither the Company nor
the Trustee has or will have any responsibility or liability for the payment of
such
102
<PAGE>
amounts to beneficial owners of Notes (including principal, premium, if any, and
interest), or to immediately credit the accounts of the relevant Participants
with such payment, in amounts proportionate to their respective holdings in
principal amount of beneficial interest in the Global Note as shown on the
records of the Depository. Payments by the Participants and the Indirect
Participants to the beneficial owners of Notes will be governed by standing
instructions and customary practice and will be the responsibility of the
Participants or the Indirect Participants.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that the Depository is
no longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days, (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture or (iii) upon the occurrence of certain
other events, then, upon surrender by the Depository of its Global Notes,
Certificated Securities will be issued to each person that the Depository
identifies as the beneficial owner of the Notes represented by the Global Note.
Upon any such issuance, the Trustee is required to register such Certificated
Securities in the name of such person or persons (or the nominee of any
thereof), and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by the
Depository or any Participant or Indirect Participant in identifying the
beneficial owners of the related Notes and each such person may conclusively
rely on, and shall be protected in relying on, instructions from the Depository
for all purposes (including with respect to the registration and delivery, and
the respective principal amounts, of the Notes to be issued).
103
<PAGE>
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative rulings and practice. There can be no assurance
that the Internal Revenue Service (the 'IRS') will not take a contrary view, and
no ruling from the IRS has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter or
modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Certain holders (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United States)
may be subject to special rules not discussed below. The Company recommends that
each holder consult such holder's own tax adviser as to the particular tax
consequences of exchanging such holder's Old Notes for New Notes, including the
applicability and effect of any state, local or foreign tax laws.
The Company believes that the exchange of Old Notes for New Notes pursuant
to the Exchange Offer will not be treated as an 'exchange' for federal income
tax purposes because the New Notes will not be considered to differ materially
in kind or extent from the Old Notes. Rather, the New Notes received by a holder
will be treated as a continuation of the Old Notes in the hands of such holder.
As a result, there will be no federal income tax consequences to holders
exchanging Old Notes for New Notes pursuant to the Exchange Offer.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 90 days after the Expiration Date, it will make this
Prospectus available to any Participating Broker-Dealer for use in connection
with any such resale. Until , 1998 (90 days after the commencement of
the Exchange Offer), all dealers effecting transactions in the New Notes,
whether or not participating in this distribution, may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sales of the New Notes
by Participating Broker-Dealers. New Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the New Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer and/or the purchasers of
any such New Notes. Any Participating Broker-Dealer that resells the New Notes
that were received by it for its own account pursuant to the Exchange Offer and
any broker or dealer that participates in a distribution of such New Notes may
be deemed to be an 'underwriter' within the meaning of the Securities Act and
any profit on any such resale of New Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an 'underwriter' within the meaning of
the Securities Act.
For a period of 90 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. The Company has agreed to pay all expenses incident to the
Exchange Offer other than commissions or concessions of any broker-dealers and
will indemnify Holders of the Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
104
<PAGE>
LEGAL MATTERS
The validity of the issuance of the New Notes and the Subsidiary Guarantees
being offered hereby will be passed upon for the Company and the Subsidiary
Guarantors by Winston & Strawn, New York, New York.
EXPERTS
The consolidated balance sheets as of December 31, 1995 and 1996 and the
consolidated statements of income, shareholder's equity, and cash flows for each
of the three years in the period ended December 31, 1996 of Kleinert Industries,
Inc. and its subsidiaries, the predecessor of Stellex and Subsidiaries, in this
Prospectus, have been included herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing. The combined balance sheets as of December
31, 1995 and 1996 and September 30, 1997 and the combined statements of
operations and invested equity and of cash flows for the years ended December
31, 1995 and 1996 and the nine months ended September 30, 1997 of the Tactical
Systems and Microwave Devices Sectors of Watkins-Johnson Company included in
this Prospectus, have been included herein in reliance on the report of Deloitte
& Touche, LLP, independent accountants, given on the authority of that firm as
experts in accounting and auditing. The balance sheet of Stellex as of September
5, 1997 included in this Prospectus has been included herein in reliance on the
report of Deloitte & Touche, LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
105
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
STELLEX INDUSTRIES, INC.
Independent Auditors' Report............................................................................... F-2
Balance Sheet at September 5, 1997......................................................................... F-3
Notes to Balance Sheet..................................................................................... F-4
STELLEX INDUSTRIES, INC. AND SUBSIDIARIES (FORMERLY KLEINERT INDUSTRIES, INC. AND SUBSIDIARIES)
FINANCIAL STATEMENTS:
Report of Independent Accountants.......................................................................... F-5
Consolidated Balance Sheets at December 31, 1995 and 1996 and September 30, 1997 (unaudited)............... F-6
Consolidated Statements of Income for the years ended December 31, 1994, 1995 and 1996
and the nine months ended September 30, 1996 and six months ended June 30, 1997 (predecessor)(unaudited)
and the three months ended September 30, 1997 (successor)(unaudited)..................................... F-7
Consolidated Statements of Shareholder's Equity for the years ended December 31, 1994, 1995
and 1996 and the six months ended June 30, 1997 (predecessor)(unaudited) and the three months ended
September 30, 1997 (successor)(unaudited)................................................................ F-8
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996
and the nine months ended September 30, 1996 and six months ended June 30, 1997 (predecessor)(unaudited)
and the three months ended September 30, 1997 (predecessor)(unaudited)................................... F-9
Notes to Consolidated Financial Statements................................................................. F-10
FINANCIAL STATEMENT SCHEDULE:
Schedule II--Valuation and Qualifying Accounts and Reserves................................................ S-1
TACTICAL SUBSYSTEMS AND MICROWAVE DEVICES SECTORS OF
WATKINS-JOHNSON COMPANY
Independent Auditors' Report............................................................................... F-18
Combined Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997............................ F-19
Combined Statements of Operations and Invested Equity for the years ended December 31, 1995 and 1996 and
the nine months ended September 30, 1997................................................................. F-20
Combined Statements of Cash Flows for the years ended December 31, 1995 and 1996 and the nine months ended
September 30, 1997....................................................................................... F-21
Notes to Combined Financial Statements..................................................................... F-22
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Stellex Industries, Inc.:
We have audited the accompanying balance sheet of Stellex Industries, Inc.
('Stellex') as of September 5, 1997. This balance sheet is the responsibility of
the management of Stellex. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free from material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all material respects,
the financial position of Stellex as of September 5, 1997 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
December 5, 1997
F-2
<PAGE>
STELLEX INDUSTRIES, INC.
BALANCE SHEET
SEPTEMBER 5, 1997
<TABLE>
<S> <C>
ASSETS............................................................. $ 0
----
----
Liabilities and Equity:
Total liabilities................................................ $ 0
----
Preferred stock; stated value $10,000 per share; 500 shares
authorized and 0 shares issued................................ 0
Common stock; no par value; 1,000 shares authorized and 0 shares
issued........................................................ 0
----
Total Liabilities and Equity..................................... $ 0
----
----
</TABLE>
See notes to balance sheet.
F-3
<PAGE>
STELLEX INDUSTRIES, INC.
NOTES TO BALANCE SHEET
SEPTEMBER 5, 1997
NOTE 1--FORMATION
On September 5, 1997, Stellex Holdings Corp. was incorporated as a Delaware
corporation which subsequently on October 23, 1997 amended its articles of
incorporation to change its corporate name to Stellex Industries, Inc.
('Stellex').
NOTE 2--SUBSEQUENT EVENTS
On September 12, 1997, Stellex issued 1,000 shares of its no par common
stock to Greystoke Capital Management Limited LDC ('Greystoke') in exchange for
(i) 8,010 shares of common stock of KII Holding Corp., (ii) 84 shares of Series
A Cumulative Preferred Stock of KII Holding Corp., (iii) $50,000 cash and (iv)
the assumption of a $4,000,000 promissory note. As a result, Stellex acquired an
80.1% interest in KII Holding Corp.
On October 31, 1997, Stellex, through a wholly-owned subsidiary, TSMD
Acquisition Corp., purchased 100% of the outstanding common stock of Stellex
Microwave Systems, Inc., representing the operations of the Tactical Subsystems
and Microwave Devices Sectors ('TSMD') of the Watkins-Johnson Company for a net
purchase price of approximately $82.2 million (after giving effect to estimated
purchase price adjustments). The purchase was financed with the net proceeds
from a simultaneous offering of senior subordinated notes totaling $92.3
million, borrowings of $2.5 million under a newly established $25.0 million
revolving credit facility and the sale of Series A Preferred Stock for an
aggregate consideration of $7,450,000. Existing indebtedness at certain of
Stellex's subsidiaries totaling $19.7 million plus accrued interest was also
repaid concurrently.
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Kleinert Industries, Inc.
We have audited the accompanying consolidated financial statements and the
financial statement schedule of Kleinert Industries, Inc. and Subsidiaries,
listed in the Index on page F-1 of this Registration Statement on Form S-4.
These financial statements and financial statement schedule 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 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Kleinert
Industries, Inc. and Subsidiaries as of December 31, 1995 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements as a whole, present fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
April 11, 1997, except for Note 10 as to which the date is July 1, 1997
F-5
<PAGE>
STELLEX INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY KLEINERT INDUSTRIES, INC. AND SUBSIDIARIES)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------------- -------------
1995 1996 1997
----------- ----------- -------------
(UNAUDITED)
(PREDECESSOR) (SUCCESSOR)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 203,600 $ 406,000 $ 729,800
Trade accounts receivable, less allowance for doubtful
accounts ($61,300 in 1995 and $112,300 in 1996).................... 3,487,400 3,876,000 5,803,200
Inventories (Note 2)............................................... 10,473,600 11,547,700 13,210,800
Due from Parent.................................................... -- 55,600 --
Income taxes receivable............................................ -- -- 466,900
Prepaid and other assets........................................... 188,800 225,700 347,900
Deferred income taxes (Note 6)..................................... 351,000 486,000 486,000
----------- ----------- -------------
Total current assets............................................. 14,704,400 16,597,000 21,044,600
Property, plant and equipment, net (Note 3).......................... 11,775,400 11,165,400 13,766,900
Goodwill, net of accumulated amortization of $231,500 in 1995 and
$262,700 in 1996................................................... 1,017,300 986,100 --
Deferred financing cost.............................................. -- -- 232,200
Other assets......................................................... 683,200 865,900 983,700
----------- ----------- -------------
Total assets..................................................... $28,180,300 $29,614,400 $36,027,400
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Bank line of credit (Note 4)........................................ $ 3,565,000 $ 4,300,000 $ 1,230,000
Short term notes payable............................................ -- -- 4,000,000
Accounts payable.................................................... 1,167,300 1,525,000 1,536,100
Accrued liabilities................................................. 943,300 1,261,400 2,158,300
Customer deposits................................................... 43,500 177,900 233,100
Income taxes payable................................................ 43,000 39,600 --
Notes payable, current (Note 5)..................................... 2,140,500 1,558,000 58,000
------------ ------------ -------------
Total current liabilities......................................... 7,902,600 8,861,900 9,215,500
Notes payable, less current portion (Note 5).......................... 5,683,000 4,123,900 22,830,900
Unfunded pension benefits (Note 7).................................... 305,000 307,800 307,800
Deferred compensation liability (Note 7).............................. 1,082,400 1,291,900 1,364,000
Deferred income taxes (Note 6)........................................ 462,200 851,300 1,737,000
------------ ------------ -------------
Total liabilities................................................. 15,435,200 15,436,800 35,455,200
------------ ------------ -------------
Minority interest..................................................... -- -- 778,100
Commitments and contingencies (Note 8)
Shareholder's equity:
Common stock, $1,000 par value; 1,000,000 shares authorized, 10,000
shares issued and outstanding at December 31, 1995 and 1996: no
par value; 1,000 shares authorized, issued and outstanding
at September 30, 1997............................................. 10,000,000 10,000,000 50,000
Preferred stock, no par value; 500 shares authorized, none issued
and outstanding at September 30, 1997............................. -- -- --
Additional paid-in capital.......................................... 1,952,700 1,952,700 --
Retained earnings (Accumulated deficit)............................. 792,400 2,224,900 (255,900)
------------ ------------ -------------
Total shareholder's equity (Accumulated deficit).................. 12,745,100 14,177,600 (205,900)
------------ ------------ -------------
Total liabilities and shareholder's equity........................ $ 28,180,300 $ 29,614,400 $36,027,400
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
STELLEX INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY KLEINERT INDUSTRIES, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(PREDECESSOR) FOR THE SIX
----------------------------------------- FOR THE NINE MONTHS FOR THE THREE
MONTHS ENDED ENDED JUNE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, SEPTEMBER 30, 30, SEPTEMBER 30,
----------------------------------------- ------------- ----------- -------------
1994 1995 1996 1996 1997 1997
----------- ----------- ----------- ------------- ----------- -------------
(UNAUDITED) (UNAUDITED)
(PREDECESSOR) (SUCCESSOR)
<S> <C> <C> <C> <C> <C> <C>
Sales...................... $17,808,400 $21,049,100 $24,306,900 $17,966,900 $14,296,000 $ 8,889,800
Cost of sales.............. 13,121,600 15,083,500 17,366,800 12,872,000 10,139,600 6,746,900
----------- ----------- ----------- ------------- ----------- -------------
Gross profit........... 4,686,800 5,965,600 6,940,100 5,094,900 4,156,400 2,142,900
----------- ----------- ----------- ------------- ----------- -------------
Operating expenses:
Selling and marketing.... 628,600 744,300 836,300 622,900 429,800 251,800
General and
administrative......... 2,480,600 2,554,200 2,792,900 2,124,100 1,353,300 1,318,800
Amortization of
noncompete covenants,
goodwill and
organization costs..... 416,100 282,200 31,200 23,400 15,600 12,200
----------- ----------- ----------- ------------- ----------- -------------
Total operating costs.. 3,525,300 3,580,700 3,660,400 2,770,400 1,798,700 1,582,800
----------- ----------- ----------- ------------- ----------- -------------
Income from
operations........... 1,161,500 2,384,900 3,279,700 2,324,500 2,357,700 560,100
----------- ----------- ----------- ------------- ----------- -------------
Other (income) expense:
Interest income.......... (43,500) (5,500) (11,600) (6,700) (4,500) (2,000)
Interest expense......... 978,800 1,034,400 855,800 659,500 375,700 508,000
Other.................... 144,700 44,100 58,100 39,000 102,900 22,400
----------- ----------- ----------- ------------- ----------- -------------
Total other expense.... 1,080,000 1,073,000 902,300 691,800 474,100 528,400
----------- ----------- ----------- ------------- ----------- -------------
Income before provision
for income taxes..... 81,500 1,311,900 2,377,400 1,632,700 1,883,600 31,700
----------- ----------- ----------- ------------- ----------- -------------
Provision for income taxes
(Note 6)................. 50,000 524,800 944,900 656,700 753,400 287,600
----------- ----------- ----------- ------------- ----------- -------------
Net income (loss)...... $ 31,500 $ 787,100 $ 1,432,500 $ 976,000 $ 1,130,200 $ (255,900)
----------- ----------- ----------- ------------- ----------- -------------
----------- ----------- ----------- ------------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
STELLEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL
---------------------- -------------------- PAID-IN RETAINED TOTAL
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS AMOUNT
------- ------------ ------ ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993...... 10,000 $ 10,000,000 -- -- $1,952,700 $ (26,200) $11,926,500
Net income (predecessor)........ -- -- -- -- -- 31,500 31,500
------- ------------ ------ ----------- ---------- ---------- -----------
Balance at December 31, 1994...... 10,000 10,000,000 -- -- 1,952,700 5,300 11,958,000
Net income (predecessor)........ -- -- -- -- -- 787,100 787,100
------- ------------ ------ ----------- ---------- ---------- -----------
Balance at December 31, 1995...... 10,000 10,000,000 -- -- 1,952,700 792,400 12,745,100
Net income (predecessor)........ -- -- -- -- -- 1,432,500 1,432,500
------- ------------ ------ ----------- ---------- ---------- -----------
Balance at December 31, 1996...... 10,000 10,000,000 -- -- 1,952,700 2,224,900 14,177,600
------- ------------ ------ ----------- ---------- ---------- -----------
Net income (unaudited)
(predecessor) for the six
months ended June 30, 1997.... -- -- -- -- -- 1,130,200 1,130,200
------- ------------ ------ ----------- ---------- ---------- -----------
Balance at June 30, 1997
(unaudited)..................... 10,000 $ 10,000,000 -- -- $1,952,700 $3,355,100 $15,307,800
------- ------------ ------ ----------- ---------- ---------- -----------
Stock sale in connection with
the Kleinert Acquisition...... (10,000) (10,000,000) -- -- (1,952,700) (3,355,100) --
Issuance of Stock............... 1,000 50,000 -- -- -- -- 50,000
Net loss (unaudited) (successor)
for the three months ended
September 30, 1997............ -- -- -- -- -- (255,900) (255,900)
------- ------------ ------ ----------- ---------- ---------- -----------
Balance at September 30, 1997
(unaudited)..................... 1,010 $ 50,000 -- $ -- -- ($ 255,900) ($ 205,900)
------- ------------ ------ ----------- ---------- ---------- -----------
------- ------------ ------ ----------- ---------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
STELLEX INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY KLEINERT INDUSTRIES, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE NINE MONTHS
MONTHS ENDED ENDED JUNE FOR THE THREE
FOR THE YEARS ENDED DECEMBER 31, SEPTEMBER 30, 30, MONTHS ENDED
-------------------------------------- ------------- ----------- SEPTEMBER 30,
1994 1995 1996 1996 1997 1997
----------- ----------- ---------- ------------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
(PREDECESSOR) (SUCCESSOR)
Cash flows from operating activities:
Net income (loss).................... $ 31,500 $ 787,100 $1,432,500 $ 976,000 $1,130,200 ($ 255,900)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation....................... 2,008,400 1,668,100 1,660,200 1,229,200 862,600 363,400
Amortization....................... 416,100 282,200 31,200 23,400 15,600 12,200
Gain on sale of property........... (11,000) (10,600) (2,200) -- (4,000 )
Deferred income taxes.............. 45,200 165,800 254,100 174,400 125,100 51,500
Changes in assets and liabilities:
Trade accounts receivable........ (11,800) (299,000) (388,600) (445,000) (978,200 ) (899,000)
Inventories...................... (841,400) (1,058,200) (1,074,100) (777,300) (1,078,300 ) 502,700
Income taxes receivable.......... -- -- -- -- -- 109,800
Prepaid and other assets......... 317,700 (8,400) (36,900) (99,400) (51,244 ) (91,400)
Due from Parent.................. -- -- (55,600) -- (2,100 ) --
Other assets..................... (160,800) (146,000) (182,700) (108,000) (74,500 ) (43,300)
Accounts payable................. 185,700 127,500 357,700 (32,900) 559,000 (549,000)
Accrued liabilities.............. 118,700 329,400 530,400 571,100 17,944 684,700
Customer deposits................ 9,100 8,200 134,400 13,000 (3,100 ) 58,300
Income taxes payable............. 23,000 20,000 (3,400) (19,600) (39,600 ) --
----------- ----------- ---------- ------------- ----------- -------------
Net cash provided by (used in)
operating activities......... 2,130,400 1,866,100 2,657,000 1,570,700 479,400 (56,000)
----------- ----------- ---------- ------------- ----------- -------------
Cash flows from investing activities:
Additions to fixed assets............ (288,000) (656,700) (1,052,500) (622,500) (868,500 ) (539,000)
Collections on notes receivable...... 548,000 1,600 -- -- -- --
Proceeds from sale of fixed assets... 25,100 12,000 4,500 -- 33,500 --
Net cash paid to the Seller for
acquisition of Kleinert............ -- -- -- -- -- (14,799,300)
----------- ----------- ---------- ------------- ----------- -------------
Net cash (used in) provided by
investing activities......... 285,100 (643,100) (1,048,000) (622,500) (835,000 ) (15,338,300)
----------- ----------- ---------- ------------- ----------- -------------
Cash flows from financing activities:
Net borrowings on line of credit..... 169,300 765,000 735,000 (35,000) 300,000 430,000
Repayment on notes payable........... (2,529,100) (2,196,900) (2,141,600) (730,000) (28,400 ) (14,600)
Proceeds from borrowings in
connection with Kleinert
Acquisition........................ -- -- -- -- -- 23,300,000
Repayment of debt in connection with
Kleinert Acquisition............... -- -- -- -- -- (7,600,000)
Acquisition related costs............ -- -- -- -- -- (313,300)
----------- ----------- ---------- ------------- ----------- -------------
Net cash used in financing
activities................... (2,359,800) (1,431,900) (1,406,600) (695,000) 271,600 15,802,100
----------- ----------- ---------- ------------- ----------- -------------
Net increase (decrease) in cash
and cash equivalents......... 55,700 (208,900) 202,400 353,200 (84,000 ) 407,800
Cash and cash equivalents, beginning of
year................................. 356,800 412,500 203,600 203,600 406,000 322,000
----------- ----------- ---------- ------------- ----------- -------------
Cash and cash equivalents, end of
year................................. $ 412,500 $ 203,600 $ 406,000 $ 456,800 $ 322,000 $ 729,800
----------- ----------- ---------- ------------- ----------- -------------
----------- ----------- ---------- ------------- ----------- -------------
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest........................... $ 976,500 $ 1,032,800 $ 863,900
Income taxes--net.................. $ (39,400) $ 339,000 $ 694,200
Note issued to seller in connection
with the accquisition of
Kleinert......................... 1,750,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
STELLEX INDUSTRIES, INC., AND SUBSIDIARIES
(FORMERLY KLEINERT INDUSTRIES, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996, THE SIX MONTHS ENDED JUNE 30, 1997
AND THE THREE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
General/Basis of Presentation
Kleinert Industries, Inc., a wholly owned subsidiary of Kleinert Industrie
Holding A.G., a Swiss company (the 'Parent') as of December 31, 1995 and 1996
and for the years ended December 31, 1994, 1995 and 1996, was organized under
the laws of the State of California on July 1, 1988, commenced operations on
September 1, 1988, and provides management services for its wholly owned
subsidiaries--Paragon Precision Products ('PPP'), General Inspection
Laboratories, Inc. ('GIL'), Scanning Electron Analysis Laboratories, Inc.
('SEAL'), and Bandy Machining International ('BMI').
Kleinert Acquisition (unaudited) -- On July 1, 1997, KII Holding Corp., a
Delaware company ('KII Holding'), through a wholly-owned subsidiary (KII
Acquisition Corp., a Delaware company), acquired all of the issued and
outstanding capital stock of Kleinert Industries, Inc. and Subsidiaries, a
California company (predecessor company and currently known as Stellex Aerospace
and Subsidiaries) from Kleinert Industries Holding AG. The acquisition has been
accounted for using the purchase method of accounting, and, accordingly, the net
purchase price of approximately $26.5 million (including the assumption of $2.6
million of indebtedness and the issuance to the seller of a note for
approximately $1.75 million) has been allocated to the assets purchased and the
liabilities assumed based upon the fair values at the date of acquisition. There
was no excess purchase price over the fair values on the net assets acquired in
connection with the acquisition. The acquisition was financed with a portion of
the proceeds from new borrowings totaling approximately $23.3 million. KII
Holding is owned by Stellex Industries, Inc., a Delaware company, which owns
approximately 80% of the issued and outstanding common stock of KII Holding,
with Stellex Aerospace's management holding the remainder of its outstanding
common stock. Stellex Industries, Inc., a holding company whose operations are
conducted through its operating subsidiaries, was formed and incorporated on
September 5, 1997. On September 12, 1997, Stellex Industries, Inc. ('Stellex')
sold 1,000 shares of its no par common stock to Greystoke Capital Management
Limited LDC ('Greystoke') for (i) 8,010 shares of common stock of KII Holding
Corp., (ii) 84 shares of Series A Cumulative Preferred Stock of KII Holding
Corp., (iii) $50,000 cash and (iv) assumption of a $4 million promissory note.
This transaction had the effect of exchanging stock for an 80.1% interest in KII
Holding Corp.
The accompanying consolidated financial statements for the years ended
1994, 1995, 1996 and through the acquisition on July 1, 1997 consist of Kleinert
Industries, Inc. and its wholly-owned subsidiaries. Subsequent to the
acquisition, the resultant entity consists of Stellex and its majority owned
subsidiaries: KII Holding, KII Acquisition Corp.; Kleinert Industries, Inc.
(renamed Stellex Aerospace); PPP; GIL; SEAL; and BMI. Prior to the acquisition,
the predecessor company is referred to as the 'Company' for the years ended
1994, 1995, 1996 and through June 30, 1997.
PPP specializes in the manufacture of precision aerospace components. GIL
provides a complete array of non-destructive testing services for inspecting
critical parts and manufactured components. SEAL specializes in materials
analysis and problem-solving for government and industry. BMI manufactures
precision hinges, door panels and hinged assemblies for both aerospace and
industrial applications.
TSMD Acquisition (unaudited) -- On October 31, 1997, Stellex, through a
wholly-owned subsidiary, TSMD Acquisition Corp., purchased 100% of the
outstanding common stock of Stellex Microwave Systems, Inc., representing the
operations of the Tactical Subsystems and Microwave Devices Sectors ('TSMD') of
the Watkins-Johnson Company, for a net purchase price of approximately $82.2
million (after giving effect to estimated purchase price adjustments). The
purchase was financed primarily with the net proceeds from a simultaneous
offering of senior subordinated notes totaling $92.3 million. The accompanying
consolidated financial statements as of September 30, 1997 do not include the
consolidated accounts of TSMD as this acquisition occurred subsequent to
September 30, 1997 (unaudited).
F-10
<PAGE>
STELLEX INDUSTRIES, INC., AND SUBSIDIARIES
(FORMERLY KLEINERT INDUSTRIES, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996, THE SIX MONTHS ENDED JUNE 30, 1997
AND THE THREE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
Principles Of Consolidation
As of December 31, 1995 and 1996 and for the years ended December 31, 1994,
1995 and 1996, the consolidated financial statements include the accounts of
Kleinert Industries, Inc. and its wholly owned subsidiaries (the 'Company'). All
significant intercompany transactions have been eliminated in consolidation.
The accompanying consolidated financial statements include the accounts of
Stellex and its majority owned subsidiaries for the period July 1, 1997 through
September 30, 1997 and the consolidated accounts of the predecessor company
prior to the acquisition. All significant intercompany transactions have been
eliminated in consolidation.
Use Of Estimates
The preparation of 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
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.
Cash And Cash Equivalents
Cash and cash equivalents include all highly liquid investment instruments
purchased with a maturity of three months or less.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Property, Plant And Equipment
Property, plant and equipment are stated at the Company's allocated
acquisition cost for assets acquired through purchase acquisitions and at cost
for all new additions, and are being depreciated over the estimated useful lives
of the assets, using the straight-line method of depreciation. Estimated useful
lives are as follows:
<TABLE>
<S> <C>
Building and improvements..................... 40 years
Leasehold improvements........................ 3-10 years (based on the lesser of the useful
life of the assets or the remaining life of
the lease)
Machinery and equipment....................... 10 years
Office furniture and fixtures................. 10 years
Office equipment and computers................ 5 years
Autos and trucks.............................. 5 years
</TABLE>
Expenditures for maintenance and repairs are charged to expense as
incurred. Major renewals or betterments which substantially extend the useful
life of the assets are capitalized. Upon sale or disposition of assets, the cost
and related accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in income.
Goodwill
Goodwill is amortized over a period of 40 years on a straight-line basis.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ('SFAS') No.109, 'Accounting for Income Taxes,'
which prescribes an asset and liability approach. The asset and liability method
requires the recognition of deferred tax assets and liabilities for the expected
future tax
F-11
<PAGE>
STELLEX INDUSTRIES, INC., AND SUBSIDIARIES
(FORMERLY KLEINERT INDUSTRIES, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996, THE SIX MONTHS ENDED JUNE 30, 1997
AND THE THREE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
consequences of temporary differences between tax bases and financial reporting
bases of assets and liabilities, using enacted tax rates in effect for the year
in which the differences are expected to reverse.
The provision for income taxes includes federal and state income taxes
currently payable and those deferred because of temporary differences between
the financial statement and tax bases of assets and liabilities. Such temporary
differences primarily result from state franchise taxes, allowance for doubtful
accounts, and differences between the book and tax bases of property and
equipment. If necessary, valuation allowances are established to reduce deferred
tax assets to the amount expected to be realized.
Revenue Recognition
Sales and cost of the products sold are recorded at the time of shipment.
Interim Financial Information
The financial information as of September 30, 1997 and for the nine months
ended September 30, 1996, the six months ended June 30, 1997 and the three
months ended September 30, 1997 is unaudited but, in the opinion of management
of the Company, contains all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of financial position, results of
operations and cash flows.
2. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
DECEMBER 31, SEPTEMBER
-------------------------- 30,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Raw materials............................. $ 984,000 $ 1,151,500 $ 1,245,400
Work-in-process........................... 4,089,700 4,634,900 6,400,800
Finished goods............................ 5,399,900 5,761,300 5,564,600
----------- ----------- -----------
Total..................................... $10,473,600 $11,547,700 $13,210,800
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
DECEMBER 31, SEPTEMBER 30,
-------------------------- -------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Land...................................................... $ 1,230,200 $ 1,230,200 $ 1,000,000
Building and improvements................................. 3,423,800 3,451,900 2,100,000
Leasehold improvements.................................... 203,200 209,700 94,900
Machinery and equipment................................... 19,851,700 20,556,200 10,356,800
Office furniture and fixtures............................. 571,000 574,300 52,400
Office equipment and computers............................ 1,164,700 1,344,000 229,800
Autos and trucks.......................................... 130,200 130,500 46,500
Projects in progress...................................... 254,500 317,800 250,400
----------- ----------- -----------
26,829,300 27,814,600 14,130,300
Less accumulated depreciation............................. (15,053,900) (16,649,200) (363,400)
----------- ----------- -----------
Total................................................ $11,775,400 $11,165,400 $13,766,900
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-12
<PAGE>
STELLEX INDUSTRIES, INC., AND SUBSIDIARIES
(FORMERLY KLEINERT INDUSTRIES, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996, THE SIX MONTHS ENDED JUNE 30, 1997
AND THE THREE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
4. BANK LINE OF CREDIT:
The Company has a $6,550,000 revolving line of credit with a California
commercial bank. The bank has a first priority security interest in
substantially all assets of the Company, except land and buildings. The line of
credit is scheduled for renewal on August 1, 1997. The line bears interest at
either .25% over the bank's prime rate or 1.5% over the London Interbank Offered
Rate ('LIBOR') or the Offshore Interbank Offered Rate ('IBOR'). At December 31,
1996, the effective interest rate was 7.165% (1995--7.1875%). The credit
agreement contains restrictive covenants on additional borrowings, capital
expenditures, acquisitions and dividend payments and requires that the Company
meet certain specified financial ratios. As of December 31, 1996, the Company
was in compliance with all of the covenants and financial ratios under its
credit agreement. Amounts outstanding under the facility at December 31, 1995
and 1996 were $3,565,000 and $4,300,000, respectively.
5. NOTES PAYABLE:
The balance of notes payable consists of the following:
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
DECEMBER 31, SEPTEMBER 30,
------------------------ -------------
1995 1996 1997
---------- ---------- -------------
<S> <C> <C> <C>
Note payable to the Parent with interest at 7.5% payable
trimesterly. The principal balance of $600,000 was paid on
August 31, 1996. Interest expense incurred was $77,900 and
$30,000 in 1995 and 1996, respectively.................... $ 600,000 -- --
Note payable, first deed of trust on PPP land and building
in Valencia, California as collateral, with a net book
value of $4,037,700 (1995--$4,122,900), with interest at
7.875%; principal and interest payments of $22,264 are due
monthly with the unpaid balance of $2,362,700 due December
1, 2001................................................... 2,723,000 $2,681,900 $ 2,638,900
Uncollateralized note payable issued in connection with
acquisition of BMI payable to Credit Suisse, which
provides for interest at the borrower's preference of
either the bank's base prime rate, payable monthly or 1.5%
over LIBOR, payable the earlier of the maturity of the
borrowings for LIBOR or quarterly; the Company exercised
the later option. At December 31, 1996, effective interest
was 7.102% (1995--7.25%); annual principal payments of
$1,500,000 are due through September 1998; the note
becomes due upon a change in ownership of the Company..... 4,500,000 3,000,000 --
Various notes and contracts payable, relating to equipment
and other assets with varying rates of interest and
maturities................................................ 500 -- --
</TABLE>
F-13
<PAGE>
STELLEX INDUSTRIES, INC., AND SUBSIDIARIES
(FORMERLY KLEINERT INDUSTRIES, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996, THE SIX MONTHS ENDED JUNE 30, 1997
AND THE THREE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
5. NOTES PAYABLE:--(CONTINUED)
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
DECEMBER 31, SEPTEMBER 30,
------------------------ -------------
1995 1996 1997
---------- ---------- -------------
<S> <C> <C> <C>
Term note payable issued in connection with acquisition of
Kleinert payable to Societe Generale, which provides for
interest at the borrower's preference of either the banks
prime rate plus 1%, payable on the first day of each
calendar month or 2% over LIBOR, payable at maturity of
the term note; principal amounts shall be payable in
eleven substantially equal semi-annual installments in the
principal amount of $1,300,000 on the second day of
January and July in each year commencing on January 2,
1999 through and including January 2, 2004 and one
installment in the principal amount of $1,700,000 on the
maturing date of June 30, 2004............................ -- -- 16,000,000
Promissory note issued in connection with the acquisition of
Kleinert with interest rate of 10% per annum due along
with the principal amount on June 30, 2005................ -- -- 2,500,000
Note payable to Kleinert Industrie Holding AG in connection
with the Kleinert acquisition with interest rate of 8%
payable annually and principal amount due at maturity,
July 1, 1999; the note is guaranteed by Stellex Aerospace
and each of its subsidiaries.............................. -- -- 1,750,000
---------- ---------- -------------
Total.................................................. 7,823,500 5,681,900 22,888,900
Less current portion...................................... 2,140,500 1,558,000 58,000
---------- ---------- -------------
Long-term portion...................................... $5,683,000 $4,123,900 $ 22,830,900
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
Maturities of long-term debt as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997........................................................ $1,558,000
1998........................................................ 1,562,800
1999........................................................ 67,900
2000........................................................ 73,400
2001........................................................ 2,419,800
----------
Total.................................................. $5,681,900
----------
----------
</TABLE>
F-14
<PAGE>
STELLEX INDUSTRIES, INC., AND SUBSIDIARIES
(FORMERLY KLEINERT INDUSTRIES, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996, THE SIX MONTHS ENDED JUNE 30, 1997
AND THE THREE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
6. INCOME TAXES:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.......................................................... $ 24,000 $281,400 $514,800
State............................................................ (19,200) 77,600 176,000
-------- -------- --------
4,800 359,000 690,800
-------- -------- --------
Deferred:
Federal.......................................................... (2,800) 121,300 202,700
State............................................................ 48,000 44,500 51,400
-------- -------- --------
45,200 165,800 254,100
-------- -------- --------
Total......................................................... $ 50,000 $524,800 $944,900
-------- -------- --------
-------- -------- --------
</TABLE>
Deferred taxes are primarily the result of the use of accelerated
depreciation for tax purposes, the deferral of gain on property sold following a
tax-free exchange, accrued expenses not currently deductible, and net operating
loss and alternative minimum tax credit carryforwards.
The difference between the actual tax provision and the amount obtained by
applying the statutory federal income tax rate of 34% to the income before
income taxes is primarily attributable to the effect of state income taxes
(state tax rate of 9.3%) and nondeductible expenses relating to goodwill and
officers' life insurance.
The effective tax rate of 40% for the six months ended June 30, 1997
(unaudited) represents the Company's estimate of the annual tax rate. For the
three months ended September 30, 1997 (unaudited), the difference between the
actual tax provision and the amount obtained by applying the statutory federal
income tax rate of 34% to the income before income taxes is primarily
attributable to the effect of nondeductible expense relating to inventory
resulting from the acquisition of Kleinert.
At December 31, 1996, the Company's alternative minimum tax credits for
federal and state purposes are estimated to be $279,200 and $119,700,
respectively, which are available to reduce income taxes on an indefinite
carryforward basis.
The net deferred tax assets and liabilities at December 31, consist of the
following:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax assets--current.............................................. $ 376,000 $ 519,300
Deferred tax liabilities--current......................................... (25,000) (33,300)
----------- -----------
Net deferred tax asset--current......................................... $ 351,000 $ 486,000
----------- -----------
----------- -----------
Deferred tax liabilities--long-term....................................... ($1,998,900) ($2,006,000)
Deferred tax assets--long-term............................................ 1,536,700 1,154,700
----------- -----------
Net deferred tax liability--long-term................................... ($ 462,200) ($ 851,300)
----------- -----------
----------- -----------
</TABLE>
F-15
<PAGE>
STELLEX INDUSTRIES, INC., AND SUBSIDIARIES
(FORMERLY KLEINERT INDUSTRIES, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996, THE SIX MONTHS ENDED JUNE 30, 1997
AND THE THREE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
7. EMPLOYEE BENEFIT PLANS:
Defined Contribution Plan
The Company sponsors a defined contribution pension plan which covers
substantially all employees. Company contributions are determined at 1.5% of the
employees' gross compensation, plus an additional matching of 50% of the
employees' voluntary contribution. The maximum Company contribution is limited
to 3% of the employees' gross compensation. Total Company contributions were
$192,100, $200,500 and $223,300 in 1994, 1995 and 1996, respectively.
Unfunded Pension Benefits
The Company also sponsors a defined benefit plan which covers four
employees of a subsidiary of the Company. The balance of unfunded pension
benefits represents the net present value of estimated future payments based on
actuarially determined life expectancies and an 8% discount rate. No assets have
currently been provided for the plan.
Deferred Compensation Agreements
The Company has individual deferred compensation agreements with eight
management employees. These agreements provide for monthly payments to be made
to the individuals commencing upon their retirement and continuing for an
agreed-upon term as set forth in the agreements, generally fifteen years. The
amount of the payments is specified by each contract and is generally equal to
forty percent of the employee's average compensation for the last five years of
his employment as reduced by the amount of any company--provided benefits to
which the employee is entitled from any other Kleinert pension benefit plan. The
agreements also contain other provisions entitling the employees to
pre-retirement death benefits, disability benefits and survivor benefits.
The Company has in place individual life insurance policies on each of the
covered employees and intends to use the insurance benefits (accumulated cash
surrender value of the policies and the post-retirement death benefits) to fund
the benefit payments required under the agreements. The insurance policies are
designed such that the insurance benefits under the policies are expected, over
time, to be sufficient to pay all of the required benefits and reimburse the
Company for its costs of providing the insurance.
At December 31, 1995 and 1996, the deferred compensation liability was
$1,082,400 and $1,291,900, respectively. The estimated liability was calculated
based on actuarially determined estimates of compensation, mortality, retirement
dates and other relevant factors pertaining to the participants and a discount
rate of 8% per annum. The related expense for the years ended December 31, 1994,
1995 and 1996 was 77,200, $71,800 and $209,500, respectively. The expense for
1996 included the nonrecurring step-up of the liability for the implementation
of two additional agreements effective January 1, 1996.
8. LEASE COMMITMENTS:
The Company leases office facilities and equipment under operating lease
agreements which expire at various dates through 2004. The facility leases have
renewal options. Certain leases provide for annual increases, at various dates,
based upon percentage changes in the Consumer Price Index.
F-16
<PAGE>
STELLEX INDUSTRIES, INC., AND SUBSIDIARIES
(FORMERLY KLEINERT INDUSTRIES, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996, THE SIX MONTHS ENDED JUNE 30, 1997
AND THE THREE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
8. LEASE COMMITMENTS:--(CONTINUED)
Minimum annual rentals and sublease income on facility and equipment leases
are as follows:
<TABLE>
<CAPTION>
MINIMUM
ANNUAL
RENTALS
----------
<S> <C>
1997........................................................ $ 703,400
1998........................................................ 710,300
1999........................................................ 596,900
2000........................................................ 339,600
2001........................................................ 18,300
Thereafter.................................................. 26,300
----------
Total....................................................... $2,394,800
----------
----------
</TABLE>
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Rent expense(a).................................................... $725,300 $740,200 $723,300
Sublease income.................................................... $ 24,000 $ 26,400 $ --
</TABLE>
- ------------------
(a) Includes $292,100, $309,500 and $290,000 in 1994, 1995 and 1996,
respectively, for facility rent paid to the former owner of BMI.
9. FINANCIAL INSTRUMENTS:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
The Company's customer base principally includes the commercial aviation,
aerospace and defense industries. The Company is directly affected by national
and international economic conditions in the aerospace and defense industries.
Management believes that such factors are mitigated by the longevity of the
Company's relationships with its customers. For the year ended December 31,
1996, the Company derived approximately 53% of its sales from ten (10) customers
consisting of nineteen (19) separate operating divisions.
It is the policy of the Company to deposit its cash in federally insured
financial institutions. From time to time, deposits exceed Federal Deposit
Insurance Corporation limits.
10. SUBSEQUENT EVENTS:
On July 1, 1997, the Company's prior owner sold 100% of the outstanding
stock of the Company to KII Acquisition Corp., a subsidiary of KII Holding. In
connection with such sale, all indebtedness of the Company other than the
Company's building mortgage was repaid. As part of the closing of the sale,
certain members of management of the Company were paid a bonus totaling
approximately $1,460,000 as part of a management participation agreement with
the prior owner. Management is entitled to receive additional compensation from
the prior owner based on a percentage of the amount repaid under the $1,750,000
Kleinert Seller Note issued in connection with the sale.
F-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Watkins-Johnson Company:
We have audited the accompanying combined balance sheets of the Tactical
Subsystems and Microwave Devices Sectors of Watkins-Johnson Company (the
'Sectors'), as of December 31, 1995 and 1996 and September 30, 1997 and the
related combined statements of operations and invested equity and of cash flows
for the years ended December 31, 1995 and 1996 and the nine months ended
September 30, 1997. These combined financial statements are the responsibility
of the management of Watkins-Johnson Company. 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 audit to obtain
reasonable assurance about whether the financial statements are free from
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 combined financial position of the Sectors as of
December 31, 1995 and 1996 and September 30, 1997 and the combined results of
their operations and their combined cash flows for the periods stated above in
conformity with generally accepted accounting principles.
The Sectors are business units of Watkins-Johnson Company; consequently, as
indicated in Note 1, these financial statements have been derived from the
consolidated financial statements and accounting records of Watkins-Johnson
Company, and reflect significant assumptions and allocations. Moreover, as
indicated in Note 1, the Sectors rely on Watkins-Johnson Company for
administrative, management and other services. The reported financial position,
results of operations and cash flows of the Sectors could differ from those that
would have resulted had the Sectors operated autonomously or as an entity
independent of Watkins-Johnson Company.
DELOITTE & TOUCHE LLP
San Jose, California
November 4, 1997
F-18
<PAGE>
TACTICAL SUBSYSTEMS AND MICROWAVE DEVICES
SECTORS OF WATKINS-JOHNSON COMPANY
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Receivables, net........................................................... $16,800 $18,200 $15,200
Unbilled receivables....................................................... 800 4,300 300
Inventories................................................................ 12,700 18,900 15,100
Deferred tax asset......................................................... 2,900 3,400 3,000
Other...................................................................... 300 300 300
------- ------- -------------
Total current assets......................................................... 33,500 45,100 33,900
Property Plant and Equipment:
Machinery and equipment.................................................... 42,800 44,500 45,100
Accumulated depreciation and amortization.................................. (37,100) (39,400) (40,800)
------- ------- -------------
Property, plant and equipment, net........................................... 5,700 5,100 4,300
------- ------- -------------
Total Assets................................................................. $39,200 $50,200 $38,200
------- ------- -------------
------- ------- -------------
LIABILITIES AND INVESTED EQUITY
Current liabilities:
Accounts payable........................................................... $ 5,800 $ 2,400 $ 2,400
Advances on contracts...................................................... 1,900 7,500 4,800
Accrued salaries and profit sharing........................................ 1,900 2,100 1,500
Accrued vacation........................................................... 2,300 2,300 2,000
Provision for losses on contracts.......................................... 2,700 2,900 3,000
Accrued expenses--other.................................................... 2,000 2,100 1,000
------- ------- -------------
Total current liabilities.................................................... 16,600 19,300 14,700
Deferred tax liability....................................................... 200 500 500
Deferred compensation........................................................ 1,000 500 500
Commitments and contingencies (Note 4)
Invested equity.............................................................. 21,400 29,900 22,500
------- ------- -------------
Total liabilities and invested equity........................................ $39,200 $50,200 $38,200
------- ------- -------------
------- ------- -------------
</TABLE>
See notes to combined financial statements.
F-19
<PAGE>
TACTICAL SUBSYSTEMS AND MICROWAVE DEVICES
SECTORS OF WATKINS-JOHNSON COMPANY
COMBINED STATEMENTS OF OPERATIONS AND INVESTED EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------------- -----------------
1995 1996 1997
------------ ------------ -----------------
<S> <C> <C> <C>
Sales................................................................... $ 97,600 $ 89,200 $ 67,900
Cost of goods sold...................................................... 65,200 68,100 47,900
------------ ------------ -----------------
Gross profit....................................................... 32,400 21,100 20,000
Operating expenses:
Research and development.............................................. 4,800 3,500 1,600
Selling and administrative............................................ 10,000 8,300 5,600
Corporate allocations................................................. 2,500 2,800 1,900
------------ ------------ -----------------
Total operating expenses........................................... 17,300 14,600 9,100
------------ ------------ -----------------
Income before income taxes.............................................. 15,100 6,500 10,900
Income tax provision.................................................... 5,900 2,500 4,200
------------ ------------ -----------------
Net income......................................................... 9,200 4,000 6,700
Invested equity, beginning of period.................................... 31,000 21,400 29,900
Net advances to (from) the sectors...................................... (18,800) 4,500 (14,100)
------------ ------------ -----------------
Invested equity, end of period.......................................... $ 21,400 $ 29,900 $ 22,500
------------ ------------ -----------------
------------ ------------ -----------------
</TABLE>
See notes to combined financial statements.
F-20
<PAGE>
TACTICAL SUBSYSTEMS AND MICROWAVE DEVICES
SECTORS OF WATKINS-JOHNSON COMPANY
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- -----------------
1995 1996 1997
-------- ------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................................... $ 9,200 $ 4,000 $ 6,700
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation and amortization of property, plant and
equipment.................................................... 2,600 2,300 1,400
Deferred taxes.................................................. (200) (200) 400
Net changes in operating assets and liabilities:
Receivables, net................................................ 2,500 (4,900) 7,000
Inventories..................................................... 5,000 (6,200) 3,800
Other current assets............................................ (100) -- --
Accrued expenses and payables................................... 2,300 (3,100) (2,000)
Advances on contracts........................................... (1,200) 5,600 (2,700)
Provisions for losses on contracts.............................. 800 200 100
Deferred compensation........................................... 100 (500) --
-------- ------- -----------------
Net cash provided by (used in) operating activities.................... 21,000 (2,800) 14,700
-------- ------- -----------------
Cash flows from investing activities:
Additions to property, plant and equipment........................... (2,200) (1,700) (600)
-------- ------- -----------------
Cash flows from financing activities:
Net advances to (from) the Sectors................................... (18,800) 4,500 (14,100)
-------- ------- -----------------
Net increase in cash................................................... -- -- --
Cash, beginning of period.............................................. -- -- --
-------- ------- -----------------
Cash, end of period.................................................... $ -- $ -- $ --
-------- ------- -----------------
-------- ------- -----------------
</TABLE>
See notes to combined financial statements.
F-21
<PAGE>
TACTICAL SUBSYSTEMS AND MICROWAVE DEVICES
SECTORS OF WATKINS-JOHNSON COMPANY
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
The Tactical Subsystems and Microwave Devices Sectors ('TSMD' or the
'Sectors') are business units within the Microwave Products Group (the 'Group')
of Watkins-Johnson Company ('Watkins-Johnson' or the 'Company'). The Sectors
design, market and manufacture a broad range of microwave devices, modular
subsystems and electronic equipment operating over the RF and microwave
frequency bands for sale primarily for military and aerospace applications.
Basis of Presentation
As business units of Watkins-Johnson, the Company does not prepare separate
financial statements for the Sectors in accordance with generally accepted
accounting principles ('GAAP') in the normal course of operations. Accordingly,
the accompanying combined financial statements have been derived from the
consolidated assets, liabilities, revenues and expenses, and the accounting
records of Watkins-Johnson. The accompanying combined financial statements
reflect the assets, liabilities, revenue and expenses directly attributable to
the Sectors as well as allocations deemed reasonable by management to present
the financial position, results of operations and cash flows of the Sectors on a
stand-alone basis. Although management is unable to estimate the actual costs
that would have been incurred if the services performed by Watkins-Johnson had
been purchased from independent third parties, the allocation methodologies have
been described within the respective footnotes, where applicable, and management
considers the allocations to be reasonable. However, the financial position,
results of operations and cash flows of the Sectors may differ from those that
would have been achieved had the Sectors operated autonomously or as a combined
entity independent of Watkins-Johnson.
Revenue Recognition and Receivables
Revenues, other than long-term contracts, are recorded upon shipment or
completion of tasks as specified in the contract. Estimated product warranty
costs are accrued at the time of shipment. Sales and allowable fees under
cost-reimbursement contracts are recorded as costs are incurred. Long-term
contract sales and cost of goods sold are recognized using the
percentage-of-completion method based on the actual physical completion of work
performed and the ratio of costs incurred to total estimated costs to complete
the contract. Any anticipated losses on contracts are charged to earnings when
identified.
Unbilled receivables represent revenue recognized for long-term contracts
not yet billable based on the terms of the contract. These amounts are billable
upon shipment of the product, achievement of milestones, or completion of the
contract. Unbilled receivables are expected to be billed and collected within
one year. Receivables representing retainage not collectible within one year are
not material. There are no significant billed or unbilled receivables subject to
future negotiation.
Government contracts have provisions for audit, price redetermination and
other profit and cost limitations. Contracts may be terminated without prior
notice at the government's convenience. In the event of such termination, the
Company may be compensated for the work performed, a reasonable allowance for
profit, and commitments at the time of termination. The right to terminate for
convenience has not had any significant effect on the Company's financial
position or results of operations.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
Concentration of credit risk with respect to trade receivables is limited due to
the nature of the customers to which the Company's products are sold.
F-22
<PAGE>
TACTICAL SUBSYSTEMS AND MICROWAVE DEVICES
SECTORS OF WATKINS-JOHNSON COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Inventories
Inventories are stated at the lower of cost, using first-in, first-out and
average-cost basis, or market. Cost of inventory items is based on purchase and
production cost. Long-term contract costs and selling and administrative
expenses are excluded from inventory. Progress payments are not netted against
inventory.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Leases which at inception
assure the lessor full recovery of the fair market value of the property over
the lease term are capitalized. Provision for depreciation and amortization is
primarily based on the sum-of-the-years'-digits and straight-line methods.
Accounts Payable and Accrued Expenses
Accounts payable and accrued liabilities records are maintained at the
Group level. For determining balance sheet amounts, accounts payable and other
accrued expenses have been allocated to the Sectors based on the ratio that the
total sales of the Sectors bears to the total sales of the Group. In the opinion
of management, the liabilities allocated to the Sectors as of December 31, 1995
and 1996 and September 30, 1997 are reasonable.
Deferred Compensation
The Company has deferred compensation plans covering selected members of
management and key technical employees. The purpose is to reward and encourage
talented employees to remain with the Company. Such amounts are payable in
accordance with various fixed payment schedules.
Stock-Based Compensation
The Sectors account for stock-based compensation under the intrinsic value
method as defined in Accounting Principles Board Opinion No. 25, 'Accounting for
Stock Issued to Employees,' (APB 25).
Research and Development
Research and development (R&D) costs incurred by the Sectors are
accumulated on an identified project basis. Costs associated with
customer-funded R&D are included in cost of sales. Company-sponsored R&D
projects related to the Sectors is included in expense in the period incurred.
Allocated Expenses
Certain overhead, selling, administrative and corporate expenses represent
an allocation of the Group's operating expenses and include payroll and charges
for office space which the Sector shares with Watkins-Johnson. These costs have
been allocated to the Sectors based on various allocation factors which, in the
opinion of management, are reasonable.
Corporate support costs such as treasury, cash management, accounting,
financial management, legal, public relations, information systems, human
resources, telecommunications, and support services are allocated to the Group
based primarily on the ratio that the total cost of sales of the Group bears to
the total cost of sales of the Company, which management believes to be a
reasonable allocation method. However, such amounts may not be the same as would
have been incurred had the Sectors operated autonomously or as a combined entity
independent of Watkins-Johnson.
F-23
<PAGE>
TACTICAL SUBSYSTEMS AND MICROWAVE DEVICES
SECTORS OF WATKINS-JOHNSON COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
In 1995, the Sectors incurred a charge of approximately $400,000, included
in sales and administrative expense, for a reduction in force of sales
employees. In 1996, the Sectors incurred a charge of approximately $700,000,
included in cost of sales, for a reduction in force of operational and
manufacturing employees.
Interest Expense
No interest expense has been charged to the Sectors on their invested
equity by Watkins-Johnson.
Income Taxes
The Sectors' results are included in the consolidated federal and state tax
returns of Watkins-Johnson and its affiliates. The Sectors have provided for
income taxes as if they were a separate taxpayer utilizing federal and state
statutory tax rates. The combined financial statements include provisions for
deferred income taxes using the liability method for transactions that are
reported in one period for financial accounting purposes and in another for
income tax purposes. Deferred tax assets have been recognized based on the
realizability determination of Watkins-Johnson.
Cash Flows
The Company does not maintain separate cash accounts for its Sectors, and
all cash receipts and disbursements are made at the Group level. For the
purposes of the statements of cash flows, the allocated assets and liabilities
of the Sectors have been used to calculate the cash flow statements.
Use of Estimates
The preparation of 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 at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. In addition to the allocation of corporate
and Group expenses described above, the most significant assumptions and
estimates relate to allowance for bad debts, inventory obsolescence, percentage
of completion on long-term contracts and warranty provisions. Actual results
could differ from those estimates.
2. RECEIVABLES
Receivables consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------ -------------
1995 1996 1997
------- ------- -------------
<S> <C> <C> <C>
Trade.................................................... $16,300 $17,300 $15,100
Long-term contracts:
Billed................................................. 900 1,400 600
Unbilled............................................... 800 4,300 300
------- ------- -------------
Total.................................................... 1,700 5,700 900
------- ------- -------------
18,000 23,000 16,000
Less: allowance for doubtful accounts.................... 400 500 500
------- ------- -------------
Receivables, net......................................... $17,600 $22,500 $15,500
------- ------- -------------
------- ------- -------------
</TABLE>
F-24
<PAGE>
TACTICAL SUBSYSTEMS AND MICROWAVE DEVICES
SECTORS OF WATKINS-JOHNSON COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------ -------------
1995 1996 1997
------- ------- -------------
<S> <C> <C> <C>
Finished goods........................................... $ 800 $ 900 $ 1,200
Work-in-progress......................................... 8,200 11,000 6,800
Raw materials............................................ 3,700 7,000 7,100
------- ------- -------------
$12,700 $18,900 $15,100
------- ------- -------------
------- ------- -------------
</TABLE>
In the fourth quarter of 1996, the Sectors incurred a charge of
approximately $1,500,000, included in cost of sales, for the writeoff of slow
moving and excess inventories.
4. FACILITIES
The Sectors operate in facilities owned or leased by Watkins-Johnson, and
are not included in the combined balance sheets of the Sectors. The Sectors are
allocated depreciation and lease costs based on an estimate of occupancy.
Such facilities are subject to an environmental remediation plan being
monitored by various regulatory agencies. Watkins-Johnson recorded a provision
for estimated remediation actions and cleanup costs related to these facilities
in 1991, and no additional provisions have been made by the Company, nor is any
charges relating to such remediation included in the Sectors' combined
statements of operations for the years ended 1995 and 1996 or the nine months
ended September 30, 1997. Management of Watkins-Johnson believes the accrual of
$8 million as of December 31, 1996 and $7 million as of September 30, 1997 (not
included in the accompanying combined balance sheets of the Sectors) remains
adequate based on facts known at that time. However, changes in environmental
regulations, improvements in cleanup technology and discovery of additional
information concerning this site could affect estimated costs in the future.
5. SHAREOWNERS' EQUITY
Stock Option Plans
Employees of the Sectors participate in the stock option plans of the
Company. The employee stock option plan provides for grants of nonqualifying and
incentive stock options to certain key employees and officers. Watkins-Johnson
may grant options to purchase up to 3,900,000 shares of common stock. The
options are granted at the market price on date of grant and expire on the tenth
anniversary date. One-third of the options granted are exercisable in each of
the third, fourth and fifth succeeding years. The plan allows those employees
who are subject to the insider trading restrictions certain limited rights to
receive cash in the event of a change in control.
As discussed in Note 1, the Company applies Accounting Principles Board
Opinion No. 25, 'Accounting for Stock Issued to Employees,' and related
interpretations in accounting for its plans. Accordingly, no compensation
expense has been recognized for its stock-based compensation plans. Had
compensation cost for the Company's stock option plans been determined based
upon the fair value at the grant date for awards under these plans, and
amortized over the vesting period of the awards consistent with the methodology
prescribed under Statement of Financial Accounting Standards No. 123,
'Accounting for Stock-Based Compensation,' the Sectors' pro forma combined net
income for the years ended December 31, 1995 and 1996 and nine months ended
September 30, 1997 would have been $9,000,000, $3,800,000 and $6,600,000,
respectively. However, the impact of outstanding nonvested stock options granted
prior to 1995 has been excluded from the pro forma calculation; accordingly, the
1995, 1996 and 1997 pro forma adjustments are not indicative of future period
pro
F-25
<PAGE>
TACTICAL SUBSYSTEMS AND MICROWAVE DEVICES
SECTORS OF WATKINS-JOHNSON COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. SHAREOWNERS' EQUITY--(CONTINUED)
forma adjustments, when the calculation will apply to all applicable stock
options. The weighted average fair value of options granted during 1995, 1996
and 1997 is calculated as $13.58, $5.94 and $6.81, respectively, on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions for the stock of Watkins-Johnson: dividend yield of 1.7% for
1995 grants, 1.5% for 1996 grants and 1.28% for 1997 grants; volatility, 37.5%
for 1995 and 1996 and 38% for 1997; risk-free interest rate at the time of grant
of 7.1% for 1995, 6.2% for 1996 and 6.0% for 1997; and an expected term to
exercise of approximately 3.5 months from the vest date for 1996 and 1995 and
4.5 months from the vest date for 1997. The Company's calculations are based on
a multiple option valuation approach, and forfeitures are recognized as they
occur.
6. INCOME TAXES
The provision for taxes on income from operations consists of the following
(in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Current:
Federal........................................................ $4,900 $2,300 $3,100
State.......................................................... 1,200 400 800
------ ------ ------
Total current.................................................... 6,100 2,700 3,900
Deferred
Federal........................................................ (200) (200) 300
State.......................................................... -- -- --
------ ------ ------
Total deferred................................................... (200) (200) 300
------ ------ ------
Total............................................................ $5,900 $2,500 $4,200
------ ------ ------
------ ------ ------
</TABLE>
Deferred tax assets (liabilities) consist of the following at December 31,
1995 and 1996 and September 30, 1997 (in thousands):
<TABLE>
<S> <C> <C> <C>
Program accruals................................................. $1,000 $1,000 $1,000
Inventory reserves............................................... 800 1,500 1,100
Bad debt reserves................................................ 100 200 200
Compensation..................................................... 600 400 300
Uniform capitalization........................................... 100 200 200
State taxes...................................................... 200 -- 100
Worker's compensation reserve.................................... 100 100 100
------ ------ ------
Gross deferred tax assets........................................ 2,900 3,400 3,000
Deferred tax liabilities-depreciation............................ (200) (500) (500)
------ ------ ------
Net deferred tax assets.......................................... $2,700 $2,900 $2,500
------ ------ ------
------ ------ ------
</TABLE>
The differences between the effective income tax rate and the statutory
federal income tax rate are as follows:
<TABLE>
<S> <C> <C> <C>
Statutory federal tax rate....................................... 35.0% 35.0% 35.0%
Export sales benefit............................................. (1.0) (0.8) (1.2)
State taxes, net of federal benefit.............................. 5.1 4.3 4.7
------ ------ ------
Effective rate................................................... 39.1% 38.5% 38.5%
------ ------ ------
------ ------ ------
</TABLE>
The effective tax rate of 38.5% for the nine months ended September 30,
1997 represents the Company's estimate of the 1997 annual tax rate for the
Sectors.
F-26
<PAGE>
TACTICAL SUBSYSTEMS AND MICROWAVE DEVICES
SECTORS OF WATKINS-JOHNSON COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. EMPLOYEE BENEFIT PLANS
The Watkins-Johnson Employees' Investment Plan conforms to the requirements
of the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal
Revenue Code as a qualified defined contribution plan. The Plan covers
substantially all employees of the Sectors and for 1995, 1996 and 1997 provided
that the Company match employees' 401(k) salary deferrals up to 3% of eligible
employee compensation. The amount charged to income was $897,000 in 1995,
$804,000 in 1996 and $528,000 for the nine months ended September 30, 1997.
The Employee Stock Ownership Plan (ESOP) was established to encourage
employee participation and long-term ownership of Company stock and covers
substantially all employees of the Sectors. The Board determines each year's
contribution depending on the performance and financial condition for the
Company. The Board approved a contribution equal to 1% of eligible employee
compensation for 1995, 1996 and the nine months ended September 30, 1997, which
resulted in charges to income of $244,000, $286,000 and $192,000, respectively.
The ESOP is a qualified defined contribution plan under ERISA.
8. SIGNIFICANT CUSTOMERS
The Sectors sell primarily to the defense market, and had sales of
$72,200,000 in 1995, $62,400,000 in 1996 and $47,200,000 in the nine months
ended September 30, 1997 to the U.S. government and its prime contractors.
Export sales were $15,000,000 in 1995, $13,700,000 in 1996 and $13,900,000 in
the nine months ended September 30, 1997.
Sales to individual customers representing greater than 10% of company
sales are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
<S> <C> <C> <C>
Hughes Aircraft Company.................................. $40,000 $30,000 $20,000
Raytheon Company......................................... 8,300 8,000 14,000
United States government................................. 13,000 4,000 3,000
</TABLE>
In October 1997, Raytheon Co. obtained government approval to acquire the
defense holdings of Hughes Aircraft Company in a merger. It is unknown what
effect, if any, such a merger may have on the Sectors at this time.
9. SALE OF TSMD OPERATIONS
On or prior to October 31, 1997, the Company contributed the operations of
TSMD, along with certain of the Sectors' assets and the transfer of certain
liabilities to its subsidiary, W-J TSMD, Inc., which was renamed Stellex
Microwave Systems, Inc. The stock of Stellex Microwave Systems, Inc. was sold to
TSMD Acquisition Corp. on October 31, 1997. The transaction was completed under
a previously announced Stock Purchase Agreement dated as of August 29, 1997.
Watkins-Johnson has agreed to sublease space to Stellex Microwave Systems,
Inc. in Palo Alto, California for three years.
F-27
<PAGE>
APPENDIX I
GLOSSARY
Amplifier: A device which is used in a transmitter or receiver to increase the
power level of the signal to a useful range.
CNC: Computer Numerical Control. A manufacturing system which allows machinists
to use menu prompts on a computer screen to quickly program a machine tool to
produce complex parts.
Converter: A circuit that changes radio frequency signals from one frequency to
another.
Device: An electrical component or integrated circuit.
EDM: Electrical Discharge Machining. A cutting method by which materials are
machined without physical contact using an electrically charged wire that melts
a small portion of the work piece. Since no cutting forces are present, EDM is
ideal for delicate parts.
Filter: A circuit which selectively allows signals of desired frequencies to
pass while simultaneously rejecting signals of undesired frequencies.
Four and five axis machining: A machining method by which a CNC machine can
independently move four or five machine axes to generate taper cuts.
Frequency: The number of complete oscillations per second in an electromagnetic
wave.
GaAs: Gallium Arsenide. Substrate material used in the fabrication of high
frequency diodes, transistors, and integrated circuits.
High Radio Frequency: Nomenclature used to describe frequency ranges from 3
megahertz to 300 gigahertz.
High Reliability: See Space Qualified.
Integrated Subsystem: A collection of MFMs packaged together on a mechanical
mounting structure and integrated with control and power conditioning
electronics.
MFM: Multi-function module. A hermetically sealed structure containing a custom
substrate base, which is used as a transmission medium, along with active chips
such as diodes and transistors.
Microwave: Frequency band nomenclature used to characterize signals with a
wavelength between 30 and 1 centimeters in length.
Millimeter wave: Frequency band nomenclature used to characterize signals with a
wavelength below 1 centimeter in length.
Mixer: A device which converts radio frequency power at one frequency into power
at another frequency to facilitate signal processing.
Oscillator: A component that oscillates at a set frequency, thereby generating a
signal.
Output Transducer: A device which converts an electrical message signal to its
desired output form. For example, the output transducer for a voice
communication system can be a loudspeaker.
Processor: An electronic device that operates on data.
Receiver: A device which operates on the output signal from a transmission
channel in preparation for delivery to the output transducer.
SFM: Single Function Module. An enclosure which contains circuitry intended to
realize a single electrical function. These functions include amplifiers,
filters, oscillators and frequency converters.
Space Qualified: Electrical components which have been environmentally tested,
screened and documented to a level suitable for delivery and use in space based
applications. Also referred to as high reliability.
Substrate: The physical material on which a thin film or integrated circuit is
fabricated.
I-1
<PAGE>
Thin Film: A photolithography process used to deposit high definition metallized
traces on substrate materials.
Transceiver: An integrated device which incorporates the functions of a
transmitter and receiver in one package. Typically used in a communication
system in which the transmitter and receiver share a common antenna.
Transmitter: A device which processes an input signal to produce a transmitted
signal suited to the characteristics of the transmission channel.
Transmission Channel: The electrical medium that bridges the distance from
source to destination. The transmission channel can be a pair of wires, a
coaxial cable or a radio wave.
Tuner: A microwave device designed to search and collect communication and
non-communication signals, while maintaining all of the received signal's
characteristics.
VCO: Voltage Controlled Oscillator. A device which generates an output signal
whose operating frequency is determined and adjusted by a variable input direct
current (DC) voltage.
Wavelength: The distance between the peak cycles of a periodic electromagnetic
wave.
YIG: Yttrium-Iron Garnet. Magnetic insulators which resonate at a microwave
frequency when magnetized by a suitable direct magnetic field. Typically used in
tunable microwave filters and oscillators.
I-2
<PAGE>
- ------------------------------------------------------
------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.......................... i
Prospectus Summary............................. 1
Risk Factors................................... 13
Capitalization................................. 21
Pro Forma Consolidated Financial Data.......... 22
Selected Historical Financial Data............. 28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 30
Business....................................... 39
Management..................................... 57
Certain Transactions........................... 60
Principal Stockholders......................... 64
Description of Certain Indebtedness............ 65
The Exchange Offer............................. 67
Description of Notes........................... 75
Certain U.S. Federal Income Tax
Considerations............................... 104
Plan of Distribution........................... 104
Legal Matters.................................. 105
Experts........................................ 105
Index to Financial Statements.................. F-1
Glossary....................................... I-1
</TABLE>
Until , 1998 (90 days after the commencement of the Exchange Offer),
all dealers effecting transactions in the registered securities, whether or not
participating in the distribution, may be required to deliver a prospectus. This
delivery requirement 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.
$100,000,000
[LOGO]
OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF ITS SERIES B 9 1/2% SENIOR
SUBORDINATED NOTES DUE 2007 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
FOR EACH $1,000 IN PRINCIPAL AMOUNT OF ITS 9 1/2% SENIOR SUBORDINATED NOTES DUE
2007.
THE EXCHANGE AGENT FOR THE
EXCHANGE OFFER IS:
MARINE MIDLAND BANK
By Facsimile:
(212) 658-2292
Confirmation by Telephone:
(212) 658-5931
By Mail, Overnight Courier or Hand Delivery
140 Broadway -- Level A
New York, New York 10005-1180
Attention: Corporate Trust Services
------------------------
PROSPECTUS
------------------------
, 1998
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Capitalized terms used but not defined in Part II have the meanings
ascribed to them in the Prospectus contained in this Registration Statement.
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Stellex Industries, Inc. and its subsidiaries, TSMD Acquisition Corp., KII
Holding Corp. and KII Acquisition Corp. (collectively, the 'Delaware
Subsidiaries'), are Delaware corporations. Section 145 ('Section 145') of the
General Corporation Law of the State of Delaware (the 'DGCL') provides that a
Delaware corporation may indemnify any persons who were, are or are threatened
to be made, parties to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation), by reason of the fact that
such person is or was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding provided such person acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was illegal. A
Delaware corporation may indemnify any persons who are, were or are threatened
to be made, a party to any threatened, pending or completed action or suit by or
in the right of the corporation by reasons of the fact that such person was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit, provided such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests, provided that no indemnification is
permitted without judicial approval if the officer, director, employee or agent
is adjudged to be liable to the corporation. Where an officer, director,
employee or agent is successful on the merits or otherwise in the defense of any
action referred to above, the corporation must indemnify him against the
expenses which such officer or director has actually and reasonably incurred.
The Certificate of Incorporation and/or Bylaws of each of Stellex and the
Delaware Subsidiaries provide for the indemnification of persons under the
circumstances described in Section 145 of the DGCL.
Stellex Microwave Systems, Inc., Stellex Aerospace, Bandy Machining
International, Paragon Precision Products, Scanning Electron Analysis
Laboratories, Inc. and General Inspection Laboratories, Inc. are California
corporations and their Articles of Incorporation and Bylaws provide for
indemnification of their officers and directors to the fullest extent permitted
by law. Section 204(10) of the California General Corporation Law (the 'CGCL')
eliminates the liability of a corporation's directors for monetary damages to
the fullest extent permissible under California law. Pursuant to Section 204(11)
of the CGCL, a California corporation may idemnify Agents (as defined in Section
317 of the CGCL), subject only to the applicable limits set forth in Section 204
of the CGCL with respect to actions for breach of duty to the corporation and
its shareholders.
As permitted by Section 317 of the CGCL, indemnification may be provided by
a California corporation of its Agents (as defined in Section 317 of the CGCL),
to the maximum extent permitted by the CGCL, in connection with any proceeding
arising by reason of the fact that such person is or was such a director or
officer, against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in any such proceeding.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<S> <C> <C>
3.1 -- Certificate of Incorporation of Stellex Industries, Inc.
3.2 -- Bylaws of Stellex Industries, Inc.
3.3 -- Certificate of Incorporation of TSMD Acquisition Corp.
3.4 -- Bylaws of TSMD Acquisition Corp.
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C> <C>
3.5 -- Articles of Incorporation of Stellex Microwave Systems, Inc.
3.6 -- Bylaws of Stellex Microwave Systems, Inc.
3.7 -- Certificate of Incorporation of KII Holding Corp.
3.8 -- Bylaws of KII Holding Corp.
3.9 -- Certificate of Incorporation of KII Acquisition Corp.
3.10 -- Bylaws of KII Acquisition Corp.
3.11 -- Articles of Incorporation of Stellex Aerospace.
3.12 -- Bylaws of Stellex Aerospace.
3.13 -- Articles of Incorporation of Bandy Machining International.
3.14 -- Bylaws of Bandy Machining International.
3.15 -- Articles of Incorporation of Paragon Precision Products.
3.16 -- Bylaws of Paragon Precision Products.
3.17 -- Articles of Incorporation of Scanning Electron Analysis Laboratories, Inc.
3.18 -- Bylaws of Scanning Electron Analysis Laboratories, Inc.
3.19 -- Articles of Incorporation of General Inspection Laboratories, Inc.
3.20 -- Bylaws of General Inspection Laboratories, Inc.
4.1 -- Purchase Agreement dated as of October 23, 1997, by and among Stellex Industries, Inc., TSMD
Acquisition Corp., Stellex Microwave Systems, Inc., KII Holding Corp., KII Acquisition Corp., Stellex
Aerospace, Bandy Machining International, Paragon Precision Products, Scanning Electron Analysis
Laboratories, Inc. and General Inspection Laboratories, Inc. and Societe Generale Securities
Corporation, BT Alex. Brown Incorporated and Jefferies & Company, Inc.
4.2 -- Indenture dated as of October 31, 1997 by and among Stellex Industries, Inc., TSMD Acquisition Corp.,
Stellex Microwave Systems, Inc., KII Holding Corp., KII Acquisition Corp., Stellex Aerospace, Bandy
Machining International, Paragon Precision Products, Scanning Electron Analysis Laboratories, Inc.
and General Inspection Laboratories, Inc. and Marine Midland Bank, as trustee.
4.3 -- Registration Rights Agreement dated as of October 31, 1997 by and among Stellex Industries, Inc.,
TSMD Acquisition Corp., Stellex Microwave Systems, Inc., KII Holding Corp., KII Acquisition Corp.,
Stellex Aerospace, Bandy Machining International, Paragon Precision Products, Scanning Electron
Analysis Laboratories, Inc. and General Inspection Laboratories, Inc. and Societe Generale Securities
Corporation, BT Alex. Brown Incorporated and Jefferies & Company, Inc.
*5.1 -- Opinion of Winston & Strawn.
10.1 -- Credit Agreement dated as of October 31, 1997 by and among Stellex Industries, Inc., TSMD Acquisition
Corp., Stellex Microwave Systems, Inc., KII Holding Corp., KII Acquisition Corp., Stellex Aerospace,
Bandy Machining International, Paragon Precision Products, Scanning Electron Analysis Laboratories,
Inc. and General Inspection Laboratories, Inc. and Societe Generale, as Agent.
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C> <C>
+10.2 -- Stock Purchase Agreement dated as of August 29, 1997 by and among TSMD Acquisition Corp.,
Watkins-Johnson Company and W-J TSMD Inc.
</TABLE>
<TABLE>
<CAPTION>
The following schedules to the Stock Purchase Agreement have been omitted. The Company hereby
undertakes to furnish supplementally a copy of any such omitted schedules to the Commission upon
request.
SCHEDULE TITLE
----------------- -----------------------------------------------------------------------
<S> <C> <C> <C>
Schedule 2.4 -- Status of Tax Audits
Schedule 2.5(a) -- Customer Contracts
Schedule 2.5(b) -- Certain Supplier Contracts
Schedule 2.5(c) -- Government Contracts
Schedule 2.5(d) -- Certain Contracts over $250,000
Schedule 2.5(e) -- Certain Contracts in Excess of Three Years
Schedule 2.5(f) -- Substantially Dependent/Material Adverse Contracts
Schedule 2.5(m) -- Material Losses
Schedule 2.5(n) -- Offshore Production Contracts
Schedule 2.6(d) -- Government Furnished Items
Schedule 2.16 -- Employee Benefit Plan
Schedule 2.21 -- Key Customer/Supplier
Schedule 2.23(c) -- Government Contract Audit
Schedule 2.24 -- Backlog
Schedule 2.25 -- Clearances
Schedule 5.7 -- Warranty Principles
Schedule 5.10 -- Proration
Schedule 9.15 -- Knowledge
</TABLE>
<TABLE>
<S> <C> <C>
10.3 -- Stock Purchase Agreement dated as of May 23, 1997, by and among KII Acquisition Corp. and Kleinert
Industrie Holding AG.
</TABLE>
<TABLE>
<CAPTION>
The following schedules to the Stock Purchase Agreement have been omitted. The Company hereby
undertakes to furnish supplementally a copy of any such omitted schedules to the Commission
upon request.
SCHEDULE TITLE
------------------- --------------------------------------------------------------------
<S> <C> <C> <C>
Schedule 3.1.5 -- No Violation (Seller)
Schedule 3.1.6 -- Third Party Consents (Seller)
Schedule 3.1.7 -- No Litigation (Seller)
Schedule 3.2.2(a) -- Organization and Good Standing (Company)
Schedule 3.2.2(b) -- Organization and Good Standing (Subsidiaries)
Schedule 3.2.3(b) -- Outstanding Stock of Subsidiaries
Schedule 3.2.5 -- Title to Assets
Schedule 3.2.6(b) -- Absence of Certain Changes
Schedule 3.2.6(c) -- Undisclosed Liabilities
Schedule 3.2.8 -- Compliance with Laws
Schedule 3.2.11 -- No Violation (Company/Subsidiaries)
Schedule 3.2.12 -- Third Party Consents (Company/Subsidiaries)
Schedule 3.2.13 -- No Litigation
Schedule 3.2.14(a) -- Plans
Schedule 3.2.14(b) -- Health Benefits
Schedule 3.2.14(c) -- Claims Related to Plans
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE TITLE
------------------- --------------------------------------------------------------------
<S> <C> <C> <C>
Schedule 3.2.14(e) -- Plans in Compliance
Schedule 3.2.14(h) -- Plan Administration
Schedule 3.2.14(i) -- Funding
Schedule 3.2.14(j) -- Funding of Deferred Compensation Plans
Schedule 3.2.15A -- Owned and Leased Real Property
Schedule 3.2.15B -- Encumbrances, etc.
Schedule 3.2.16 -- Accounts Receivable
Schedule 3.2.17 -- Inventory
Schedule 3.2.18 -- Customers
Schedule 3.2.19 -- Product Warranty and Product Liability
Schedule 3.2.20 -- Insurance
Schedule 3.2.21 -- Machinery and Equipment
Schedule 3.2.22 -- Intellectual Properties
Schedule 3.2.23 -- Capital Projects and Expenditures
Schedule 3.2.24 -- Subsidiaries
Schedule 3.2.25(a) -- Hazardous Substances--Use, Storage & Disposal
Schedule 3.2.25(b) -- Hazardous Substances--Asbestos, etc.
Schedule 3.2.25(c) -- Hazardous Substances--Environmental Litigation
Schedule 3.2.25(d) -- Hazardous Substances--Compliance
Schedule 3.2.25(e) -- Hazardous Substances--Underground Storage Tanks
Schedule 3.2.26(b) -- Taxes--Returns Filed, Taxes Paid
Schedule 3.2.26(c) -- Taxes--Tax Reserves
Schedule 3.2.26(d) -- Taxes--Returns Furnished
Schedule 3.2.26(e) -- Taxes--Deficiencies, Audits, etc.
Schedule 3.2.27 -- Compensation, Vacation Time, etc.
Schedule 3.2.29 -- Bank Accounts, Investments
Schedule 3.2.30 -- Contracts, Other Agreements
Schedule 3.2.31 -- Permits and Licenses
Schedule 3.2.32 -- Indebtedness
Schedule 5.2.2 -- Capital Transactions
Schedule 5.2.3 -- Personal Property
Schedule 5.2.9 -- Noncompliance with Existing Indebtedness
Schedule 6.2.1 -- Elimination of Intercompany Accounts
Schedule 6.2.2 -- Intercompany Agreements
Schedule 7.1.6 -- Compliance with Law
Schedule 9.2 -- Inventory Reserve Amount
</TABLE>
<TABLE>
<S> <C> <C>
10.4 -- Stellex Aerospace Investor Agreement dated as of July 1, 1997, by and among KII Holding Corp. and
Greystoke Capital Management Limited LDC, and Bradley C. Call, Julius E. Hodge, Lawrence R. Smith,
John Barriatua, Roland H. Marti, Arun Kumar and Louis A. Brown.
10.5 -- Promissory Note dated as of July 1, 1997 by KII Acquisition Corp. to Kleinert Industrie Holding AG.
10.6 -- Promissory Note dated September 6, 1991 by Paragon Precision Products to Farm Bureau Life Insurance
Company.
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C> <C>
10.7 -- Amended and Restated Management Advisory Services Agreement, effective as of November 1, 1997, by and
between Mentmore Holdings Corporation, Stellex Industries, Inc., TSMD Acquisition Corp., Stellex
Microwave Systems, Inc., KII Holding Corp., KII Acquisition Corp., Stellex Aerospace, Bandy Machining
International, Paragon Precision Products, Scanning Electron Analysis Laboratories, Inc. and General
Inspection Laboratories, Inc.
10.8 -- Tax Allocation and Indemnity Agreement dated as of October 31, 1997, and retroactively applied to the
calendar year ended December 31, 1997, by and among Stellex Industries, Inc., TSMD Acquisition Corp.,
Stellex Microwave Systems, Inc., KII Holding Corp., KII Acquisition Corp., Stellex Aerospace, Bandy
Machining International, Paragon Precision Products, Scanning Electron Analysis Laboratories, Inc.
and General Inspection Laboratories, Inc.
+10.9 -- Gallium Arsenide and Thin Film Supply and Services Agreement dated as of October 31, 1997 between
Stellex Industries, Inc. and Watkins-Johnson Company.
+10.10 -- Metal Injection Molding, Glass Seal and Hybrid Assembly Facility Agreement dated as of October 31,
1997 between Stellex Industries, Inc. and Watkins-Johnson Company.
+10.11 -- Cross License Agreement dated as of October 31, 1997 between Watkins-Johnson Company, Stellex
Microwave Systems, Inc. and TSMD Acquisition Corp.
12.1 -- Statement Regarding Computation of Ratio of Earnings to Fixed Charges.
21.1 -- Subsidiaries of the Registrants.
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Deloitte & Touche LLP.
*23.3 -- Consent of Winston & Strawn (included in Exhibit 5.1).
24.1 -- Powers of Attorney (included on signature pages hereto).
25.1 -- Statement of Eligibility of Trustee.
27.1 -- Financial Data Schedule.
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.
99.3 -- Form of Tender Instructions.
</TABLE>
- ------------------
* To be filed by amendment.
+ Confidential treatment requested for a portion of this exhibit filed herewith.
(B) FINANCIAL STATEMENT SCHEDULES:
Schedule II--Valuation and Qualifying Accounts and Reserves
ITEM 22. UNDERTAKINGS.
Each undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant
II-5
<PAGE>
to Rule 424 (b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the 'Calculation of
Registration Fee' table in the effective registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
the time shall be deemed to be the initial bona fide offering
thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;
(4) Each undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c), the registrant
undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters,
in addition to the information called for by the other items of
the applicable form;
(5) Each registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii)
that purports to meet the requirements of Section 10(a)(3) of the
Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-
effective amendment 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;
(6) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrants pursuant to the provisions
described under Item 20 or otherwise, the registrants have 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 registrant of expenses incurred or
paid by a director, officer or controlling person of the
registrants 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, each
registrant 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;
(7) Each undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into
the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form,
within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration
statement through the date of responding to the request; and
(8) Each undersigned registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement
when it became effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, as of December 9, 1997.
STELLEX INDUSTRIES, INC.
By: /s/ William L. Remley
---------------------------------
William L. Remley
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard L. Kramer and William L. Remley, and each
of them, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments (including pre-effective and
post-effective amendments) 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, granting unto said attorneys-in-fact and
agents, and each of them, 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 to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, 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, as amended,
this Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ Richard L. Kramer Chairman of the Board of Directors December 9, 1997
- ------------------------------------------
Richard L. Kramer
/s/ William L. Remley Vice Chairman, President, Chief Executive December 9, 1997
- ------------------------------------------ Officer and Treasurer
William L. Remley
/s/ P. Roger Byer Chief Financial Officer December 9, 1997
- ------------------------------------------ (principal financial and accounting
P. Roger Byer officer)
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, as of December 9, 1997.
TSMD ACQUISITION CORP.
By: /s/ William L. Remley
-----------------------------------
William L. Remley
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard L. Kramer and William L. Remley, and each
of them, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments (including pre-effective and
post-effective amendments) 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, granting unto said attorneys-in-fact and
agents, and each of them, 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 to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, 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, as amended,
this Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ Richard L. Kramer Chairman of the Board of Directors December 9, 1997
- ------------------------------------------
Richard L. Kramer
/s/ William L. Remley President and Treasurer December 9, 1997
- ------------------------------------------ (principal financial and accounting
William L. Remley officer)
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Palo Alto,
State of California, as of December 9, 1997.
STELLEX MICROWAVE SYSTEMS, INC.
By: /s/ Keith D. Gilbert
----------------------------------
Keith D. Gilbert
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard L. Kramer and William L. Remley, and each
of them, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments (including pre-effective and
post-effective amendments) 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, granting unto said attorneys-in-fact and
agents, and each of them, 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 to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, 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, as amended,
this Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ William L. Remley Chairman of the Board of Directors and December 9, 1997
- ------------------------------------------ Treasurer
William L. Remley
/s/ Richard L. Kramer Vice Chairman December 9, 1997
- ------------------------------------------
Richard L. Kramer
/s/ Keith D. Gilbert President and Chief Executive Officer and December 9, 1997
- ------------------------------------------ Director
Keith D. Gilbert
/s/ P. Roger Byer Chief Financial Officer December 9, 1997
- ------------------------------------------ (principal financial and accounting
P. Roger Byer officer)
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Woodland
Hills, State of California, as of December 9, 1997.
KII HOLDING CORP.
By: /s/ Bradley C. Call
---------------------------------
Bradley C. Call
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard L. Kramer and William L. Remley, and each
of them, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments (including pre-effective and
post-effective amendments) 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, granting unto said attorneys-in-fact and
agents, and each of them, 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 to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, 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, as amended,
this Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ Richard L. Kramer Chairman of the Board of Directors December 9, 1997
- ------------------------------------------
Richard L. Kramer
/s/ William L. Remley Vice Chairman and Treasurer December 9, 1997
- ------------------------------------------
William L. Remley
/s/ Bradley C. Call President and Director December 9, 1997
- ------------------------------------------
Bradley C. Call
/s/ Julius E. Hodge Chief Financial Officer December 9, 1997
- ------------------------------------------ (principal financial and accounting
Julius E. Hodge officer)
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Woodland
Hills, State of California, as of December 9, 1997.
KII ACQUISITION CORP.
By: /s/ Bradley C. Call
----------------------------------
Bradley C. Call
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard L. Kramer and William L. Remley, and each
of them, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments (including pre-effective and
post-effective amendments) 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, granting unto said attorneys-in-fact and
agents, and each of them, 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 to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, 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, as amended,
this Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ Richard L. Kramer Chairman of the Board of Directors December 9, 1997
- ------------------------------------------
Richard L. Kramer
/s/ William L. Remley Vice Chairman and Treasurer December 9, 1997
- ------------------------------------------
William L. Remley
/s/ Bradley C. Call President and Director December 9, 1997
- ------------------------------------------
Bradley C. Call
/s/ Julius E. Hodge Chief Financial Officer December 9, 1997
- ------------------------------------------ (principal financial and accounting
Julius E. Hodge officer)
</TABLE>
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Woodland
Hills, State of California, as of December 9, 1997.
STELLEX AEROSPACE
By: /s/ Bradley C. Call
---------------------------------
Bradley C. Call
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard L. Kramer and William L. Remley, and each
of them, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments (including pre-effective and
post-effective amendments) 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, granting unto said attorneys-in-fact and
agents, and each of them, 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 to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, 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, as amended,
this Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ Richard L. Kramer Chairman of the Board of Directors December 9, 1997
- ------------------------------------------
Richard L. Kramer
/s/ William L. Remley Vice Chairman and Assistant Treasurer December 9, 1997
- ------------------------------------------
William L. Remley
/s/ Bradley C. Call President, Chief Executive Officer and December 9, 1997
- ------------------------------------------ Director
Bradley C. Call
/s/ Julius E. Hodge Chief Financial Officer December 9, 1997
- ------------------------------------------ (principal financial and accounting
Julius E. Hodge officer)
</TABLE>
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Burbank,
State of California, as of December 9, 1997.
BANDY MACHINING INTERNATIONAL
By: /s/ Thomas B. Fulton
----------------------------------
Thomas B. Fulton
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard L. Kramer and William L. Remley, and each
of them, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments (including pre-effective and
post-effective amendments) 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, granting unto said attorneys-in-fact and
agents, and each of them, 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 to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, 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, as amended,
this Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ Richard L. Kramer Chairman of the Board of Directors December 9, 1997
- ------------------------------------------
Richard L. Kramer
/s/ William L. Remley Vice Chairman and Assistant Treasurer December 9, 1997
- ------------------------------------------
William L. Remley
/s/ Thomas B. Fulton President December 9, 1997
- ------------------------------------------
Thomas B. Fulton
/s/ Bradley C. Call Director December 9, 1997
- ------------------------------------------
Bradley C. Call
/s/ Julius E. Hodge Chief Financial Officer December 9, 1997
- ------------------------------------------ (principal financial and accounting
Julius E. Hodge officer)
</TABLE>
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Woodland
Hills, State of California, as of December 9, 1997.
PARAGON PRECISION PRODUCTS
By: /s/ Lawrence Smith
---------------------------------
Lawrence Smith
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard L. Kramer and William L. Remley, and each
of them, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments (including pre-effective and
post-effective amendments) 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, granting unto said attorneys-in-fact and
agents, and each of them, 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 to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, 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, as amended,
this Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ Richard L. Kramer Chairman of the Board of Directors December 9, 1997
- ------------------------------------------
Richard L. Kramer
/s/ William L. Remley Vice Chairman and Assistant Treasurer December 9, 1997
- ------------------------------------------
William L. Remley
/s/ Bradley C. Call Director December 9, 1997
- ------------------------------------------
Bradley C. Call
/s/ Lawrence Smith President December 9, 1997
- ------------------------------------------
Lawrence Smith
/s/ Julius E. Hodge Chief Financial Officer December 9, 1997
- ------------------------------------------ (principal financial and accounting
Julius E. Hodge officer)
</TABLE>
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of El Segundo,
State of California, as of December 9, 1997.
SCANNING ELECTRON
ANALYSIS LABORATORIES, INC.
By: /s/ Roland H. Marti
----------------------------------
Roland H. Marti
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard L. Kramer and William L. Remley, and each
of them, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments (including pre-effective and
post-effective amendments) 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, granting unto said attorneys-in-fact and
agents, and each of them, 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 to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, 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, as amended,
this Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ Richard L. Kramer Chairman of the Board of Directors December 9, 1997
- ------------------------------------------
Richard L. Kramer
/s/ William L. Remley Vice Chairman and Assistant Treasurer December 9, 1997
- ------------------------------------------
William L. Remley
/s/ Bradley C. Call Director December 9, 1997
- ------------------------------------------
Bradley C. Call
/s/ Roland H. Marti President December 9, 1997
- ------------------------------------------
Roland H. Marti
/s/ Julius E. Hodge Chief Financial Officer December 9, 1997
- ------------------------------------------ (principal financial and accounting
Julius E. Hodge officer)
</TABLE>
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Cudahy,
State of California, as of December 9, 1997.
GENERAL INSPECTION LABORATORIES, INC.
By: /s/ John Barriatua
---------------------------------
John Barriatua
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard L. Kramer and William L. Remley, and each
of them, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments (including pre-effective and
post-effective amendments) 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, granting unto said attorneys-in-fact and
agents, and each of them, 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 to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, 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, as amended,
this Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ Richard L. Kramer Chairman of the Board of Directors December 9, 1997
- ------------------------------------------
Richard L. Kramer
/s/ William L. Remley Vice Chairman and Assistant Treasurer December 9, 1997
- ------------------------------------------
William L. Remley
/s/ Bradley C. Call Director December 9, 1997
- ------------------------------------------
Bradley C. Call
/s/ John Barriatua President December 9, 1997
- ------------------------------------------
John Barriatua
/s/ Julius E. Hodge Chief Financial Officer December 9, 1997
- ------------------------------------------ (principal financial and accounting
Julius E. Hodge officer)
</TABLE>
II-16
<PAGE>
STELLEX INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY KLEINERT INDUSTRIES, INC. AND SUBSIDIARIES)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
DEDUCTIONS--
UNCOLLECTIBLE
ADDITIONS ACCOUNTS
------------------------ WRITES OFF
BALANCE CHARGED NET OF RECOVERY
AT TO COSTS OF PREVIOUSLY BALANCE
BEGINNING AND FROM WRITTEN-OFF AT END
OF YEAR EXPENSES ACQUISITIONS ITEMS OF YEAR
--------- -------- ------------ ---------------- --------
<S> <C> <C> <C> <C> <C>
1996
Allowance for doubtful accounts.............. $61,300 $ 39,200 $ -- $ 11,800 $112,300
--------- -------- ------ ---------------- --------
--------- -------- ------ ---------------- --------
1995
Allowance for doubtful accounts.............. $33,300 $ 30,100 $ -- $ (2,100) $ 61,300
--------- -------- ------ ---------------- --------
--------- -------- ------ ---------------- --------
1994
Allowance for doubtful accounts.............. $14,400 $ 13,500 $ -- $ 5,400 $ 33,300
--------- -------- ------ ---------------- --------
--------- -------- ------ ---------------- --------
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
3.1 -- Certificate of Incorporation of Stellex Industries, Inc.
3.2 -- Bylaws of Stellex Industries, Inc.
3.3 -- Certificate of Incorporation of TSMD Acquisition Corp.
3.4 -- Bylaws of TSMD Acquisition Corp.
3.5 -- Articles of Incorporation of Stellex Microwave Systems, Inc.
3.6 -- Bylaws of Stellex Microwave Systems, Inc.
3.7 -- Certificate of Incorporation of KII Holding Corp.
3.8 -- Bylaws of KII Holding Corp.
3.9 -- Certificate of Incorporation of KII Acquisition Corp.
3.10 -- Bylaws of KII Acquisition Corp.
3.11 -- Articles of Incorporation of Stellex Aerospace.
3.12 -- Bylaws of Stellex Aerospace.
3.13 -- Articles of Incorporation of Bandy Machining International.
3.14 -- Bylaws of Bandy Machining International.
3.15 -- Articles of Incorporation of Paragon Precision Products.
3.16 -- Bylaws of Paragon Precision Products.
3.17 -- Certificate of Incorporation of Scanning Electron Analysis Laboratories, Inc.
3.18 -- Bylaws of Scanning Electron Analysis Laboratories, Inc.
3.19 -- Articles of Incorporation of General Inspection Laboratories, Inc.
3.20 -- Bylaws of General Inspection Laboratories, Inc.
4.1 -- Purchase Agreement dated as of October 23, 1997, by and among Stellex Industries, Inc., TSMD
Acquisition Corp., Stellex Microwave Systems, Inc., KII Holding Corp., KII Acquisition Corp., Stellex
Aerospace, Bandy Machining International, Paragon Precision Products, Scanning Electron Analysis
Laboratories, Inc. and General Inspection Laboratories, Inc. and Societe Generale Securities
Corporation, BT Alex. Brown Incorporated and Jefferies & Company, Inc.
4.2 -- Indenture dated as of October 31, 1997 by and among Stellex Industries, Inc., TSMD Acquisition Corp.,
Stellex Microwave Systems, Inc., KII Holding Corp., KII Acquisition Corp., Stellex Aerospace, Bandy
Machining International, Paragon Precision Products, Scanning Electron Analysis Laboratories, Inc.
and General Inspection Laboratories, Inc. and Marine Midland Bank, as trustee.
4.3 -- Registration Rights Agreement dated as of October 31, 1997 by and among Stellex Industries, Inc.,
TSMD Acquisition Corp., Stellex Microwave Systems, Inc., KII Holding Corp., KII Acquisition Corp.,
Stellex Aerospace, Bandy Machining International, Paragon Precision Products, Scanning Electron
Analysis Laboratories, Inc. and General Inspection Laboratories, Inc. and Societe Generale Securities
Corporation, BT Alex. Brown Incorporated and Jefferies & Company, Inc.
*5.1 -- Opinion of Winston & Strawn.
10.1 -- Credit Agreement dated as of October 31, 1997 by and among Stellex Industries, Inc., TSMD Acquisition
Corp., Stellex Microwave Systems, Inc., KII Holding Corp., KII Acquisition Corp., Stellex Aerospace,
Bandy Machining International, Paragon Precision Products, Scanning Electron Analysis Laboratories,
Inc. and General Inspection Laboratories, Inc. and Societe Generale, as Agent.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
+10.2 -- Stock Purchase Agreement dated as of August 29, 1997 by and among TSMD Acquisition Corp.,
Watkins-Johnson Company and W-J TSMD Inc.
</TABLE>
<TABLE>
<CAPTION>
The following schedules to the Stock Purchase Agreement have been omitted. The Company hereby
undertakes to furnish supplementally a copy of any such omitted schedules to the Commission upon
request.
SCHEDULE TITLE
----------------- -----------------------------------------------------------------------
<S> <C> <C> <C>
Schedule 2.4 -- Status of Tax Audits
Schedule 2.5(a) -- Customer Contracts
Schedule 2.5(b) -- Certain Supplier Contracts
Schedule 2.5(c) -- Government Contracts
Schedule 2.5(d) -- Certain Contracts over $250,000
Schedule 2.5(e) -- Certain Contracts in Excess of Three Years
Schedule 2.5(f) -- Substantially Dependent/Material Adverse Contracts
Schedule 2.5(m) -- Material Losses
Schedule 2.5(n) -- Offshore Production Contracts
Schedule 2.6(d) -- Government Furnished Items
Schedule 2.16 -- Employee Benefit Plan
Schedule 2.21 -- Key Customer/Supplier
Schedule 2.23(c) -- Government Contract Audit
Schedule 2.24 -- Backlog
Schedule 2.25 -- Clearances
Schedule 5.7 -- Warranty Principles
Schedule 5.10 -- Proration
Schedule 9.15 -- Knowledge
</TABLE>
<TABLE>
<S> <C> <C>
10.3 -- Stock Purchase Agreement dated as of May 23, 1997, by and among KII Acquisition Corp. and Kleinert
Industrie Holding AG.
</TABLE>
<TABLE>
<CAPTION>
The following schedules to the Stock Purchase Agreement have been omitted. The Company hereby
undertakes to furnish supplementally a copy of any such omitted schedules to the Commission
upon request.
SCHEDULE TITLE
------------------- --------------------------------------------------------------------
<S> <C> <C> <C>
Schedule 3.1.5 -- No Violation (Seller)
Schedule 3.1.6 -- Third Party Consents (Seller)
Schedule 3.1.7 -- No Litigation (Seller)
Schedule 3.2.2(a) -- Organization and Good Standing (Company)
Schedule 3.2.2(b) -- Organization and Good Standing (Subsidiaries)
Schedule 3.2.3(b) -- Outstanding Stock of Subsidiaries
Schedule 3.2.5 -- Title to Assets
Schedule 3.2.6(b) -- Absence of Certain Changes
Schedule 3.2.6(c) -- Undisclosed Liabilities
Schedule 3.2.8 -- Compliance with Laws
Schedule 3.2.11 -- No Violation (Company/Subsidiaries)
Schedule 3.2.12 -- Third Party Consents (Company/Subsidiaries)
Schedule 3.2.13 -- No Litigation
Schedule 3.2.14(a) -- Plans
Schedule 3.2.14(b) -- Health Benefits
Schedule 3.2.14(c) -- Claims Related to Plans
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE TITLE
------------------- --------------------------------------------------------------------
<S> <C> <C> <C>
Schedule 3.2.14(e) -- Plans in Compliance
Schedule 3.2.14(h) -- Plan Administration
Schedule 3.2.14(i) -- Funding
Schedule 3.2.14(j) -- Funding of Deferred Compensation Plans
Schedule 3.2.15A -- Owned and Leased Real Property
Schedule 3.2.15B -- Encumbrances, etc.
Schedule 3.2.16 -- Accounts Receivable
Schedule 3.2.17 -- Inventory
Schedule 3.2.18 -- Customers
Schedule 3.2.19 -- Product Warranty and Product Liability
Schedule 3.2.20 -- Insurance
Schedule 3.2.21 -- Machinery and Equipment
Schedule 3.2.22 -- Intellectual Properties
Schedule 3.2.23 -- Capital Projects and Expenditures
Schedule 3.2.24 -- Subsidiaries
Schedule 3.2.25(a) -- Hazardous Substances--Use, Storage & Disposal
Schedule 3.2.25(b) -- Hazardous Substances--Asbestos, etc.
Schedule 3.2.25(c) -- Hazardous Substances--Environmental Litigation
Schedule 3.2.25(d) -- Hazardous Substances--Compliance
Schedule 3.2.25(e) -- Hazardous Substances--Underground Storage Tanks
Schedule 3.2.26(b) -- Taxes--Returns Filed, Taxes Paid
Schedule 3.2.26(c) -- Taxes--Tax Reserves
Schedule 3.2.26(d) -- Taxes--Returns Furnished
Schedule 3.2.26(e) -- Taxes--Deficiencies, Audits, etc.
Schedule 3.2.27 -- Compensation, Vacation Time, etc.
Schedule 3.2.29 -- Bank Accounts, Investments
Schedule 3.2.30 -- Contracts, Other Agreements
Schedule 3.2.31 -- Permits and Licenses
Schedule 3.2.32 -- Indebtedness
Schedule 5.2.2 -- Capital Transactions
Schedule 5.2.3 -- Personal Property
Schedule 5.2.9 -- Noncompliance with Existing Indebtedness
Schedule 6.2.1 -- Elimination of Intercompany Accounts
Schedule 6.2.2 -- Intercompany Agreements
Schedule 7.1.6 -- Compliance with Law
Schedule 9.2 -- Inventory Reserve Amount
</TABLE>
<TABLE>
<S> <C> <C>
10.4 -- Stellex Aerospace Investor Agreement dated as of July 1, 1997, by and among KII Holding Corp. and
Greystoke Capital Management Limited LDC, and Bradley C. Call, Julius E. Hodge, Lawrence R. Smith,
John Barriatua, Roland H. Marti, Arun Kumar and Louis A. Brown.
10.5 -- Promissory Note dated as of July 1, 1997 by KII Acquisition Corp. to Kleinert Industrie Holding AG.
10.6 -- Promissory Note dated September 6, 1991 by Paragon Precision Products to Farm Bureau Life Insurance
Company.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10.7 -- Amended and Restated Management Advisory Services Agreement, effective as of November 1, 1997, by and
between Mentmore Holdings Corporation, Stellex Industries, Inc., TSMD Acquisition Corp., Stellex
Microwave Systems, Inc., KII Holding Corp., KII Acquisition Corp., Stellex Aerospace, Bandy Machining
International, Paragon Precision Products, Scanning Electron Analysis Laboratories, Inc. and General
Inspection Laboratories, Inc.
10.8 -- Tax Allocation and Indemnity Agreement dated as of October 31, 1997, and retroactively applied to the
calendar year ended December 31, 1997, by and among Stellex Industries, Inc., TSMD Acquisition Corp.,
Stellex Microwave Systems, Inc., KII Holding Corp., KII Acquisition Corp., Stellex Aerospace, Bandy
Machining International, Paragon Precision Products, Scanning Electron Analysis Laboratories, Inc.
and General Inspection Laboratories, Inc.
+10.9 -- Gallium Arsenide and Thin Film Supply and Services Agreement dated as of October 31, 1997 between
Stellex Industries, Inc. and Watkins-Johnson Company.
+10.10 -- Metal Injection Molding, Glass Seal and Hybrid Assembly Facility Agreement dated as of October 31,
1997 between Stellex Industries, Inc. and Watkins-Johnson Company.
+10.11 -- Cross License Agreement dated as of October 31, 1997 between Watkins-Johnson Company, Stellex
Microwave Systems, Inc. and TSMD Acquisition Corp.
12.1 -- Statement Regarding Computation of Ratio of Earnings to Fixed Charges.
21.1 -- Subsidiaries of the Registrants.
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Deloitte & Touche LLP.
*23.3 -- Consent of Winston & Strawn (included in Exhibit 5.1).
24.1 -- Powers of Attorney (included on signature pages hereto).
25.1 -- Statement of Eligibility of Trustee.
27.1 -- Financial Data Schedule.
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.
99.3 -- Form of Tender Instructions.
</TABLE>
- ------------------
* To be filed by amendment.
+ Confidential treatment requested for a portion of this exhibit filed herewith.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
STELLEX HOLDINGS CORP.
FIRST. The name of the corporation is Stellex Holdings Corp.
SECOND. The address of the registered office of the corporation in the
State of Delaware is 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered
agent at that address is The Corporation Trust Company.
THIRD. The nature or purposes of the business to be conducted
or promoted is to engage in any lawful act or activity
for which corporations may be organized under the
General Corporation Law of Delaware.
FOURTH. The Corporation shall have authority to issue 1,000 shares of
Common Stock, without par value, and 500 shares of Serial
Preferred Stock, without par value but with a stated value of
Ten Thousand Dollars ($10,000) per share.
A. Serial Preferred Stock
The Board of Directors is hereby empowered to cause the Serial
Preferred Stock of the Corporation to be issued in series with such of
the variations permitted by clauses (1)- (8) of this paragraph A as
shall have been fixed and determined by the Board of Directors with
respect to any series prior to the issue of any shares of such series.
The shares of the Serial Preferred Stock of different series
may vary as to:
(1) the number of shares constituting such series and
the designation of such series, which shall be such as to
distinguish the shares thereof from the shares of all other
series and classes;
(2) the rate of dividend, the time of payment and, if
cumulative, the dates from which dividends shall be
cumulative, the extent of participation rights, if any, and
the priority in payment of dividends;
(3) any right to vote with holders of shares of any
other series or class and any right to vote as a class, either
generally or as a condition to specified corporate acts;
<PAGE>
(4) the price at and the terms and conditions on
which shares may be redeemed;
(5) the amount payable upon shares and the
priority of payment in event of involuntary
liquidation;
(6) the amount payable upon shares and the
priority of payment in event of voluntary liquidation;
(7) any sinking fund provisions for the
redemption or purchase of shares; and
(8) the terms and conditions on which shares may
be converted, if the shares of any series are issued
with the privilege of conversion.
The shares of all series of Serial Preferred Stock shall be
identical except as, within the limitations set forth above in this
section A, shall have been fixed and determined by the Board of
Directors prior to the issuance thereof. Except as specifically set
forth in any Certificate of Serial Designation filed with the Secretary
of State of the State of Delaware or as required by the Delaware
General Corporation Law, none of these shares of any series of Serial
Preferred Stock shall have any right to vote on any matters.
B. Common Stock.
(1) Dividends. When and if declared by the Board of Directors,
the holders of the Common Stock shall only be entitled to receive cash
dividends and dividends payable in property other than securities of
the Corporation at such time as all dividends on the Serial Preferred
Stock through the record date of any such Common Stock dividend have
been paid in full.
(2) Liquidation. In the event of the voluntary or involuntary
liquidation, dissolution, distribution of assets or winding-up of the
Corporation, after distribution in full to the holders of Serial
Preferred Stock of their preferred liquidation payments, the holders of
Common Stock shall be entitled to receive the remaining assets of the
Corporation.
(3) Voting Rights. Except as may be otherwise required by law
or the Certificate of Incorporation of the Corporation, as amended,
each share of Common Stock shall have one (1) vote on all matters voted
upon by the stockholders.
2
<PAGE>
FIFTH. The name and mailing address of the sole incorporator
is as follows:
John C. Oehmke O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, CA 90071-2899
The names and mailing address of the persons who are to serve as
directors until the first annual meeting of the stockholders or until
successors are elected and qualified, is as follows:
Richard L. Kramer
William L. Remley
1430 Broadway, 13th Floor
New York, New York 10018
SIXTH. The corporation is to have perpetual existence.
SEVENTH. Election of directors need not be by written ballot
unless the by-laws of the corporation shall so provide.
EIGHTH. The corporation reserves the rights to amend, alter, change or
repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.
NINTH. A director of the corporation shall not be personally
liable to the corporation or its stockholders for
monetary damages for broach of fiduciary duty as a
director except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law or (iv) for any
transaction from which the director derived any
improper personal benefit.
3
<PAGE>
I, THE UNDERSIGNED, being the sole incorporator hereinbefore named, for
the purpose of forming a corporation pursuant to the General Corporation Law of
the State of Delaware, do make this Certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 5th day of September, 1997.
/s/ John C. Oehmke
------------------
John C. Oehmke
4
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
STELLEX HOLDINGS CORP.
a Delaware corporation
William L. Remley and Richard L. Kramer hereby certify that:
FIRST: They are the President and Secretary, respectively,
or Stellex Holdings Corp., a Delaware corporation.
SECOND: That Article First of the Certificate of
Incorporation of this Corporation shall be amended in its entirety to read
as follows:
"FIRST
The name of the Corporation is Stellex Industries, Inc."
THIRD: That Article Second of the Certificate of
Incorporation of this Corporation shall be amended in its entirety to read as
follows:
"SECOND
"The address of the registered office of the corporation in
the State of Delaware is 1013 Centre Road, in the City of Wilmington,
County of New Castle. The name of its registered agent at that address
is Corporation Service Company."
FOURTH: That the foregoing amendments of Certificate of
Incorporation were duly adopted in accordance with the applicable provisions of
Section 242 of the Delaware General Corporation Law.
FIFTH: That the foregoing amendments of Certificate of
Incorporation were duly adopted by the Board of Directors of this Corporation.
SIXTH: That the foregoing amendments of Certificate of
Incorporation were duly approved by the required vote of stockholders of this
Corporation in accordance with Section 242 of the Delaware General Corporation
Law. The total number of outstanding shares of this Corporation in One Thousand
(1,000) shares of Common Stock. The number of shares voting in favor of the
amendments exceeded the vote required. The percentage vote required was more
than 50%.
5
<PAGE>
We further declare that the matters set forth in this
certificate are true and correct of our own knowledge.
Date: October 8, 1997
By: /s/ William L. Remley
--------------------------
William L. Remley
President
/s/ Richard L. Kramer
--------------------------
Richard L. Kramer
Secretary
6
<PAGE>
STELLEX INDUSTRIES, INC.
CERTIFICATE OF THE POWERS, DESIGNATIONS, PREFERENCES AND
RIGHTS OF THE SERIES A PREFERRED STOCK
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware.
The following resolution was duly adopted by the Board of Directors
(the "Board of Directors") of STELLEX INDUSTRIES, INC., a Delaware corporation
(the "Corporation"), pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware:
WHEREAS, the Board of Directors of the Corporation, is authorized,
within the limitations and restrictions stated in the Certificate of
Incorporation of the Corporation, to provide by resolution or resolutions for
the issuance of shares of preferred stock, without par value, of the
Corporation, in one or more series with such voting powers, full or limited, or
without voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions as shall be stated and expressed in the resolution or
resolutions providing for the issuance thereof adopted by the Board of
Directors, as are not stated and expressed in the Certificate of Incorporation,
or any amendment thereto, including (but without limiting the generality of the
foregoing) such provisions as may be desired concerning voting, redemption,
dividends, dissolution or the distribution of assets, conversion or exchange,
and such other subjects or matters as may be fixed by resolution or resolutions
of the Board of Directors under the General Corporation Law of the State of
Delaware; and
WHEREAS, it is the desire of the Board of Directors of the Corporation,
pursuant to its authority as aforesaid, to authorize and fix the terms of a
series of preferred stock and the number of shares constituting such series.
NOW, THEREFORE, BE IT RESOLVED:
1. Designation and Number of Shares. There shall be hereby established
a series of the preferred stock, without par value, but with a stated value of
Fifty Thousand Dollars ($50,000) per share (the "Stated Value"), designated as
"Series A Preferred Stock" (such series being hereinafter referred to as the
"Series A Preferred Stock"). The authorized number of shares of Series A
Preferred Stock shall be 500.
7
<PAGE>
2. Bank. The Series A Preferred Stock shall, with respect to dividend
distributions and distributions of assets and rights upon the liquidation,
winding up and dissolution of the Corporation, rank senior to all classes of
common stock of the Corporation (including, without limitation, the currently
authorized common stock, without par value, of the Corporation) (the "Common
Stock"), and to each other class or series of Capital Stock of the Corporation
hereafter created with respect to dividend distributions and distributions of
assets and rights upon the liquidation, winding up and dissolution of the
Corporation (collectively with the Common Stock, the "Junior Stock").
3. Dividends.
a. The holders of the outstanding shares of Series A Preferred
Stock shall be entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available therefor, cash dividends on each share
of Series A Preferred Stock at a rate equal to ten percent (10%) per annum of
the sum of (i) the Liquidation Preference (as hereinafter defined) and (ii) any
dividends which may be in arrears. All dividends shall be cumulative, whether or
not earned or declared, from the date of issuance of the Series A Preferred
Stock and shall be payable quarterly in arrears on each Dividend Payment Date,
commencing on the first Dividend Payment Date after the issuance of the Series A
Preferred Stock. Each distribution on the Series A Preferred Stock shall be
payable to holders of record as they appear on the stock record books of the
Corporation on such record dates, not less than ten (10) nor more than sixty
(60) days preceding the applicable Dividend Payment Date, as shall be fixed by
the Board of Directors of the Corporation.
8
<PAGE>
b. All dividends paid with respect to shares of Series A Preferred
Stock pursuant to subparagraph 3(a) shall be paid pro rata and in a like manner
to all of the holders entitled thereto.
c. Nothing herein contained shall in any way or under any
circumstances be construed or deemed to require the Board of Directors to
declare, or the Corporation to pay or set apart for payment, any dividends on
shares of the Series A Preferred Stock at any time, except out of funds legally
available therefor.
d. Dividends on account of arrears for any past Dividend Period
may be declared and paid at any time, without reference to any regular Dividend
Payment Date, to holders of record on such date, not less than ten (10) nor more
than sixty (60) days prior to the payment thereof, as may be fixed by the Board
of Directors.
e. Without the affirmative vote or consent of holders of at least
a majority of the then outstanding shares of Series A Preferred Stock, voting or
consenting, as the case may be, as one class, the Corporation shall not declare,
pay or set apart for payment any dividend on any shares of Junior Stock or make
any payment on account of, or set apart for payment money for a sinking or other
similar fund for, the purchase, redemption or other retirement of, any shares of
Junior Stock or any warrants, rights, puts, calls or options exercisable for or
convertible into any shares of Junior Stock or make any distribution in respect
thereof, either directly or indirectly, whether in cash, obligations or shares
of the Corporation or other property (all such prohibited payments and other
actions set forth above in this subparagraph 3(e) being collectively referred to
as "Restricted Junior Payments") except that the Corporation may pay
9
<PAGE>
dividends or other distributions on Junior Stock in the form of additional
shares of Junior Stock (or the adjustment of the amount of the liquidation
preference, if any, of such Junior Stock).
f. Dividends payable on the Series A Preferred Stock for any
period less than a year shall be computed on the basis of a 365-day year and the
actual number of days elapsed in the period for which such dividends are
payable.
4. Liquidation Preference.
a. The liquidation preference of the Series A Preferred Stock
shall be $50,000.00 per share (the "Liquidation Preference"). In the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation, the holders of shares of Series A Preferred Stock
then outstanding shall be entitled to be paid for each share held, out of the
assets of the Corporation available for distribution to its stockholders, an
amount in cash equal to the aggregate Liquidation Preference plus an amount in
cash equal to all accumulated and unpaid dividends thereon to the date fixed for
liquidation, dissolution or winding up (including, without duplication, an
amount equal to pro rated dividends for the period from the last Dividend
Payment Date to the date fixed for liquidation, dissolution or winding up),
before any payment shall be made or any assets distributed to the holders of any
shares of Junior Stock. Except as provided in the preceding sentence, holders of
the Series A Preferred Stock shall not be entitled to any distribution in the
event of any liquidation, dissolution or winding up of the affairs of the
Corporation. If the assets of the Corporation are not sufficient to pay in full
the liquidation payments payable to the holders of outstanding shares of the
Series A Preferred Stock, then the holders of all such shares shall share
ratably in such distribution of assets.
10
<PAGE>
b. For purposes of this paragraph 4, neither the sale, conveyance,
exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all or part of the property or assets of
the Corporation nor the consolidation or merger of the Corporation into or with
one or more other corporations or entities shall be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary, of the affairs of the
Corporation.
5. Voting Rights.
a. So long as any shares of the Series A Preferred Stock are
outstanding, the Corporation shall not reclassify any Junior Stock into any
preferred stock of the Corporation that ranks on a partly or senior (in either
case as to dividends or other distributions or rights upon liquidation,
dissolution or winding up) to the Series A Preferred Stock ("Parity Stock" or
"Senior Stock", respectively) or create or authorize any new class of Parity
Stock or Senior Stock without the affirmative vote or consent of holders of at
least a majority of the then outstanding shares of Series A Preferred Stock,
voting or consenting, as the case may be, as one class.
b. So long as any shares of Series A Preferred Stock are
outstanding, the Corporation shall not amend this Certificate of Designation or
the Certificate of Incorporation of the Corporation so as to adversely affect
the specified rights, preferences, privileges or voting rights of holders of
shares of the Series A Preferred Stock, without the affirmative vote or consent
of at least a majority of the issued and outstanding shares of Series A
Preferred Stock, voting or consenting, as the case may be, as one class.
c. In any case in which the holders of Series A Preferred Stock
shall be entitled to vote pursuant to paragraph 5 or pursuant to the General
Corporation Law of the State of Delaware, each holder of Series A Preferred
Stock shall be entitled to one vote for each share
11
<PAGE>
of Series A Preferred Stock. Except as otherwise provided in this paragraph 5
and under the General Corporation Law of the State of Delaware, holders of
Series A Preferred Stock shall not be entitled to vote on any matters.
6. Redemption.
a. The Series A Preferred Stock may be redeemed in cash, in whole
or in part, at any time or from time to time, at the option of the Corporation
by resolution of the Board of Directors at a price per share equal to the
Liquidation Preference plus an amount equal to all dividends thereon accrued and
unpaid (the "Redemption Price") to the date fixed by the Board of Directors as
the redemption date (the "Redemption Date"). If fewer than all shares of Series
A Preferred Stock are to be redeemed, shares of Series A Preferred Stock shall
be redeemed ratably among the holders thereof.
b. Notice of any redemption pursuant to this paragraph 6 (a
"Redemption Notice") shall be mailed, first class, postage prepaid, not less
than fifteen (15) days nor more than sixty (60) days prior to the Redemption
Date to the holders of record of the shares of Series A Preferred Stock to be
redeemed, at their respective addresses as the same appear upon the stock record
books of the Corporation or are supplied by them in writing to the Corporation
for the purposes of such notice. Such notice shall set forth the anticipated
Redemption Price or formula on which such Redemption Price will be based, the
anticipated Redemption Date within such fifteen (15) to sixty (60) day period,
the number of shares to be redeemed and the place at which the shares called for
redemption will, upon presentation and surrender of the stock certificates
evidencing such shares, be redeemed.
12
<PAGE>
c. On or before the anticipated Redemption Date, each holder of
Series A Preferred Stock shall surrender the certificate or certificates
representing such shares of Series A Preferred Stock to the Corporation, in the
manner and at the place designated in the Redemption Notice, and on the
Redemption Date, if the redemption occurs, the full Redemption Price for such
shares shall be payable in cash to the Person whose name appears on such
certificate or certificates as the owner thereof, and each surrendered
certificate shall be canceled and retired. If for any reason the redemption does
not occur, the certificates shall be returned. In the event that fewer than all
of the Series A Preferred Stock represented by any such certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares.
d. If any Redemption Notice by the Corporation pursuant to this
paragraph 6 shall have been mailed as provided in subparagraph 6(b) and if on or
before the Redemption Date, the consideration necessary for such redemption
shall have been irrevocably set apart in trust for the benefit of the holders of
shares to be so redeemed so as to be available therefor and only therefor, then
on and after the close of business on the Redemption Date, the shares called for
redemption, notwithstanding that any certificate therefor shall not have been
surrendered for cancellation, shall no longer be deemed outstanding, and all
rights with respect to such shares shall forthwith cease and terminate, except
the right of the holders thereof to receive upon surrender of their certificates
the consideration payable upon redemption thereof.
7. Payment in Kind. Any payments by the Corporation on account of
the Series A Preferred Stock as a result of the declaration of dividends on the
Series A Preferred Stock may, in the sole discretion of the Board of Directors,
be payable, in whole or in part, in the form of additional shares of Series A
Preferred Stock of the Corporation or any of the assets of the
13
<PAGE>
Corporation. For the purposes of such payment, shares of Series A Preferred
Stock shall be valued at the Stated Value or upon such other reasonable basis as
the Board of Directors shall determine in its sole discretion.
8. Business Day. If any payment shall be required by the terms hereof
to be made on a day that is not a Business Day, such payment shall be made on
the immediately succeeding Business Day.
9. Preemptive Rights. The holders of the Series A Preferred Stock
shall not have any preemptive right to subscribe for or purchase any shares of
stock or any other securities that may be issued by the Corporation.
10. Exclusion of Other Rights. The shares of Series A Preferred Stock
shall not have any designation, preferences, limitations or relative rights,
other than those specifically set forth in these resolutions and in the
Certificate of Incorporation of the Corporation.
11. Legends. Unless the Series A Preferred Stock is to be registered
under the Securities Act of 1933, as amended or any other applicable federal or
state securities law, the following legends shall be placed on the Series A
Preferred Stock:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER APPLICABLE
FEDERAL OR STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION UNLESS THE PROPOSED TRANSFER DOES NOT
REQUIRE ANY SUCH REGISTRATION AND THE CORPORATION HAS RECEIVED AN
OPINION OF COUNSEL TO SUCH EFFECT.
12. Headings. The headings of the various paragraphs and
subparagraphs hereof are for convenience of reference only and shall not affect
the interpretation of any of the provisions hereof.
14
<PAGE>
13. Definitions.
"Board of Directors" has the meaning ascribed to it in the first
paragraph of this resolution.
"Business Day" means any day except a Saturday, Sunday or any day on
which banking institutions in New York City, New York or Los Angeles, California
are required or authorized by law or other governmental action to be closed.
"Capital Stock" means all common stock and any other capital stock of
the Corporation authorized from time to time, and any other shares, options,
interests, participations, or other equivalents (however designated), whether
voting or nonvoting, including, without limitation, common stock, options,
warrants, preferred stock, phantom stock, stock appreciation rights, convertible
notes or debentures, stock purchase rights, and all agreements, instruments,
documents, and securities convertible, exercisable or exchangeable, in whole or
in part, into any one or more of the foregoing.
"Certificate of Designation" shall mean this Certificate of the Powers,
Designations, Preferences and Rights of the Series A Preferred Stock.
"Closing Date" means the date on which the Series A Preferred Stock
is first issued.
"Common Stock" has the meaning ascribed to it in paragraph 2 hereof.
"Corporation" means Stellex Industries, Inc., a Delaware corporation.
"Dividend Payment Date" means March 31, June 30, September 30 and
December 31 of each year.
"Dividend Period" means the initial Dividend Period and, thereafter,
each Quarterly Dividend Period.
15
<PAGE>
"Initial Dividend Period" means the dividend period commencing on the
Closing Date and ending on the first Dividend Payment Date to occur thereafter.
"Junior Stock" has the meaning ascribed to it in paragraph 2 hereof.
"Liquidation Preference" has the meaning ascribed to it in
paragraph 4 hereof.
"Parity Stock" has the meaning ascribed to it in paragraph 5 hereof.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Quarterly Dividend Period" means the quarterly periods commencing on
each January 1, April 1, July 1 and October 1 and ending on each Dividend
Payment Date, respectively.
"Redemption Date" has the meaning ascribed to it in paragraph 6 hereof.
"Redemption Notice" has the meaning ascribed to it in paragraph 6
hereof.
"Redemption Price" has the meaning ascribed to it in paragraph 6
hereof.
"Restricted Junior Payments" has the meaning ascribed to it in
paragraph 3 hereof.
"Senior Stock" has the meaning ascribed to it in paragraph 5 hereof.
"Series A Preferred Stock" has the meaning ascribed to it in
paragraph 1 hereof.
"Stated Value" has the meaning ascribed to it in paragraph 1 hereof.
FURTHER RESOLVED, that the appropriate officers of the Corporation
are hereby authorized to execute and acknowledge a certificate setting forth
these resolutions and to cause such certificate to be filed and recorded, in
accordance with the requirement of Section 151(g) of the General Corporation Law
of the State of Delaware.
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IN WITNESS WHEREOF, STELLEX INDUSTRIES, INC. has caused this
Certificate to be duly executed as of this 23rd day of October 1997.
STELLEX INDUSTRIES, INC.
By: /s/ William L. Remley
--------------------------
William L. Remley
President
17
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CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
STELLEX INDUSTRIES, INC.,
a Delaware corporation
William L. Remley hereby certifies that:
FIRST: He is President of Stellex Industries, Inc., a
Delaware corporation.
SECOND: That Article Fourth of the Certificate of
Incorporation of this Corporation shall be amended as follows:
(1) By deleting:
"The Corporation shall have authority to issue 1,000 shares of
Common Stock, without par value, and 500 shares of Serial
Preferred Stock, without par value but with a stated value of
Ten Thousand Dollars ($10,000) per share."
(2) and substituting in its place:
"The Corporation shall have authority to issue 1,000 shares of
Common Stock, without par value, and 500 shares of Serial
Preferred Stock, without par value but with a stated value of
Fifty Thousand Dollars ($50,000) per share."
THIRD: That the foregoing amendment of Certificate of
Incorporation was duly adopted in accordance with the applicable provisions of
Section 242 of the Delaware General Corporation Law.
FOURTH: That the foregoing amendment of Certificate of
Incorporation was duly adopted by the Board of Directors of this Corporation.
FIFTH: That the foregoing amendment of Certificate of
Incorporation was duly approved by the required vote of stockholders of this
Corporation in accordance with Section 242 of the Delaware General Corporation
Law. The total number of outstanding shares of this Corporation is One Thousand
(1,000) shares of Common Stock. The number of shares voting in favor of the
amendment exceeded the vote required. The percentage vote required was more than
50%.
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I further declare that the matters set forth in this
certificate are true and correct of any own knowledge.
Date: October 22, 1997
By: /s/ William L. Remley
--------------------------
William L. Remley
President
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BY-LAWS
STELLEX INDUSTRIES, INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
Corporation shall be at Corporation Trust Center, 1209 Orange Street, in the
city of Wilmington, County of New Castle, State of Delaware.
Section 2. Additional Offices. The Corporation may also have offices
at such other places, both within and without the State of Delaware, as the
Board of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Time and Place. A meeting of stockholders for any purpose
may be held at such time and place, within or without the State of Delaware, as
the Board of Directors may fix from time to time and as shall be stated in the
notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. Annual meetings of stockholders shall be
held on such date and time as shall, from time to time, be designated by the
Board of Directors and stated in the notice of the meeting. At such annual
meeting, the stockholders shall elect a Board of Directors and transact such
other business as may properly be brought before the meeting.
Section 3. Notice of Annual Meeting. Written notice of the annual
meeting, stating the place, date and time thereof, shall be given to each
stockholder entitled to vote at such meeting not less than 10 (unless a longer
period is required by law) nor more than 60 days prior to the meeting.
Section 4. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the Chairman of the Board, if
any, or the President and shall be called by the President or Secretary at the
request in writing of a majority of the Board of Directors, or at the request in
writing of the stockholders owning a majority of the shares of capital stock of
the Corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting.
Section 5. Notice of Special Meeting. Written notice of a special
meeting, stating the place, date and time thereof and the purpose or purposes
for which the meeting is called, shall be given to each stockholder entitled to
vote at such meeting not less than 10 (unless a longer period is required by
law) nor more than 60 days prior to the meeting.
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Section 6. List of Stockholders. The officer in charge of the stock
ledger of the Corporation or the transfer agent shall prepare and make, at least
10 days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least 10 days prior to the meeting, at a
place within the city where the meeting is to be held, which place, if other
than the place of the meeting, shall be specified in the notice of the meeting.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present in person thereat.
Section 7. Presiding Officer; Order of Business.
(a) Meetings of stockholders shall be presided over by the Chairman of
the Board, if any, or, if he is not present (or, if there is none), by the
President, or, if he is not present, by a Vice President, or, if he is not
present, by such person who may have been chosen by the Board of Directors, or,
if none of such persons is present, by a chairman to be chosen by the
stockholders owning a majority of the shares of capital stock of the Corporation
issued and outstanding and entitled to vote at the meeting and who are present
in person or represented by proxy. The Secretary of the Corporation, or, if he
is not present, an Assistant Secretary, or if he is not present, such person as
may be chosen by the Board of Directors, shall act as secretary of meetings of
stockholders, or, if none of such persons is present, the stockholders owning a
majority of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote at the meeting and who are present in person or
represented by proxy shall choose any person present to act as secretary of the
meeting.
(b) The following order of business, unless otherwise ordered at the
meeting, shall be observed as far as practicable and consistent with the
purposes of the meeting:
1. Call of the meeting to order.
2. Presentation of proof of mailing of the notice of the
meeting and, if the meeting is a special meeting, the call
thereof.
3. Presentation of proxies.
4. Announcement that a quorum is present.
5. Reading and approval of the minutes of the previous
meeting.
6. Reports, if any, of officers.
7. Election of directors, if the meeting is an annual meeting
or a meeting called for that purpose.
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8. Consideration of the specific purpose or purposes for
which the meeting has been called (other than the election
of directors), if the meeting is a special meeting.
9. Transaction of such other business as may properly come
before the meeting.
10. Adjournment.
Section 8. Quorum; Adjournments. The holders of a majority of the
shares of capital stock of the Corporation issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall be necessary
to, and shall constitute a quorum for, the transaction of business at all
meetings of the stockholders, except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, a quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have the power to
adjourn the meeting from time to time, without notice of the adjourned meeting
if the time and place thereof are announced at the meeting at which the
adjournment is taken, until a quorum shall be present or represented. Even if a
quorum shall be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have the power to adjourn the meeting from time to time for good
cause, without notice of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken, until a date which
is not more than 30 days after the date of the original meeting. At any such
adjourned meeting, at which a quorum shall be present in person or represented
by proxy, any business may be transacted which might have been transacted at the
meeting as originally called. If the adjournment is for more than 30 days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote thereat.
Section 9. Voting.
(a) At any meeting of stockholders, every stockholder having the right
to vote shall be entitled to vote in person or by proxy. Except as otherwise
provided by law or the Certificate of Incorporation, each stockholder of record
shall be entitled to one vote for each share of capital stock registered in his
name on the books of the Corporation.
(b) All elections shall be determined by a plurality vote, and, except
as otherwise provided by law or the Certificate of Incorporation, all other
matters shall be determined by a vote of a majority of the shares present in
person or represented by proxy and voting on such other matters.
Section 10. Action by Consent. Any action required or permitted by law
or the Certificate of Incorporation to be taken at any meeting of stockholders
may be taken without a meeting, without prior notice and without a vote, if a
written consent, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon
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<PAGE>
were present or represented by proxy and voted. Such written consent shall be
filed with the minutes of meetings of stockholders. Prompt notice of the taking
of the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not so consented in writing
thereto.
ARTICLE III
DIRECTORS
Section 1. General Powers; Number; Tenure. The business of the
Corporation shall be managed by its Board of Directors, which may exercise all
powers of the Corporation and perform all lawful acts and things which are not
by law, the Certificate of Incorporation or these Bylaws directed or required to
be exercised or performed by the stockholders. Within the limits specified in
this Section 1, the number of directors shall be no fewer than one nor more than
five, which specific number shall be determined by the Board of Directors,
except that if no such determination is made, the number of directors shall be
three. The directors shall be elected at the annual meeting of the stockholders,
except as provided in Section 2 of this Article, and each director elected shall
hold office until his successor is elected and shall qualify. Directors need not
be stockholders.
Section 2. Vacancies. If any vacancies occur in the Board of
Directors, or if any new directorships are created, they may be filled by vote
of a majority of the directors then in office, although less than a quorum, or
by a sole remaining director. Each director so chosen shall hold office until
the next annual meeting of stockholders and until his successor is duly elected
and shall qualify. If there are no directors in office, any officer or
stockholder may call a special meeting of stockholders in accordance with the
provisions of the Certificate of Incorporation or these Bylaws, at which meeting
such vacancies shall be filled.
Section 3. Removal; Resignation.
(a) Except as otherwise provided by law or the Certificate of
Incorporation, any director, directors or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
(b) Any director may resign at any time by giving written notice to the
Board of Directors, the Chairman of the Board, the President or the Secretary of
the Corporation. Unless otherwise specified in such written notice, a
resignation shall take effect upon delivery thereof to the Board of Directors or
the designated officer. It shall not be necessary for a resignation to be
accepted before it becomes effective.
Section 4. Place of Meetings. The Board of Directors may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. Annual Meeting. The annual meeting of each newly elected
Board of Directors shall be held immediately following the annual meeting of
stockholders, and no notice of
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such meeting shall be necessary to the newly elected directors in order legally
to constitute the meeting, provided a quorum shall be present.
Section 6. Regular Meetings. Additional regular meetings of the Board
of Directors may be held without notice, at such time and place as may from time
to time be determined by the Board of Directors.
Section 7. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, or by two or more
directors on at least two days' notice to each director, if such notice is
delivered personally or sent by telegram, or on at least three days' notice if
sent by mail. Special meetings shall be called by the Chairman of the Board,
President, Secretary or two or more directors in like manner and on like notice
on the written request of one-half or more of the number of directors then in
office. Any such notice need not state the purpose or purposes of such meeting
except as provided in Article XI.
Section 8. Quorum; Adjournments. At all meetings of the Board of
Directors, a majority of the directors then in office shall constitute a quorum
for the transaction of business, and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors, except as may be otherwise specifically provided by law or the
Certificate of Incorporation. If a quorum is not present at any meeting of the
Board of Directors, the directors present may adjourn the meeting, from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 9. Compensation. Directors shall be entitled to such
compensation for their services as directors and to such reimbursement for any
reasonable expenses incurred in attending directors' meetings as may from time
to time be fixed by the Board of Directors. The compensation of directors may be
on such basis as is determined by the Board of Directors. Any director receiving
compensation under these provisions shall not be barred from serving the
Corporation in any other capacity and receiving compensation and reimbursement
for reasonable expenses for such other services.
Section 10. Action by Consent. Any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting if
a written consent to such action is signed by all members of the Board of
Directors and such written consent is filed with the minutes of its proceedings.
Section 11. Meetings by Telephone or Similar Communications. The Board
of Directors may participate in a meeting by means of conference telephone or
similar communications equipment by means of which all directors participating
in the meeting can hear each other, and participation in such meeting shall
constitute presence in person by such director at such meeting.
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ARTICLE IV
COMMITTEES
Section 1. Executive Committee. The Board of Directors, by resolution
adopted by a majority of the whole Board, may appoint an Executive Committee
consisting of not more than three directors, one of whom shall be designated as
Chairman of the Executive Committee. Each member of the Executive Committee
shall continue as a member thereof until the expiration of his term as a
director, or his earlier resignation, unless sooner removed as a member or as a
director.
Section 2. Powers. Unless circumscribed by resolution of the Board
appointing the Executive Committee or except as otherwise provided by law, the
Executive Committee shall have and may exercise all of the powers and authority
of the Board of Directors in the management of the business and affairs of the
Corporation including, without limitation, the power and authority to declare a
dividend in cash, property or its own shares and to authorize the issuance of
any shares of capital stock of the Corporation of any class now or hereafter
authorized, and any options or warrants for, and right to subscribe to, such
shares, and any securities convertible into or exchangeable for such shares; and
may authorize the seal of the Corporation to be affixed to all papers which may
require it.
Section 3. Procedure; Meetings. The Executive Committee shall fix its
own rules of procedure and shall meet at such times and at such places as may be
provided by such rules or as the members of the Executive Committee shall
provide. The Executive Committee shall keep regular minutes of its meetings and
deliver such minutes to the Board of Directors.
The Chairman of the Executive Committee, or, in his absence, a member
of the Executive Committee chosen by a majority of the members present, shall
preside at meetings of the Executive Committee, and another member thereof
chosen by the Executive Committee shall act as Secretary of the Executive
Committee.
Section 4. Quorum. A majority of the Executive Committee shall
constitute a quorum for the transaction of business, and the affirmative vote of
a majority of the members of the Executive Committee present at any meeting at
which there is a quorum shall be the act of the Executive Committee.
Section 5. Other Committees. The Board of Directors, by resolutions
adopted by a majority of the whole Board, may appoint such other committee or
committees as it shall deem advisable and with such functions and duties as the
Board of Directors shall prescribe.
Section 6. Vacancies; Changes; Discharge. The Board of Directors shall
have the power at any time to fill vacancies in, to change the membership of,
and to discharge any committee.
Section 7. Compensation. Members of any committee shall be entitled to
such compensation for their services as members of any such committee and to
such reimbursement for any reasonable expenses incurred in attending committee
meetings as may from time to time be
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fixed by the Board of Directors. Any member may waive compensation for any
meeting. Any committee member receiving compensation under these provisions
shall not be barred from serving the Corporation in any other capacity and from
receiving compensation and reimbursement of reasonable expenses for such other
services.
Section 8. Action by Consent. Any action required or permitted to be
taken at any meeting of any committee of the Board of Directors may be taken
without a meeting if a written consent to such action is signed by all members
of the committee and such written consent is filed with the minutes of its
proceedings.
Section 9. Meetings by Telephone or Similar Communications. The
members of any committee designated by the Board of Directors may participate in
a meeting of such committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in such
meeting can hear each other and participation in such meeting shall constitute
presence in person at such meeting.
ARTICLE V
NOTICES
Section 1. Form; Delivery. Whenever, under the provisions of law, the
Certificate of Incorporation or these Bylaws, notice is required to be given to
any director or stockholder, it shall not be construed to mean personal notice
unless otherwise specifically provided, but such notice may be given in writing,
by mail, addressed to such director or stockholder, at his address as it appears
on the records of the Corporation, with postage thereon prepaid. Such notices
shall be deemed to be given at the time they are deposited in the United States
mail. Notice to a director may also be given personally or by telegram sent to
his address as it appears on the records of the Corporation.
Section 2. Waiver. Whenever any notice is required to be given under
the provisions of law, the Certificate of Incorporation or these Bylaws, a
written waiver thereof, signed by the person or person entitled to said notice,
whether before or after the time stated therein, shall be deemed to be
equivalent to such notice. In addition, any stockholder who attends a meeting of
stockholders in person, or is represented at such meeting by proxy, without
protesting at the commencement of the meeting the lack of notice thereof to him,
or any director who attends a meeting of the Board of Directors without
protesting, at the commencement of the meeting, such lack of notice, shall be
conclusively deemed to have waived notice of such meeting.
ARTICLE VI
OFFICERS
Section 1. Designations. The officers of the Corporation shall be
chosen by the Board of Directors. The Board of Directors may choose a Chairman
of the Board, a Vice Chairman of the Board, a President, a Vice President or
Vice Presidents, a Secretary and a Treasurer, one or more Assistant Secretaries
and/or Assistant Treasurers and other officers and agents as it shall deem
necessary or appropriate. All officers of the Corporation shall exercise such
powers and perform
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such duties as shall from time to time be determined by the Board of Directors.
Any number of offices may be held by the same person, unless the Certificate of
Incorporation or these Bylaws otherwise provide.
Section 2. Term of Office; Removal. The Board of Directors at its
annual meeting after each annual meeting of stockholders shall choose a
President, a Secretary and a Treasurer. The Board of Directors may also choose a
Chairman of the Board, a Vice Chairman of the Board, a Vice President or Vice
Presidents, one or more Assistant Secretaries and/or Assistant Treasurers, and
such other officers and agents as it shall deem necessary or appropriate. Each
officer of the Corporation shall hold office until his successor is chosen and
shall qualify. Any officer elected or appointed by the Board of Directors may be
removed, with or without cause, at any time by the affirmative vote of a
majority of the directors then in office. Such removal shall not prejudice the
contract rights, if any, of the person so removed. Any vacancy occurring in any
office of the Corporation may be filled for the unexpired portion of the term by
the Board of Directors.
Section 3. Compensation. The salaries of all officers of the
Corporation shall be fixed from time to time by the Board of Directors and no
officer shall be prevented from receiving such salary by reason of the fact that
he is also a director of the Corporation.
Section 4. The Chairman of the Board/Vice Chairman of the Board.
(a) The Chairman of the Board, if any, shall be an officer of the
Corporation and, subject to the direction of the Board of Directors, shall
perform such executive, supervisory and management functions and duties as may
be assigned to him from time to time by the Board of Directors. He shall, if
present, preside at all meetings of stockholders and of the Board of Directors.
The Vice Chairman of the Board, if any, shall be an officer of the Corporation
and, subject to the direction of the Board of Directors, shall perform such
executive, supervisory and management functions and duties as may be assigned to
him from time to time by the Board of Directors and shall, in the absence of the
Chairman, perform the duties and exercise the powers of the Chairman.
(b) Unless otherwise prescribed by the Board of Directors, the Chairman
of the Board shall have full power and authority on behalf of the Corporation to
attend, act and vote at any meeting of security holders of other corporations in
which the Corporation may hold securities. At such meeting the Chairman of the
Board shall possess and may exercise any and all rights and powers incident to
the ownership of such securities which the Corporation might have possessed and
exercised if it had been present. The Board of Directors may from time to time
confer like powers upon any other person or persons.
Section 5. The President.
(a) The President shall be the chief executive officer of the
Corporation and, subject to the direction of the Board of Directors, shall have
general charge of the business, affairs and property of the Corporation and
general supervision over its other officers and agents, other than the Chairman
and Vice Chairman. In general, he shall perform all duties incident to the
office of
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President and shall see that all orders and resolutions of the Board of
Directors are carried into effect. In addition to and not in limitation of the
foregoing, the President shall be empowered to authorize any change of the
registered office or registered agent (or both) of the Corporation in the State
of Delaware.
(b) Unless otherwise prescribed by the Board of Directors, the
President shall have full power and authority on behalf of the Corporation to
attend, act and vote at any meeting of security holders of other corporations in
which the Corporation may hold securities. At such meeting the President shall
possess and may exercise any and all rights and powers incident to the ownership
of such securities which the Corporation might have possessed and exercised if
it had been present. The Board of Directors may from time to time confer like
powers upon any other person or persons.
Section 6. The Vice Presidents. The Vice President, if any (or in the
event there be more than one, the Vice Presidents in the order designated, or in
the absence of any designation, in the order of their election), shall, the
absence of the President or in the event of his disability, perform the duties
and exercise the powers of the President and shall generally assist the
President and perform such other duties and have such other powers as may from
time to time be prescribed by the Board of Directors.
Section 7. The Secretary. The Secretary shall attend all meetings of
the Board of Directors and all meetings of stockholders and record all votes and
the proceedings of the meetings in a book to be kept for that purpose and shall
perform like duties for the Executive Committee or other committees, if
required. He shall give, or cause to be given, notice of all meetings of the
Board of Directors, and shall perform such other duties as may from time to time
be prescribed by the Board of Directors, the Chairman, the Vice Chairman, or the
President, under whose supervision he shall act. He shall have custody of the
seal of the Corporation, and he, or an Assistant Secretary, shall have authority
to affix the same to any instrument requiring it, and, when so affixed, the seal
may be attested by his signature or by the signature of such Assistant
Secretary.
The Board of Directors may give general authority to any other officer to affix
the seal of the Corporation and to attest the affixing thereof by his signature.
Section 8. The Assistant Secretary. The Assistant Secretary, if any
(or in the event there be more than one, the Assistant Secretaries in the order
designated, or in the absence of any designation, in the order of their
election), shall, in the absence of the Secretary or in the event of his
disability, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as may from time to
time be prescribed by the Board of Directors.
Section 9. The Treasurer. The Treasurer shall have the custody of the
corporate funds and other valuable effects, including securities, and shall keep
full and accurate accounts of receipts and disbursements in books belonging to
the Corporation and shall deposit all moneys and other valuable effects in the
name and to the credit of the Corporation in such depositories as may from time
to time be designated by the Board of Directors. He shall disburse the funds of
the Corporation
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as may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Chairman, the Vice Chairman, the
President and the Board of Directors, at regular meetings of the Board, or
whenever they may require it, an account of all his transactions as Treasurer
and of the financial condition of the Corporation.
Section 10. The Assistant Treasurer. The Assistant Treasurer, if any
(or in the event there shall be more than one, the Assistant Treasurers in the
order designated, or in the absence of any designation, in the order of their
election), shall, in the absence of the Treasurer or in the event of his
disability, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as may from time to
time be prescribed by the Board of Directors.
ARTICLE VII
INDEMNIFICATION OF
DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
Reference is made to Section 145 (and any other relevant provisions) of
the General Corporation Law of the State of Delaware. Particular reference is
made to the class of persons (hereinafter called "Indemnitees") who may be
indemnified by a Delaware corporation pursuant to the provisions of such Section
145, namely, any person (or the heirs, executors or administrators of such
person) who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person is or was a director, officer, employee or agent of such corporation, or
is or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise. The Corporation shall (and is hereby obligated to) indemnify
the Indemnitees, and each of them, in each and every situation where the
Corporation is obligated to make such indemnification pursuant to the aforesaid
statutory provisions. The Corporation shall indemnify the Indemnitees, and each
of them, in each and every situation where, under the aforesaid statutory
provisions, the Corporation is not obligated, but is nevertheless permitted or
empowered, to make such indemnification. With respect to any situation covered
under this Article, the Corporation shall promptly make or cause to be made, by
any of the methods referred to in subsection (d) of such Section 145, a
determination as to whether each Indemnitee acted in good faith and in a manner
such Indemnitee reasonably believed to be in or not opposed to the best
interests of the Corporation, and, in the case of any criminal action or
proceeding, had no reasonable cause to believe that such Indemnitee's conduct
was unlawful. No such indemnification shall be made (where not required by
statute) unless it is determined that such Indemnitee acted in good faith and in
a manner such Indemnitee reasonably believed to be in or not opposal to the best
interests of the Corporation, and, in the case of any criminal action or
proceeding, had no reasonable cause to believe that such Indemnitee's conduct
was unlawful.
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ARTICLE VIII
AFFILIATED TRANSACTIONS AND INTERESTED DIRECTORS
Section 1. Affiliated Transactions. No contract or transaction between
the Corporation and one or more of its shareholders, directors or officers, or
between the Corporation and any other corporation, partnership, association, or
other organization in which one or more of its directors or officers are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer is present at
or participates in the meeting of the Board of Directors or committee thereof
which authorizes the contract or transaction or solely because his or their
votes are counted for such purpose, if:
(a) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board of Directors or committee in good faith authorizes
the contract or transaction by the affirmative vote of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or
(b) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
(c) The contact or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee thereof, or the stockholders.
Section 2. Determining Quorum. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee thereof which authorizes the contract or
transaction.
ARTICLE IX
STOCK CERTIFICATES
Section 1. Form; Signatures.
(a) Every holder of stock in the Corporation shall be entitled to have
a certificate, signed by the Chairman, the Vice Chairman or the President and
the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Corporation, exhibiting the number and class (and series, if
any) of shares owed by him, and bearing the seal of the Corporation. Such
signatures and seal may be facsimile. A certificate may be manually signed by a
transfer agent or registrar other than the Corporation or its employee but may
be a facsimile. In case any officer who has signed, or whose facsimile signature
was placed on, a certificate shall have ceased to be such officer before such
certificate is issued, it may nevertheless be issued by the Corporation with the
same effect as if he were such officer at the date of its issue.
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<PAGE>
(b) All stock certificates representing shares of capital stock which
are subject to restrictions on transfer or to other restrictions may have
imprinted thereon such notation to such effect as may be determined by the Board
of Directors.
Section 2. Registration of Transfer. Upon surrender to the Corporation
or any transfer agent of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation or its transfer
agent to issue a new certificate to the person entitled thereto, to cancel the
old certificate and to record the transaction upon its books.
Section 3. Registered Stockholders.
(a) Except as otherwise provided by law, the Corporation shall be
entitled to recognize the exclusive right of a person who is registered on its
books as the owner of shares of its capital stock to receive dividends or other
distributions, and to vote as such owner, and to hold liable for calls and
assessments any person who is registered on its books as the owner of shares of
its capital stock. The Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person.
(b) If a stockholder desires that notices and/or dividends shall be
sent to a name or address other than the name or address appearing on the stock
ledger maintained by the Corporation (or by the transfer agent or registrar, if
any), such stockholder shall have the duty to notify the Corporation (or the
transfer agent or registrar, if any) in writing, of such desire. Such written
notice shall specify the alternate name or address to be used.
Section 4. Record Date. In order that the Corporation may determine
the stockholders of record who are entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, or entitled to receive
payment of any dividend or other distribution, or to make a determination of the
stockholders of record for any other proper purpose, the Board of Directors may,
in advance, fix a date as the record date for any such determination. Such date
shall not be more than 60 nor less than 10 days before the date of such meeting,
nor more than 60 days prior to the date of any action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting taken pursuant to
Section 8 of Article II; provided, however, that the Board of Directors may fix
a new record date for the adjourned meeting.
Section 5. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct a new certificate to be issued in place of any certificate
theretofore issued by the Corporation which is claimed to have been lost, stolen
or destroyed, upon the making of an affidavit of the fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate, the Board of Directors may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate, or his legal representative, to advertise the
same in such manner as it shall require and/or to give the Corporation a bond in
such sum, or other security in such form, as it may direct as indemnity against
any claim
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that may be against the Corporation with respect to the certificate claimed to
have been lost, stolen or destroyed.
ARTICLE X
GENERAL PROVISIONS
Section 1. Dividends. Subject to the provisions of the Certificate of
Incorporation, dividends upon the outstanding capital stock of the Corporation
may be declared by the Board of Directors at any regular or special meeting,
pursuant to law, and may be paid in cash, in property or in shares of the
Corporation's capital stock.
Section 2. Reserves. The Board of Directors shall have full power,
subject to the provisions of law and the Certificate of Incorporation, to
determine whether any, and, if so, what part, of the funds legally available for
the payment of dividends shall be declared as dividends and paid to the
stockholders of the Corporation. The Board of Directors, in its sole discretion,
may fix a sum which may be set aside or reserved over and above the paid-in
capital of the Corporation for working capital or as a reserve for any proper
purpose, and may, from time to time, increase, diminish or vary such funds or
funds.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be as
determined from time to time by the Board of Directors.
Section 4. Seal. The corporate seal, if any, shall have inscribed
thereon the name of the Corporation, the year of its incorporation and the words
"Corporate Seal" and "Delaware".
ARTICLE XI
AMENDMENTS
The Board of Directors shall have the power to make, alter and repeal
these Bylaws, and to adopt new bylaws, by an affirmative vote of a majority of
the whole Board, provided that notice of the proposal to make, alter or repeal
these Bylaws, or to adopt new bylaws, must be included in the notice of the
meeting of the Board of Directors at which such action takes place.
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<PAGE>
CERTIFICATE OF INCORPORATION
OF
TSMD ACQUISITION CORP.
FIRST. The name of the corporation is TSMD Acquisition Corp.
SECOND. The address of the registered office of the
corporation in the State of Delaware is 15 East North
Street, in the City of Dover, County of Kent. The
name of its registered agent at that address is
Incorporating Services, Ltd.
THIRD. The nature or purposes of the business to be
conducted or promoted is to engage in any lawful act
or activity for which corporations may be organized
under the General Corporation Law of Delaware.
FOURTH. The Corporation shall have authority to issue 1,000
shares of Common Stock, without par value, and 500
shares of Serial Preferred stock, without par value
but with a stated value of Ten Thousand Dollars
($10,000) per share.
A. Serial Preferred Stock
The Board of Directors is hereby empowered to cause
the Serial Preferred Stock of the Corporation to be issued in
series with such of the variations permitted by clauses (1) -
(8), of this paragraph A as shall have been fixed and
determined by the Board of Directors with respect to any
series prior to the issue of any shares of such series.
The shares of the Serial Preferred Stock of different
series may vary as to:
(1) the number of shares constituting such
series and the designation of such series, which
shall be such as to distinguish the shares thereof
from the shares of all other series and classes;
(2) the rate of dividend, the time of
payment and, if cumulative, the dates from which
dividends shall be cumulative, the extent of
participation rights, if any, and the priority in
payment of dividends;
(3) any right to vote with holders of shares
of any other series or class and any right to vote as
a class, either generally or as a condition to
specified corporate acts;
(4) the price at and the terms and
conditions on which shares may be redeemed;
<PAGE>
(5) the amount payable upon shares and
the priority of payment in event of involuntary
liquidation;
(6) the amount payable upon shares and
the priority of payment in event of voluntary
liquidation;
(7) any sinking fund provisions for the
redemption or purchase of shares; and
(8) the terms and conditions on which
shares may be converted, if the shares of any series
are issued with the privilege of conversion.
The shares of all series of Serial Preferred Stock
shall be identical except as, within the limitations set forth
above in this section A, shall have been fixed and determined
by the Board of Directors prior to the issuance thereof.
Except as specifically set forth in any Certificate of Serial
Designation filed with the Secretary of State of the State of
Delaware or as required by the Delaware General Corporation
Law, none of these shares of any series of Serial Preferred
Stock shall have any right to vote on any matters.
B. Common Stock.
(1) Dividends. When and if declared by the Board of
Directors, the holders of the Common Stock shall only be
entitled to receive cash dividends and dividends payable in
property other than securities of the Corporation at such time
as all dividends on the Serial Preferred Stock through the
record date of any such Common Stock dividend have been paid
in full.
(2) Liquidation. In the event of the voluntary or
involuntary liquidation, dissolution, distribution of assets
or winding-up of the Corporation, after distribution in full
to the holders of Serial Preferred Stock of their preferred
liquidation payments, the holders of Common Stock shall be
entitled to receive the remaining assets of the Corporation.
(3) Voting Rights. Except as may be otherwise
required by law or the Certificate of Incorporation of the
corporation, as amended, each share of Common Stock shall have
one (1) vote on all matters voted upon by the stockholders.
FIFTH. The name and mailing address of the sole incorporator
is as follows:
Andor D. Terner O'Melveny & Myers LLP
610 Newport Center Drive
17th Floor
Newport Beach, CA 92660
<PAGE>
The name and mailing address of the person who is to serve as
the director until the first annual meeting of the stockholders or
until his successors are elected and qualified, is as follows:
William L. Remley 1430 Broadway, 13th Floor
New York, New York 10018
SIXTH. The corporation is to have perpetual existence.
SEVENTH. Election of directors need not be by written ballot
unless the by-laws of the corporation shall so
provide.
EIGHTH. The corporation reserves the rights to amend, alter,
change or repeal any provision contained in this
Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights
conferred upon stockholders herein are granted
subject to this reservation.
NINTH. A director of the corporation shall not be personally
liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a
director except for liability (i) for any breach of
the director's duty of loyalty to the corporation or
its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174
of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived any
improper personal benefit.
I, THE UNDERSIGNED, being the sole incorporator hereinbefore named, for
the purpose of forming a corporation pursuant to the General Corporation Law of
the State of Delaware, do make this Certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 29th day of August, 1997.
/s/ Andor D. Terner
------------------------
Andor D. Terner
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TSMD ACQUISITION CORP.,
a Delaware corporation
William L. Remley and Richard T. Kramer hereby certify that:
FIRST: They are the President and Secretary, respectively,
of TSMD Acquisition Corp., a Delaware corporation
SECOND: That Article Second of the Certificate of
Incorporation of this Corporation shall be amended in its entirety to read as
follows:
"SECOND
The address of the registered office of the corporation in the
State of Delaware is 1013 Centre Road, in the City of Wilmington,
County of New Castle. The name of its registered agent at that address
is Corporation Service Company."
THIRD: That the foregoing amendment of Certificate of
Incorporation was duly adopted in accordance with the applicable provisions of
Section 242 of the Delaware General Corporation Law.
FOURTH: That the foregoing amendment of Certificate of
Incorporation was duly adopted by the Board of Directors of this Corporation.
FIFTH: That the foregoing amendment of Certificate of
Incorporation was duly approved by the required vote of stockholders of this
Corporation in accordance with Section 243 of the Delaware General Corporation
Law. The total number of outstanding shares of this Corporation is One Thousand
(1,000) shares of Common Stock. The number of shares voting in favor of the
amendment exceeded the vote required. The percentage vote required was more than
50%.
<PAGE>
We further declare that the matters set forth in this
certificate are true and correct of our own knowledge.
Date: September 12, 1997
By: /s/ William L. Remley
------------------------
William L. Remley
President
By: /s/ Richard L. Kramer
------------------------
Richard L. Kramer
Secretary
<PAGE>
BY-LAWS
-------
TSMD ACQUISITION CORP.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation
shall be at Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, State of Delaware.
Section 2. Additional Offices. The Corporation may also have offices at
such other places, both with and without the State of Delaware, as the Board of
Directors may from time to time determine or as the business of the Corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Time and Place. A meeting of stockholders for any purpose
may be held at such time and place, within or without the State of Delaware, as
the Board of Directors may fix from time to time and as shall be stated in the
notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meeting. Annual meetings of stockholders shall be
held on such date and time as shall, from time to time, be designated by the
Board of Directors and stated in the notice of the meeting. At such annual
meeting, the stockholders shall elect a Board of Directors and transact such
other business as may properly be brought before the meeting.
Section 3. Notice of Annual Meeting. Written notice of the annual
meeting, stating the place, date and time thereof, shall be given to each
stockholder entitled to vote at such meeting not less than 10 (unless a longer
period is required by law) nor more than 60 days prior to the meeting.
Section 4. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the Chairman of the Board, if
any, or the President and shall be called by the President or Secretary at the
request in writing of a majority of the Board of Directors, or at the request in
writing of the stockholders owning a majority of the shares of capital stock of
the Corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting.
Section 5. Notice of Special Meeting. Written notice of a special
meeting, stating the place, date and time thereof and the purpose or purposes
for which the meeting is called, shall be given to each stockholder entitled to
vote at such meeting not less than 10 (unless a longer period is required by
law) nor more than 60 days prior to the meeting.
<PAGE>
Section 6. List of Stockholders. The officer in charge of the stock
ledger of the Corporation or the transfer agent shall prepare and make, at least
10 days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least 10 days prior to the meeting, at a
place within the city where the meeting is to be held, which place, if other
than the place of the meeting, shall be specified in the notice of the meeting.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present in person thereat.
Section 7. Presiding Officer; Order of Business.
(a) Meetings of stockholders shall be presided over by the Chairman of
the Board, if any, or, if he is not present (or, if there is none), by the
President, or, if he is not present, by a Vice President, or, if he is not
present, by such person who may have been chosen by the Board of Directors, or,
if none of such persons is present, by a chairman to be chosen by the
stockholders owning a majority of the shares of capital stock of the Corporation
issued and outstanding and entitled to vote at the meeting and who are present
in person or represented by proxy. The Secretary of the Corporation, or, if he
is not present, an Assistant Secretary, or if he is not present, such person as
may be chosen by the Board of Directors, shall act as secretary of meetings of
stockholders, or, if none of such persons is present, the stockholders owning a
majority of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote at the meeting and who are present in person or
represented by proxy shall choose any person present to act as secretary of the
meeting.
(b) The following order of business, unless otherwise ordered at the
meeting, shall be observed as far as practicable and consistent with the
purposes of the meeting:
1. Call of the meeting to order.
2. Presentation of proof of mailing of the notice of the
meeting and, if the meeting is a special meeting, the
call thereof.
3. Presentation of proxies.
4. Announcement that a quorum is present.
5. Reading and approval of the minutes of the previous meeting.
6. Reports, if any, of officers.
7. Election of directors, if the meeting is an annual meeting
or a meeting called for that purpose.
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8. Consideration of the specific purpose or purposes for which
the meeting has been called (other than the election of
directors), if the meeting is a special meeting.
9. Transaction of such other business as may properly come
before the meeting.
10. Adjournment.
Section 8. Quorum; Adjournments. The holders of a majority of the
shares of capital stock of the Corporation issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall be necessary
to, and shall constitute a quorum for, the transaction of business at all
meetings of the stockholders, except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, a quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have the power to
adjourn the meeting from time to time, without notice of the adjourned meeting
if the time and place thereof are announced at the meeting at which the
adjournment is taken, until a quorum shall be present or represented. Even if a
quorum shall be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have the power to adjourn the meeting from time to time for good
cause, without notice of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken, until a date which
is not more than 30 days after the date of the original meeting. At any such
adjourned meeting, at which a quorum shall be present in person or represented
by proxy, any business may be transacted which might have been transacted at the
meeting as originally called. If the adjournment is for more than 30 days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote thereat.
Section 9. Voting.
(a) At any meeting of stockholders, every stockholder having the right
to vote shall be entitled to vote in person or by proxy. Except as otherwise
provided by law or the Certificate of Incorporation, each stockholder of record
shall be entitled to one vote for each share of capital stock registered in his
name on the books of the Corporation.
(b) All elections shall be determined by a plurality vote, and, except
as otherwise provided by law or the Certificate of Incorporation, all other
matters shall be determined by a vote of a majority of the shares present in
person or represented by proxy and voting on such other matters.
Section 10. Action by Consent. Any action required or permitted by law
or the Certificate of Incorporation to be taken at any meeting of stockholders
may be taken without a meeting, without prior notice and without a vote, if a
written consent, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon
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<PAGE>
were present or represented by proxy and voted. Such written consent shall be
filed with the minutes of meetings of stockholders. Prompt notice of the taking
of the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not so consented in writing
thereto.
ARTICLE III
DIRECTORS
Section 1. General Powers; Number; Tenure. The business of the
Corporation shall be managed by its Board of Directors, which may exercise all
powers of the Corporation and perform all lawful acts and things which are not
by law, the Certificate of Incorporation or these Bylaws directed or required to
be exercised or performed by the stockholders. Within the limits specified in
this Section 1, the number of directors shall be no fewer than one nor more than
five, which specific number shall be determined by the Board of Directors,
except that if no such determination is made, the number of directors shall be
three. The directors shall be elected at the annual meeting of the stockholders,
except as provided in Section 2 of this Article, and each director elected shall
hold office until his successor is elected and shall qualify. Directors need not
be stockholders.
Section 2. Vacancies. If any vacancies occur in the Board of Directors,
or if any new directorships are created, they may be filled by vote of a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. Each director so chosen shall hold office until the
next annual meeting of stockholders and until his successor is duly elected and
shall qualify. If there are no directors in office, any officer or stockholder
may call a special meeting of stockholders in accordance with the provisions of
the Certificate of Incorporation or these Bylaws, at which meeting such
vacancies shall be filled.
Section 3. Removal; Resignation.
(a) Except as otherwise provided by law or the Certificate of
Incorporation, any director, directors or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
(b) Any director may resign at any time by giving written notice to the
Board of Directors, the Chairman of the Board, the President or the Secretary of
the Corporation. Unless otherwise specified in such written notice, a
resignation shall take effect upon delivery thereof to the Board of Directors or
the designated officer. It shall not be necessary for a resignation to be
accepted before it becomes effective.
Section 4. Place of Meetings. The Board of Directors may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. Annual Meeting. The annual meeting of each newly elected
Board of Directors shall be held immediately following the annual meeting
of stockholders, and no notice of
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<PAGE>
such meeting shall be necessary to the newly elected directors in order legally
to constitute the meeting, provided a quorum shall be present.
Section 6. Regular Meetings. Additional regular meetings of the
Board of Directors may be held without notice, at such time and place as may
from time to time be determined by the Board of Directors.
Section 7. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board, or by two or more directors on at
least two days' notice to each director, if such notice is delivered personally
or sent by telegram, of on at least three days' notice if sent by mail. Special
meetings shall be called by the Chairman of the Board, President, Secretary or
two or more directors in like manner and on like notice on the written request
of one-half or more of the number of directors then in office. Any such notice
need not state the purpose or purposes of such meeting except as provided in
Article XI.
Section 8. Quorum; Adjournments. At all meetings of the Board of
Directors, a majority of the directors then in office shall constitute a quorum
for the transaction of business, and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors, except as may be otherwise specifically provided by law or the
Certificate of Incorporation. If a quorum is not present at any meeting of the
Board of Directors, the directors present may adjourn the meeting, from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 9. Compensation. Directors shall be entitled to such
compensation for their services as directors and to such reimbursement for any
reasonable expenses incurred in attending directors' meetings as may from time
to time be fixed by the Board of Directors. The compensation of directors may be
on such basis as is determined by the Board of Directors. Any director receiving
compensation under these provisions shall not be barred from serving the
Corporation in any other capacity and receiving compensation and reimbursement
for reasonable expenses for such other services.
Section 10. Action by Consent. Any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting if
a written consent to such action is signed by all members of the Board of
Directors and such written consent is filed with the minutes of its proceedings.
Section 11. Meetings by Telephone or Similar Communications. The Board
of Directors may participate in a meeting by means of conference telephone or
similar communications equipment by means of which all directors participating
in the meeting can hear each other, and participation in such meeting shall
constitute presence in person by such director at such meeting.
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ARTICLE IV
COMMITTEES
Section 1. Executive Committee. The Board of Directors, by resolution
adopted by a majority of the whole Board, may appoint an Executive Committee
consisting of not more than three directors, one of whom shall be designated as
Chairman of the Executive Committee. Each member of the Executive Committee
shall continue as a member thereof until the expiration of his term as a
director, or his earlier resignation, unless sooner removed as a member or as a
director.
Section 2. Powers. Unless circumscribed by resolution of the Board
appointing the Executive Committee or except as otherwise provided by law, the
Executive Committee shall have and may exercise all of the powers and authority
of the Board of Directors in the management of the business and affairs of the
Corporation including, without limitation, the power and authority to declare a
dividend in cash, property or its own shares and to authorize the issuance of
any shares of capital stock of the Corporation of any class now or hereafter
authorized, and any options or warrants for, and right to subscribe to, such
shares, and any securities convertible into or exchangeable for such shares; and
may authorize the seal of the Corporation to be affixed to all papers which may
require it.
Section 3. Procedure; Meetings. The Executive Committee shall fix its
own rules of procedure and shall meet at such times and at such place or places
as may be provided by such rules or as the members of the Executive Committee
shall provide. The Executive Committee shall keep regular minutes of its
meetings and deliver such minutes to the Board of Directors.
The Chairman of the Executive Committee, or, in his absence, a member
of the Executive Committee chosen by a majority of the members present, shall
preside at meetings of the Executive Committee, and another member thereof
chosen by the Executive Committee shall act as Secretary of the Executive
Committee.
Section 4. Quorum. A majority of the Executive Committee shall
constitute a quorum for the transaction of business, and the affirmative vote of
a majority of the members of the Executive Committee present at any meeting at
which there is a quorum shall be the act of the Executive Committee.
Section 5. Other Committees. The Board of Directors, by resolutions
adopted by a majority of the whole Board, may appoint such other committee or
committees as it shall deem advisable and with such functions and duties as the
Board of Directors shall prescribe.
Section 6. Vacancies; Changes; Discharge. The Board of Directors
shall have the power at any time to fill vacancies in to change the membership
of, and to discharge any committee.
Section 7. Compensation. Members of any committee shall be entitled
to such compensation for their services as members of any such committee and
to such reimbursement for any reasonable expenses incurred in attending
committee meetings as may from time to time be
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<PAGE>
fixed by the Board of Directors. Any member may waive compensation for any
meeting. Any committee member receiving compensation under these provisions
shall not be barred from serving the Corporation in any other capacity and from
receiving compensation and reimbursement of reasonable expenses for such other
services.
Section 8. Action by Consent. Any action required or permitted to be
taken at any meeting of any committee of the Board of Directors may be taken
without a meeting if a written consent to such action is signed by all members
of the committee and such written consent is filed with the minutes of its
proceedings.
Section 9. Meetings by Telephone or Similar Communications. The members
of any committee designated by the Board of Directors may participate in a
meeting of such committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in such
meeting can hear each other and participation in such meetings shall constitute
presence in person at such meeting.
ARTICLE V
NOTICES
Section 1. Form; Delivery. Whenever, under the provisions of law, the
Certificate of Incorporation or these Bylaws, notice is required to be given to
any director or stockholder, it shall not be construed to mean personal notice
unless otherwise specifically provided, but such notice may be given in writing,
by mail, addressed to such director or stockholder, at his address as it appears
on the records of the Corporation, with postage thereon prepaid. Such notices
shall be deemed to be given at the time they are deposited in the United States
mail. Notice to a director may also be given personally or by telegram sent to
his address as it appears on the records of the Corporation.
Section 2. Waiver. Whenever any notice is required to be given under
the provisions of law, the Certificate of Incorporation or these Bylaws, a
written waiver thereof, signed by the person or person entitled to said notice,
whether before or after the time stated therein, shall be deemed to be
equivalent to such notice. In addition, any stockholder who attends a meeting of
stockholders in person, or is represented at such meeting by proxy, without
protesting at the commencement of the meeting the lack of notice thereof to him,
or any director who attends a meeting of the Board of Directors without
protesting, at the commencement of the meeting, such lack of notice, shall be
conclusively deemed to have waived notice of such meeting.
ARTICLE VI
OFFICERS
Section 1. Designations. The officers of the Corporation shall be
chosen by the Board of Directors. The Board of Directors may choose a Chairman
of the Board, a Vice Chairman of the Board, a President, a Vice President or
Vice Presidents, a Secretary and a Treasurer, one or more Assistant Secretaries
and/or Assistant Treasurers and other officers and agents as it shall deem
necessary or appropriate. All officers of the Corporation shall exercise such
powers and perform
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such duties as shall from time to time be determined by the Board of Directors.
Any number of offices may be held by the same person, unless the Certificate of
Incorporation or these Bylaws otherwise provide.
Section 2. Term of Office; Removal. The Board of Directors at its
annual meeting after each annual meeting of stockholders shall choose a
President, a Secretary and a Treasurer. The Board of Directors may also choose a
Chairman of the Board, a Vice Chairman of the Board, a Vice President or Vice
Presidents, one or more Assistant Secretaries and/or Assistant Treasurers, and
such other officers and agents as it shall deem necessary or appropriate. Each
officer of the Corporation shall hold office until his successor is chosen and
shall qualify. Any officer elected or appointed by the Board of Directors may be
removed, with or without cause, at any time by the affirmative vote of a
majority of the directors then in office. Such removal shall not prejudice the
contract rights, if any, of the person so removed. Any vacancy occurring in any
office of the Corporation may be filled for the unexpired portion of the term by
the Board of Directors.
Section 3. Compensation. The salaries of all officers of the
Corporation shall be fixed from time to time by the Board of Directors and no
officer shall be prevented from receiving such salary by reason of the fact that
he is also a director of the Corporation.
Section 4. The Chairman of the Board/Vice Chairman of the Board.
(a) The Chairman of the Board, if any, shall be an officer of the
Corporation and, subject to the direction of the Board of Directors, shall
perform such executive, supervisory and management functions and duties as may
be assigned to him from time to time by the Board of Directors. He shall, if
present, preside at all meetings of stockholders and of the Board of Directors.
The Vice Chairman of the Board, if any, shall be an officer of the Corporation
and, subject to the direction of the Board of Directors, shall perform such
executive, supervisory and management functions and duties as may be assigned to
him from time to time by the Board of Directors and shall, in the absence of the
Chairman, perform the duties and exercise the powers of the Chairman.
(b) Unless otherwise prescribed by the Board of Directors, the Chairman
of the Board shall have full power and authority on behalf of the Corporation to
attend, act and vote at any meeting of security holders of other corporations in
which the Corporation may hold securities. At such meeting the Chairman of the
Board shall possess and may exercise any and all rights and powers incident to
the ownership of such securities which the Corporation might have possessed and
exercised if it had been present. The Board of Directors may from time to time
confer like powers upon any other person or persons.
Section 5. The President.
(a) The President shall be the chief executive officer of the
Corporation and, subject to the direction of the Board of Directors, shall have
general charge of the business, affairs and property of the Corporation and
general supervision over its other officers and agents, other than the Chairman
and Vice Chairman. In general, he shall perform all duties incident to the
office of
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President and shall see that all orders and resolutions of the Board of
Directors are carried into effect. In addition to and not in limitation of the
foregoing, the President shall be empowered to authorize any change of the
registered office or registered agent (or both) of the Corporation in the State
of Delaware.
(b) Unless otherwise prescribed by the Board of Directors, the
President shall have full power and authority on behalf of the Corporation to
attend, act and vote at any meeting of security holders of other corporations in
which the Corporation may hold securities. At such meeting the President shall
possess and may exercise any and all rights and powers incident to the ownership
of such securities which the Corporation might have possessed and exercised if
it had been present. The Board of Directors may from time to time confer like
powers upon any other person or persons.
Section 6. The Vice Presidents. The Vice President, if any (or in the
event there be more than one, the Vice Presidents in the order designated, or in
the absence of any designation, in the order of their election), shall, in the
absence of the President or in the event of his disability, perform the duties
and exercise the powers of the President and shall generally assist the
President and perform such other duties and have such other powers as may from
time to time be prescribed by the Board of Directors.
Section 7. The Secretary. The Secretary shall attend all meetings of
the Board of Directors and all meetings of stockholders and record all votes and
the proceedings of the meetings in a book to be kept for that purpose and shall
perform like duties for the Executive Committee or other committees, if
required. He shall give, or cause to be given, notice of all meetings of the
Board of Directors, and shall perform such other duties as may from time to time
be prescribed by the Board of Directors, the Chairman, the Vice Chairman, or the
President, under whose supervision he shall act. He shall have custody of the
seal of the Corporation, and he, or an Assistant Secretary, shall have authority
to affix the same to any instrument requiring it, and, when so affixed, the seal
may be attested by his signature or by the signature of such Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing thereof
by his signature.
Section 8. The Assistant Secretary. The Assistant Secretary, if any (or
in the event there be more than one, the Assistant Secretaries in the order
designated, or in the absence of any designation, in the order of their
election), shall, in the absence of the Secretary or in the event of his
disability, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as may from time to
time be prescribed by the Board of Directors.
Section 9. The Treasurer. The Treasurer shall have the custody of the
corporate funds and other valuable effects, including securities, and shall keep
full and accurate accounts of receipts and disbursements in books belong to the
Corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the Corporation in such depositories as may from time to
time be designated by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and
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shall render to the Chairman, the Vice Chairman, the President and the Board of
Directors, at regular meetings of the Board, or whenever they may require it, an
account of all his transactions as Treasurer and of the financial condition of
the Corporation.
Section 10. The Assistant Treasurer. The Assistant Treasurer, if any
(or in the event there shall be more than one, the Assistant Treasurers in the
order designated, or in the absence of any designation, in the order of their
election), shall, in the absence of the Treasurer or in the event of his
disability, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as may from time to
time be prescribed by the Board of Directors.
ARTICLE VII
INDEMNIFICATION OF
DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
Reference is made to Section 145 (and any other relevant provisions) of
the General Corporation Law of the State of Delaware. Particular reference is
made to the class of persons (hereinafter called "Indemnitees") who may be
indemnified by a Delaware corporation pursuant to the provisions of such Section
145, namely, any person (or the heirs, executors or administrators of such
person) who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person is or was a director, officer, employee or agent of such corporation, or
is or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise. The Corporation shall (and is hereby obligated to) indemnify
the Indemnitees, and each of them, in each and every situation where the
Corporation is obligated to make such indemnification pursuant to the aforesaid
statutory provisions. The Corporation shall indemnify the Indemnitees, and each
of them, in each and every situation where, under the aforesaid statutory
provisions, the Corporation is not obligated, but is nevertheless permitted or
empowered, to make such indemnification. With respect to any situation covered
under this Article, the Corporation shall promptly make or cause to be made, by
any of the methods referred to in subsection (d) of such Section 145, a
determination as to whether each Indemnitee acted in good faith and in a manner
such Indemnitee reasonably believed to be in or not opposed to the best
interests of the Corporation, and, in the case of any criminal action or
proceeding, had no reasonable cause to believe that such Indemnitee's conduct
was unlawful. No such indemnification shall be made (where not required by
statute) unless it is determined that such Indemnitee acted in good faith and in
a manner such Indemnitee reasonably believed to be in or not opposed to the best
interests of the Corporation, and, in the case of any criminal action or
proceeding, had no reasonable cause to believe that such Indemnitee's conduct
was unlawful.
ARTICLE VIII
AFFILIATED TRANSACTIONS AND INTERESTED DIRECTORS
Section 1. Affiliated Transactions. No contract or transaction
between the Corporation and one or more of its shareholders, directors or
officers, or between the Corporation and any other
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corporation, partnership, association or other organization in which one or more
of its directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
Board of Directors or committee thereof which authorizes the contract or
transaction or solely because his or their votes are counted for such purpose,
if:
(a) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board of Directors or committee in good faith authorizes
the contract or transaction by the affirmative vote of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or
(b) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee thereof, or the stockholders.
Section 2. Determining Quorum. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee thereof which authorizes the contract or
transaction.
ARTICLE IX
STOCK CERTIFICATES
Section 1. Form; Signatures.
(a) Every holder of stock in the Corporation shall be entitled to have
a certificate, signed by the Chairman, the Vice Chairman or the President and
the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Corporation, exhibiting the number and class (and series, if
any) of shares owned by him, and bearing the seal of the Corporation. Such
signatures and seal may be facsimile. A certificate may be manually signed by a
transfer agent or registrar other than the Corporation or its employee but may
be a facsimile. In case any officer who has signed, or whose facsimile signature
was placed on, a certificate shall have ceased to be such officer before such
certificate is issued, it may nevertheless be issued by the Corporation with the
same effect as if he were such officer at the date of its issue.
(b) All stock certificates representing shares of capital stock which
are subject to restrictions on transfer or to other restrictions may have
imprinted thereon such notation to such effect as may be determined by the Board
of Directors.
Section 2. Registration of Transfer. Upon surrender to the
Corporation or any transfer agent of the Corporation of a certificate for
shares duly endorsed or accompanied by proper evidence
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of succession, assignment or authority to transfer, it shall be the duty of the
Corporation or its transfer agent to issue a new certificate to the person
entitled thereto, to cancel the old certificate and to record the transaction
upon its books.
Section 3. Registered Stockholders.
(a) Except as otherwise provided by law, the Corporation shall be
entitled to recognize the exclusive right of a person who is registered on its
books as the owner of shares of its capital stock to receive dividends or other
distributions, and to vote as such owner, and to hold liable for calls and
assessments any person who is registered on its books as the owner of shares of
its capital stock. The Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person.
(b) If a stockholder desires that notices and/or dividends shall be
sent to a name or address other than the name or address appearing on the stock
ledger maintained by the Corporation (or by the transfer agent or registrar, if
any), such stockholder shall have the duty to notify the Corporation (or the
transfer agent or registrar, if any) in writing, of such desire. Such written
notice shall specify the alternate name or address to be used.
Section 4. Record Date. In order that the Corporation may determine the
stockholders of record who are entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or entitled to receive payment of
any dividend or other distribution, or to make a determination of the
stockholders of record for any other proper purpose, the Board of Directors may,
in advance, fix a date as the record date for any such determination. Such date
shall not be more than 60 nor less than 10 days before the date of such meeting,
nor more than 60 days prior to the date of any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting taken pursuant to
Section 8 of Article II; provided, however, that the Board of Directors may fix
a new record date for the adjourned meeting.
Section 5. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct a new certificate to be issued in place of any certificate
theretofore issued by the Corporation which is claimed to have been lost, stolen
or destroyed, upon the making of an affidavit of the fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate, the Board of Directors may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate, or his legal representative, to advertise the
same in such manner as it shall require and/or to give the Corporation a bond in
such sum, or other security in such form, as it may direct as indemnity against
any claim that may be against the Corporation with respect to the certificate
claimed to have been lost, stolen or destroyed.
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ARTICLE X
GENERAL PROVISIONS
Section 1. Dividends. Subject to the provisions of the Certificate of
Incorporation, dividends upon the outstanding capital stock of the Corporation
may be declared by the Board of Directors at any regular or special meeting,
pursuant to law, and may be paid in cash, in property or in shares of the
Corporation's capital stock.
Section 2. Reserves. The Board of Directors shall have full power,
subject to the provisions of law and the Certificate of Incorporation, to
determine whether any, and, if so, what part, of the funds legally available for
the payment of dividends shall be declared as dividends and paid to the
stockholders of the Corporation. The Board of Directors, in its sole discretion,
may fix a sum which may be set aside or reserved over and above the paid-in
capital of the Corporation for working capital or as a reserve for any proper
purpose, and may, from time to time, increase, diminish or vary such fund or
funds.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
as determined from time to time by the Board of Directors.
Section 4. Seal. The corporate seal, if any, shall have inscribed
thereon the name of the Corporation, the year of its incorporation and the
words "Corporate Seal" and "Delaware".
ARTICLE XI
AMENDMENTS
The Board of Directors shall have the power to make, alter and repeal
these Bylaws, and to adopt new bylaws, by an affirmative vote of a majority of
the whole Board, provided that notice of the proposal to make, alter or repeal
these Bylaws, or to adopt new bylaws, must be included in the notice of the
meeting of the Board of Directors at which such action takes place.
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ARTICLES OF INCORPORATION
OF
W-J TSMD INC.
I.
The name of this corporation is W-J TSMD INC.
II.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
III.
This corporation's initial agent for service of process is:
Richard A. Peers
Heller, Ehrman, White & McAuliffe
525 University Avenue, Suite 1100
Palo Alto, California 94301-1900
IV.
This corporation is authorized to issue only one class of shares, all
of which shall be known as Common Stock. The total number of shares which this
corporation is authorized to issue is One Thousand (1,000).
V.
The liability of the directors of this corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law. This
corporation is also authorized, to the fullest extent permissible under
California law, to indemnify its agents (as defined in Section 317 of the
California Corporations Code), whether by bylaw, agreement or otherwise, for
breach of duty to this corporation and its shareholders in excess of that
expressly permitted by Section 317 and to advance defense expenses to its agents
in connection with such mattes as they are incurred, subject to the limits on
such excess indemnification set forth in Section 204 of the California
Corporations Code. If, after the effective date of this Article, California law
is amended in a manner which permits a corporation to limit the monetary or
other liability of its directors or to authorize indemnification of, or
advancement of such defense expenses to, its directors or other persons, in any
such case to a greater extent than is permitted on such effective date, the
references in this Article to "California law" shall to that extent be deemed to
refer to California law as so amended.
Executed at Palo Alto, California, this 26th day of June, 1997.
/s/ Richard A. Peers
____________________________________
Richard A. Peers, Sole Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
W-J TSMD INC.
W. Keith Kennedy, Jr. and Claudia D. Kelley hereby certify that:
1. They are the President and Secretary, respectively, of W-J TSMD
INC., a California corporation.
2. Article I. of the Articles of Incorporation of this corporation is
hereby amended in full to read as follows:
"I.
The name of this corporation is STELLEX MICROWAVE SYSTEMS, INC."
3. The foregoing amendment of Articles of Incorporation has been duly
approved by the board of directors of this corporation.
4. The foregoing amendment of Articles of Incorporation has been duly
approved by the required vote of shareholders of this corporation in accordance
with Section 902 of the California Corporations Code. The total number of
outstanding shares of the corporation is One Hundred (100) shares of Common
Stock. The number of shares voting in favor of the amendment equaled or exceeded
the vote required. The percentage vote required was more than 50%.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Date: October 6, 1997
/s/ W. Keith Kennedy,
--------------------------------
W. Keith Kennedy, Jr., President
/s/ Claudia D. Kelly
--------------------------------
Claudia D. Kelly, Secretary
<PAGE>
BYLAWS
OF
W-J TSMD INC.
SHAREHOLDERS
1. Annual Meeting Unless the Board of Directors or the
President of the corporation selects a different time or date, the annual
meeting of shareholders shall be held at 11:00 a.m. on the first Tuesday of the
fifth calendar month following the end of the corporation's fiscal year. The
annual meeting shall be for the purpose of electing a Board of Directors and
transacting such other business as may properly be brought before the meeting.
2. Special Meeting. Special meetings of shareholders
may be called at any time by the Board of Directors, the Chairman of the Board,
the President or the holders of shares entitled to cast not less than one-tenth
of the votes at the meeting.
3. Place. Meetings of shareholders shall be held at
the principal executive office of the corporation or at any other place, within
or without California, which is designated by the Board of Directors or the
President.
4. Notice.
(a) Annual and Special Meetings. A written notice of
of each meeting of shareholders shall be given not more than 60 days and, except
as provided below, not less than 10 days before the meeting to each shareholder
entitled to vote at the meeting. The notice shall state the place, date and hour
of the meeting and, if directors are to be elected at the meeting, the names of
the nominees intended to be presented by management for election. The notice
shall also state: (i) in the case of an annual meeting, those matters which the
Board of Directors intends to present for action by the shareholders; and (ii)
in the case of a special meeting, the general nature of the business to be
transacted and that no other business and may be transacted. Notice shall be
delivered personally, by mail or other means addressed to the shareholder at the
address of such shareholder appearing on the books of the corporation, the
address given by the shareholder to the corporation for the purpose of notice or
as otherwise provided by law. Upon written request to the Chairman of the Board,
the President, the Secretary or any Vice President of the corporation by any
person (but not the Board of Directors) entitled to call a special meeting of
shareholders, the person receiving such request shall cause a notice to be given
to the shareholders entitled to vote that a meeting will be held at a time
requested by the person calling the meeting not less than 35 nor more than 60
days after receipt of the request.
<PAGE>
(b) Adjourned Meetings. Notice of an adjourned
meeting need not be given if: (i) the meeting is adjourned for 45 days or less;
(ii) the time and place of the adjourned meeting are announced at the meeting at
which the adjournment is taken; and (iii) no new record date is fixed for the
adjourned meeting. Otherwise, notice of the adjourned meeting shall be given as
in the case of an original meeting.
5. Record Date. The Board of Directors may fix in
advance a record date for the determination of the shareholders entitled to
notice of any meeting, to vote, to receive any dividend or other distribution or
allotment of rights or to exercise any rights. The record date shall be not more
than 60 nor less than 10 days prior to the date of the meeting nor more than 60
days prior to such other action. If no record date is fixed, the record date for
determining shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, the close
of business on the business day next preceding the day on which the meeting is
held. Except as otherwise provided by law, when a record date is fixed, as
provided herein, only shareholders on the record date are entitled to notice and
to vote, to receive the dividend, distribution or allotment of rights or to
exercise rights, as the case may be, notwithstanding any transfer of shares on
the books of the corporation occurring after the record date. Except as
otherwise provided by law, the corporation shall be entitled to treat the holder
of record of any shares as the holder in fact of such shares and shall not be
bound to recognize any equitable or other claim to or interest in such shares on
the part of any other person, whether or not the corporation shall have express
or other notice of such claim or interest. A determination of shareholders of
record entitled to notice of or to vote at a meeting of shareholders shall apply
to any adjournment of the meeting unless the Board of Directors fixes a new
record date. The Board of Directors shall fix a new record date if the adjourned
meeting takes place more than 45 days after the date set for the original
meeting.
6. Meeting Without Regular Call and Notice. The
transactions of any meeting of shareholders, however called and noticed and
wherever held, are as valid as though had at a meeting duly held after regular
call and notice if a quorum is present in person or by proxy and if, either
before or after the meeting, each of the persons entitled to vote who is not
present at the meeting in person or by proxy signs a written waiver of notice, a
consent to the holding of the meeting or an approval of the minutes of the
meeting. Attendance of a shareholder at a shareholders' meeting shall constitute
a waiver of notice of such meeting unless, at the beginning of the meeting, the
shareholder objects to the transaction of any business because the meeting was
not properly called or convened or, with respect to the
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consideration of a matter required to be included in the notice for the meeting
which was not so included, the shareholder expressly objects to such
consideration at the meeting.
7. Quorum and Required Vote. A majority of the
shares entitled to vote, represented in person or by proxy constitutes a quorum
for the transaction of business. No business may be transacted at a meeting in
the absence of a quorum other than the adjournment of the meeting, except that
if a quorum is present at the commencement of the meeting, business may be
transacted until the meeting is adjourned even though the withdrawal of
shareholders results in less than a quorum. If a quorum is present at a meeting,
the affirmative vote of a majority of the shares represented at the meeting, and
entitled to vote on any matter shall be the act of the shareholders unless the
vote of a larger number is required by law or the Articles of Incorporation. If
a quorum is present at the commencement of a meeting but the withdrawal of
shareholders results in less than a quorum, the affirmative vote of a majority
of shares required to constitute a quorum shall be the act of the shareholders
unless the vote of a larger number is required by law or the Articles of
Incorporation. Any meeting of shareholders, whether or not a quorum is present,
may be adjourned by the vote of a majority of the shares represented at the
meeting.
8. Proxies. A shareholder may be represented at any
meeting of shareholders by a written proxy signed by the person entitled to vote
or by such person's duly authorized attorney-in-fact. A proxy must bear a date
within 11 months prior to the meeting, unless the proxy specifies a different
length of time. A revocable proxy is revoked by a writing delivered to the
Secretary of the corporation stating that the proxy is revoked or by a
subsequent proxy executed by, or by attendance at the meeting and voting in
person by, the person executing the proxy.
9. Voting. Except as provided below or an otherwise
provided by the Articles of Incorporation or by law, a shareholder shall be
entitled to one vote for each share held of record on the record date fixed for
the determination of the shareholders entitled to vote or, if no such date is
fixed, the date determined in accordance with law. Upon the demand of any
shareholder made at a meeting before the voting begins, the election of
directors shall be by ballot. At every election of directors, shareholders may
cumulate votes and give one candidate a number of votes equal to the number of
directors to be elected multiplied by the number of votes to which the shares
are entitled or distribute votes according to the same principle among as many
candidates as desired. No shareholder shall be entitled to cumulate votes for
any one or more candidates unless such candidate or candidates' names have been
placed in nomination prior to the voting and at least one shareholder has
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given notice at the meeting prior to the voting of such shareholder's intention
to cumulate votes.
10. Election Inspectors. One or three election
inspectors may be appointed by the Board of Directors in advance of a meeting of
shareholders or at the meeting by the chairman of the meeting. If not previously
chosen, one or three inspectors shall be appointed by the chairman of the
meeting if a shareholder or proxyholder so requests. When inspectors are
appointed at the request of a shareholder or proxyholder, the majority of shares
represented in person or by proxy shall determine whether one or three
inspectors shall be chosen. The election inspectors shall determine all
questions concerning the existence of a quorum and the right to vote, shall
tabulate and determine the results of voting and shall do all other acts
necessary or helpful to the expeditious and impartial conduct of the vote. If
there are three inspectors, the decision, act or certificate of a majority of
the inspectors is effective as if made by all.
11. Action Without Meeting. Except as provided below
or by the Articles of Incorporation, any action which may be taken at a meeting
of shareholders may be taken without a meeting and without prior notice if a
consent in writing setting forth the action so taken is signed by the holders of
outstanding shares having not less than the minimum number of votes which would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote on such action were present and voted. Unless the consents of
all shareholders entitled to vote have been solicited in writing, the
corporation shall give to those shareholders entitled to vote who have not
consented in writing: (a) a written notice at least 10 days before consummation
of an action authorized by shareholders without a meeting covered by the
following sections of the California Corporations Code: Section 310 (certain
transactions involving interested directors), Section 317 (indemnification of
corporate agents), Section 1201 (reorganizations) and Section 2007 (certain
distributions of assets); and (b) a written notice given promptly of the taking
of any other action approved by shareholders without a meeting.
12. Reports. The annual report to shareholders
specified in Section 1501 of the California Corporations Code is dispensed with,
except as the Board of Directors may otherwise determine, as long as there are
less than 100 holders of record of the corporation's shares. Any such annual
report sent to shareholders shall be sent at least 15 days prior to the next
annual meeting of shareholders.
13. Lost Stock Certificates. The corporation may cause a
new stock certificate to be issued in place of any certificate previously issued
by the corporation alleged to have
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been lost, stolen or destroyed. The Corporation may, at its discretion and as a
condition precedent to such issuance, require the owner of such certificate to
deliver an affidavit stating that such certificate was lost, stolen or destroyed
or to give the corporation a bond or other security sufficient to indemnify it
against any claim that may be made against it, including any expense or
liability, on account of the alleged loss, theft or destruction or the issuance
of a new certificate.
BOARD OF DIRECTORS
Number. The authorized number of directors of this corporation shall be one if
the corporation has one shareholder, two if the corporation has two
shareholders, and no less than three or more than five if the corporation has
three or more shareholders, with the exact number of directors within the
variable range to be set by resolution of the Board of Directors. An amendment
reducing the minimum number of directors to a number less than five cannot be
adopted if the votes cast against its adoption at a meeting of the shareholders,
or the shares not consenting in the case of action by written consent, are equal
to more than 16-2/3% of the outstanding shares entitled to vote. No amendment
may change the maximum number of authorized directors to a number greater than
two times the minimum number of directors minus one.
1. Powers. Subject to the limitations imposed by law
or contained in the Articles of Incorporation, the business and affairs of the
corporation shall be managed and all corporate power shall be exercised by or
under the ultimate direction of the Board of Directors.
2. Election, Term of Office and Vacancies. At each
annual meeting of shareholders, directors shall be elected to hold office until
the next annual meeting. Each director, including a director elected to fill a
vacancy, shall hold office until the expiration of the term for which the
director was elected and until a successor has been elected. The Board of
Directors may declare vacant the office of any director who has been declared to
be of unsound mind by court order or convicted of a felony. Vacancies on the
Board of Directors not caused by removal maybe filled by a majority of the
directors then in office, regardless of whether they constitute a quorum, or by
a sole remaining director. The shareholders may elect a director at any time to
fill any vacancy not filled, or which cannot be filled, by the Board of
Directors. No reduction in the authorized number of directors shall have the
effect of removing any director prior to the expiration of his term of office.
3. Removal. Except as described below, any or all of
the directors may be removed without cause if such removal is approved by the
affirmative vote or written consent of a majority of the outstanding shares
entitled to vote. Unless the entire
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Board of Directors is so removed, no director may be removed if: (a) the votes
cast against removal, or not consenting in writing to such removal in the case
of written consent, would be sufficient to elect such director if voted
cumulatively at an election at which the same total number of votes was cast or,
if such action is taken by written consent, all shares entitled to vote were
voted; and (b) the entire number of directors authorized at the time of the
director's most recent election were then being elected.
4. Resignation. Any director may resign by giving
notice to the Chairman of the Board, the President, the Secretary or the Board
of Directors. The resignation of a director shall be effective when given unless
the director specifies a later time. The resignation shall be effective
regardless of whether it is accepted by the corporation.
5. Compensation. If the Board of Directors so
resolves, the directors, including the Chairman of the Board, shall receive
compensation and expenses of attendance for meetings of the Board of Directors
and of committees of the Board. Nothing herein shall preclude any director from
serving the corporation in another capacity and receiving compensation for such
service.
6. Committees. The Board of Directors may, by
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of two or more directors, to
serve at the pleasure of the Board. The Board may designate one or more
directors as alternate members of a committee who may replace any absent member
at any meeting of the committee. To the extent permitted by the resolution of
the Board of Directors, a committee may exercise all of the authority of the
Board except:
(a) the approval of any action which, under the
California Corporations Code, must be approved by the outstanding shares or
approved by the shareholders;
(b) the filling of vacancies on the Board or any
committee;
(c) the fixing of compensation of the directors for
serving on the Board or any committee;
(d) the adoption, amendment or repeal of Bylaws;
(e) the amendment or repeal of any resolution of the
Board which by its express terms is not so amendable or repealable;
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(f) a distribution to the shareholders of the
corporation, except at a rate, in a periodic amount or within a price range
determined by the Board; and
(g) the appointment of any other committees of the
Board or the members of such committees.
7. Inspection of Records and Properties. Each
director may inspect all books, records, documents and physical properties of
the corporation and its subsidiaries at any reasonable time. Inspections may be
conducted either by the director or the director's agent or attorney. The right
of inspection includes the right to copy and make extracts.
8. Time and Place of Meetings and Telephone Meetings.
Unless the Board of Directors determines otherwise, the Board shall hold a
regular meeting during each quarter of the corporation's fiscal year. One such
meeting shall take place immediately following the annual meeting of
shareholders. All meetings of directors shall be held at the principal executive
office of the corporation or at such other place, within or without California,
as shall be designated in the notice of the meeting or in a resolution of the
Board of Directors. Directors may participate in a meeting through use of
conference telephone, electronic video screen communication or other
communications equipment, provided that all of the following apply:
(a) each member participating in the meeting can
communicate with all of the other members concurrently; and
(b) each member is provided the means of participating
in all matters before the board, including the capacity to propose, or to
interpose an objection to, a specific action to be taken by the corporation; and
(c) the corporation adopts and implements some means
of verifying both of the following:
(i) a person communicating by telephone,
electronic video screen, or other communications equipment is a director
entitled to participate in the board meeting; and
(ii) all statements, questions, actions, or votes
were made by that director and not by another person not permitted to
participate as a director.
9. Call. Meetings of the Board of Directors, whether
regular or special, may be called by the Chairman of the Board, the President,
the Secretary, any Vice President or any two directors.
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10. Notice. Regular meetings of the Board of Directors
may be held without notice if the time and the place of such meetings has been
fixed by bylaws or the Board. Special meetings shall be held upon four days,
notice by mail or 48 hours, notice delivered personally or by telephone,
including a voice messaging system or other system or technology designed to
record and communicate messages, telegraph, facsimile, electronic mail or other
electronic means and regular meetings shall be held upon similar notice if
notice is required for such meetings. A notice or waiver of notice need not
specify the purpose of any regular or special meeting. Notice of the time and
place of holding an adjourned meeting need not be given to absent directors if
the time and place of the adjourned meeting is announced at the meeting at which
the adjournment is taken, but if a meeting is adjourned for more than 24 hours,
notice of the adjourned meeting shall be given prior to the time of such meeting
to the directors who were not present at the time of the adjournment.
11. Meeting Without Regular Call and Notice. The
transactions of any meeting of the Board of Directors, however called and
noticed or wherever held, are as valid as though had at a meeting duly held
after regular call and notice if a quorum is present and if, either before or
after the meeting, each of the directors not present signs a written waiver of
notice, a consent to the holding of the meeting or an approval of the minutes of
the meeting. For such purposes, a director shall not be considered present at a
meeting if, although in attendance at the meeting, the director protests the
lack of notice prior to the meeting or at its commencement.
12. Action Without Meeting. Any action required or
permitted to be taken by the Board of Directors may be taken without a meeting,
if all of the members of the Board individually or collectively consent in
writing to such action.
13. Quorum and Required Vote. A majority of the
directors then in office shall constitute a quorum for the transaction of
business, provided that, unless the authorized number of directors is one, the
number constituting a quorum shall not be less than the greater of one-third of
the authorized number of directors or two directors. Subject to the provisions
of Section 310 (relating to certain transactions involving interested directors)
and Section 317(e) (relating to indemnification of corporate agents) of the
California Corporations Code, every act or decision done or made by a majority
of the directors present at a meeting duly held at which a quorum is present is
the act of the Board. A meeting at which a quorum is initially present may
continue to transact business notwithstanding the withdrawal of directors, if
any action taken is approved by at least a majority of the required quorum for
such meeting. A majority of the directors present at a meeting,
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whether or not a quorum is present, may adjourn the meeting to another time and
place.
14. Committee Meetings. The principles set forth in
Sections 22 through 27 of these Bylaws shall apply to committees of the Board of
Directors and to actions taken by such committees.
15. Indemnification of Directors, Officers, Employees
and Certain Others.
(a) Right of Indemnity. To the full extent
permitted by law, this corporation shall indemnify its directors, officers,
employees and other persons described in Section 317(a) of the California
Corporations Code, including persons formerly occupying any such position,
against all expenses, judgments, fines, settlements and other amounts actually
and reasonably incurred by them in connection with any "proceeding", as that
term is used in such Section and including an action by or in the right of the
corporation, by reason of the fact that such person is or was a person described
by such Section. "Expenses", as used in this Bylaw, shall have the same meaning
as in Section317(a)of the California Corporations Code.
(b) Approval of Indemnity. Upon written request
to the Board of Directors by any person seeking indemnification under Section
317(b) or Section 317(c) of the California Corporations Code, the Board shall
promptly determine in accordance with Section 317(e) of the Code whether the
applicable standard of conduct set forth in Section 317(b) or Section 317(c) has
been met and, if so, the Board shall authorize indemnification. If the Board
cannot authorize indemnification because the number of directors who are parties
to the proceeding with respect to which indemnification is sought prevent the
formation of a quorum of directors who are not parties to such proceeding, the
Board shall promptly call a meeting of shareholders. At such meeting, the
shareholders shall determine in accordance with Section 317(e) of the Code
whether the applicable standard of conduct set forth in Section 317(b) or
Section 317(c) has been met and, if so, the shareholders present at the meeting
in person or by proxy shall authorize indemnification.
(c) Advancement of Expenses. To the full extent
permitted by law and except as is otherwise determined by the Board of Directors
in the specific instance, expenses incurred by a person seeking indemnification
under this Bylaw in defending any proceeding covered by this Bylaw shall be
advanced by the corporation prior to the final disposition of the proceeding
upon receipt by the corporation of an undertaking by or on behalf of such person
to repay such amount unless it shall ultimately be
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determined that such person is entitled to be indemnified by the corporation
therefor.
OFFICERS
16. Titles and Relation to Board of Directors. The
officers of the corporation shall include a Chairman of the Board or a President
or both, a Secretary and a Treasurer. The Board of Directors may also choose one
or more Vice Presidents, Assistant Secretaries, Assistant Treasurers or other
officers. Any number of offices may be held by the same person. All officers
shall perform their duties and exercise their powers subject to the direction of
the Board of Directors.
17. Election, Term of Office and Vacancies. At its
regular meeting after each annual meeting of shareholders, the Board of
Directors shall choose the officers of the corporation. The Board may choose
additional officers or fill vacant offices at any other time. No officer must be
a member of the Board of Directors except the Chairman of the Board. The
officers shall hold office until their successors are chosen, except that the
Board of Directors may remove any officer at any time.
18. Resignation. Any officer may resign at any time
upon notice to the corporation without prejudice to the rights, if any, of the
corporation under any contract to which the officer is a party. The resignation
of an officer shall be effective when given unless the officer specifies a later
time. The resignation shall be effective regardless of whether it is accepted by
the corporation.
19. Chairman of the Board; President. If the Board of
Directors elects a Chairman of the Board, such officer shall preside over all
meetings of the Board of Directors and of shareholders. If there be no Chairman
of the Board, the President shall perform such duties. The Board of Directors
shall designate either the Chairman of the Board or the President as the chief
executive officer and may prescribe the duties and powers of the chief executive
officer. If there be no Chairman of the Board, the President shall be the chief
executive officer.
20. Secretary. Unless otherwise determined by the
Board of Directors or the chief executive officer, the Secretary shall have the
following powers and duties:
(a) Record of Corporate Proceedings. The
Secretary shall attend all meetings of shareholders and the Board of Directors
and its committees and shall record all votes and the minutes of such meetings
in a book to be kept at the principal executive office of the corporation or at
such other place as the Board may determine. The Secretary shall keep at the
corporation's principal executive office, if in California,
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or at its principal business office in California if the principal executive
office is not in California, the original or a copy of these Bylaws, as amended.
(b) Record of Shares. Unless a transfer agent
is appointed by the Board of Directors to keep a share register, the Secretary
shall keep a share register at the principal executive office of the corporation
showing the names of the shareholders and their addresses, the number and class
of shares held by each, the number and date of certificates issued and the
number and date of cancellation of each certificate surrendered for
cancellation.
(c) Notices. The Secretary shall give such
notices as may be required by law or these Bylaws.
21. Treasurer. Unless the Board of Directors designates
another chief financial officer, the Treasurer shall be the chief financial
officer of the corporation. Unless otherwise determined by the Board of
Directors or the chief executive officer, the Treasurer shall have custody of
the corporate funds and securities, shall keep adequate and correct accounts of
the corporation's properties and business transactions, shall disburse such
funds of the corporation as may be ordered by the Board or the chief executive
officer (taking proper vouchers for such disbursements), and shall render to the
chief executive officer and the Board, at regular meetings of the Board or
whenever the Board may require, an account of all transactions and the financial
condition of the corporation.
22. Other Officers. The other officers of the
corporation, if any, shall exercise such powers and perform such duties as the
Board of Directors or the chief executive officer shall prescribe.
23. Salaries. The Board of Directors shall fix the
salary of the chief executive officer and may fix the salaries of other
employees of the corporation, including the other officers. If the Board does
not fix the salaries of the other officers, the chief executive officer shall
fix such salaries.
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CERTIFICATE OF INCORPORATION
OF
KII HOLDING CORP.
FIRST. The name of the corporation is KII Holding Corp.
SECOND. The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of its
registered agent at such address is The Corporation Trust
Company.
THIRD. The nature or purposes of the business to be conducted or
promoted is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation
Law of Delaware.
FOURTH. The Corporation shall have authority to issue 1,000 shares of
Common Stock without par value, and 500 shares of Serial
Preferred Stock, without par value but with a stated value of
Ten Thousand Dollars ($10,000) per share.
A. Serial Preferred Stock
The Board of Directors is hereby empowered to cat4se the
Serial Preferred Stock of the Corporation to be issued in series with
such of the variations permitted by clauses (1)-(8), of this paragraph
A as shall have been fixed and determined by the Board of Directors
with respect to any series prior to the issue of any shares of such
series.
The shares of the Serial Preferred Stock of different series
may vary as to:
(1) the number of shares constituting such series and
the designation of such series, which shall be such as to
distinguish the shares thereof from the shares of all other
series and classes;
(2) the rate of dividend, the time of payment and, if
cumulative, the dates from which dividends shall be
cumulative, the extent of participation rights, if any, and
the priority in payment of dividends;
(3) any right to vote with holders of $heres of any
other series or class and any right to vote as a class, either
generally or as a condition to specified corporate acts;
(4) the price at and the terms and conditions of
which shares may be redeemed;
(5) the amount payable upon shares and the priority
of payment in event of involuntary liquidation;
<PAGE>
(6) the amount payable upon shares and the priority
of payment in event of voluntary liquidation;
(7) any sinking fund provisions for the redemption
or purchase of shares; and
(8) the terms and conditions on which shares may be
converted, if the shares of any series are issued with the
privilege of conversion.
The shares of all series of Serial Preferred Stock shall be
identical except as, within the limitations set forth above in this
section A, shall have been fixed and determined by the Board of
Directors prior to the issuance thereof. Except as specifically set
forth in any Certificate of Serial Designation filed with the Secretary
of State of the State of Delaware or as required by the Delaware
General Corporation Law, none of these shares of any series of Serial
Preferred Stock shall have any right to vote on any matters.
B. Common Stock.
(1) Dividends. When and if declared by the Board of
Directors, the holders of the Common Stork shall only be
entitled to receive cash dividends and dividends payable in
property other than securities of the Corporation at such time
as all dividends on the Serial Preferred Stock through the
record date of any such Common Stock dividend have been paid
in full.
(2) Liquidation. In the event of the voluntary or
involuntary liquidation, dissolution, distribution of assets
or winding-up of the Corporation, after distribution in full
to the holders of Serial Preferred Stock of their preferred
liquidation payments, the holders of Common Stock shall be
entitled to receive the remaining assets of the Corporation.
(3) Voting Rights. Except as may be otherwise
required by law or the Certificate of Incorporation of the
Corporation, as amended, each share of Common Stock shall have
one (1) vote on all matters voted upon by the stockholders.
FIFTH. The name and mailing address of the sole incorporator is as
follows:
Halle Fine Terrion 35th Floor, BP America Building
200 Public Square
Cleveland, OH 44114-2302
The name and mailing address of the person who is to serve as the
director until the first annual meeting of the stockholders or until
his successors are elected and qualified, is as follows:
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Richard L. Kramer 1430 Broadway, 13th Floor
New York, New York 10018
William L. Remley 1430 Broadway, 13th Floor
New York, New York 10018
SIXTH. The corporation is to have perpetual existence.
SEVENTH. Election of directors need not be by written ballot unless the
by-laws of the corporation shall so provide.
EIGHTH. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.
NINTH. A director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director except for
liability (i) for any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section
174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived any improper
personal benefit
I, THE UNDERSIGNED, being the sole incorporator hereinbefore named, for
the purpose of forming a corporation pursuant to the General Corporation Law of
the State of Delaware, do make this Certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 24th day of June, 1997.
/s/ Halle Fine Terrion
------------------------------
Halle Fine Terrion
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AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
KII HOLDING CORP.
KII Holding Corp., a corporation organized and existing under the laws
of the State of Delaware, hereby certifies as follows:
C. The original Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on June 24, 1997.
D. Immediately prior to this amendment of the Certificate of
Incorporation of the Corporation, as hereinbelow set forth, the Corporation had
authority to issue an aggregate of One Thousand Five Hundred (1,500) shares, of
which One Thousand (1,000) shares, without par value, were designated "Common
Stock" and Five Hundred (500) shares, without par value, were designated "Serial
Preferred Stock" having a stated value of Ten Thousand Dollars ($10,000) per
share.
E. This Amended and Restated Certificate of incorporation restates and
integrates and further amends the Certificate of Incorporation of this
Corporation by:
(1) Authorizing the issuance and designating the terms of an
aggregate Twenty Thousand Five Hundred (20,500) shares, of which Twenty
Thousand (20,000) shares, with no par value, shall be designated
'Common Stock" and Five Hundred (500) shares, with no par value but
with a stated value of Ten Thousand Dollars ($10,000) per share, shall
be designated "Serial Preferred Stock" in Article FOURTH; and
(2) Deleting Article FIFTH, which contained the name of the
sole incorporator and initial directors and conforming the remaining
articles accordingly.
F. The text of the Certificate of Incorporation is hereby amended and
restated hereby to read as herein set forth in full.
FIRST. The name of the corporation is KII Holding Corp.
SECOND. The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of its
registered agent at such address is The Corporation Trust
Company.
THIRD. The nature or purposes of the business to be conducted or
promoted is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation
Law of Delaware.
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<PAGE>
FOURTH. The Corporation shall have authority to issue Twenty Thousand
(20,000) shares of Common Stock without par value, and Five
Hundred (500) shares of Serial Preferred Stock, without par
value but with a stated value of Ten Thousand Dollars
($10,000) per share.
Serial Preferred Stock
The Board of Directors is hereby empowered to cause the Serial
Preferred Stock of the Corporation to be issued in series with such of
the variations permitted by clauses (1)-(8), of this paragraph A as
shall have been fixed and determined by the Board of Directors with
respect to any series prior to the issue of any shares of such series.
The shares of the Serial Preferred Stock of different series may vary
as to:
the number of shares constituting such series and the
designation of such series, which shall be such as to
distinguish the shares thereof from the shares of all other
series and classes;
the rate of dividend, the time of payment and, if
cumulative, the dates from which dividends shall be
cumulative, the extent of participation rights, if any, and
the priority in payment of dividends;
any right to vote with holders of shares of any other
series or class and any right to vote as a class, either
generally or as a condition to specified corporate acts;
the price at and the terms and conditions on which
shares may be redeemed;
the amount payable upon shares and the priority of
payment in event of involuntary liquidation;
the amount payable upon shares and the priority of
payment in event of voluntary liquidation;
any sinking fund provisions for the redemption or
purchase of shares: and
the terms and conditions on which shares may be
converted, if the shares of any series are issued with the
privilege of conversion.
The shares of all series of Serial Preferred Stock shall be
identical except as, within the limitations set forth above in this
section A, shall have been fixed and determined by the Board of
Directors prior to the issuance thereof. Except as specifically set
forth in any
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Certificate of Serial Designation filed with the Secretary of State of
the State of Delaware or as required by the Delaware General
Corporation Law, none of these shares of any series of Serial Preferred
Stock shall have any right to vote on any matters.
Common Stock.
Dividends. When and if declared by the Board of
Directors, the holders of the Common Stock shall only be
entitled to receive cash dividends and dividends payable in
property other than securities of the Corporation at such time
as all dividends on the Serial Preferred Stock through the
record date of any such Common Stock dividend have been paid
in full.
Liquidation. In the event of the voluntary or
involuntary liquidation, dissolution, distribution of assets
or winding-up of the Corporation, after distribution in full
to the holders of Serial Preferred Stock of their preferred
liquidation payments, the holders of Common Stock shall be
entitled to receive the remaining assets of the Corporation.
Voting Rights. Except as may be otherwise required by
law or the Certificate of Incorporation of the Corporation, as
amended, each share of Common Stock shall have one (1) vote on
all matters voted upon by the stockholders.
FIFTH. The Corporation is to have perpetual existence.
SIXTH. Election of directors need not be by written ballot unless the
by-laws of the Corporation shall so provide.
SEVENTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.
EIGHT. A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director except for
liability (i) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section
174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived any improper
personal benefit.
G. This Amended and Restated Certificate of incorporation was duly
adopted by the Board of Directors in accordance with the applicable provisions
of Sections 141(f), 241 and 245 of the General Corporation Law of the State of
Delaware.
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be signed by Michael D. Schenker, its
Assistant Secretary, this 26th day of June, 1997.
/s/ Michael D. Schenker
-----------------------------------------
Michael D. Schenker, Assistant Secretary
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KII HOLDING CORP.
CERTIFICATE OF THE POWERS, DESIGNATIONS, PREFERENCES AND
RIGHTS OF THE SERIES B PREFERRED STOCK
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware
The following resolution was duly adopted by the Board of Directors
(the "Board of Directors") of KII HOLDING CORP., a Delaware corporation (the
"Corporation"), pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware:
WHEREAS, the Board of Directors of the Corporation is authorized,
within the limitations and restrictions stated in the Certificate of
Incorporation of the Corporation, to provide by resolution or resolutions for
the issuance of shares of preferred stock, without par value, of the
Corporation, in one or more series with such voting powers, full or limited, or
without voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions as shall be stated and expressed in the resolution or
resolutions providing for the issuance thereof adopted by the Board of
Directors, as are not stated and expressed in the Certificate of Incorporation,
or any amendment thereto, including (but without limiting the generality of the
foregoing) such provisions as may be desired concerning voting, redemption,
dividends, dissolution or the distribution of assets, conversion or exchange,
and such other subjects or matters as may be fixed by resolution or resolutions
of the Board of Directors under the General Corporation Law of the State of
Delaware; and
WHEREAS, it is the desire of the Board of Directors of the Corporation,
pursuant to its authority as aforesaid, to authorize and fix the terms of a
series of preferred stock and the number of shares constituting such series.
NOW, THEREFORE, BE IT RESOLVED:
H. Designation and Number of Shares. There shall be hereby established
a series of the preferred stock, without par value, but with a stated value of
Ten Thousand Dollars ($10,000) per share (the "Stated Value"), designated as
"Series B Preferred Stock" (such series being hereinafter referred to as the
"Series B Preferred Stock"). The authorized number of shares of Series B
Preferred Stock shall be 75.
I. Rank. The Series B Preferred Stock shall, with respect to dividend
distributions and distributions of assets and rights upon the liquidation,
winding up and dissolution of the Corporation, rank junior to the Series A
Preferred Stock (the "Series A Preferred Stock"). The Series B Preferred
<PAGE>
Stock shall, however, rank senior to all classes of common stock of the
Corporation (including, without limitation, the currently authorized common
stock, without par value, of the Corporation) (the "Common Stock"), and to each
other class or series of Capital Stock of the Corporation hereafter created with
respect to dividend distributions and distributions of assets and rights upon
the liquidation, winding up and dissolution of the Corporation (collectively
with the Common Stock, the "Junior Stock").
J. Dividends.
(1) The holders of the outstanding shares of Series B
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors, out of funds legally available therefor, cash dividends on
each share of Series B Preferred Stock at a rate equal to ten percent (10%) per
annum of the sum of (i) the Liquidation Preference (as hereinafter defined) and
(ii) any dividends which may be in arrears. All dividends shall be cumulative,
whether or not earned or declared, from the date of issuance of the Series B
Preferred Stock and shall be payable quarterly in arrears on each Dividend
Payment Date, commencing on the first Dividend Payment Date after the issuance
of the Series B Preferred Stock. Each distribution on the Series B Preferred
Stock shall be payable to holders of record as they appear on the stock record
books of the Corporation on such record dates, not less than ten (10) nor more
than sixty (60) days preceding the applicable Dividend Payment Date, as shall be
fixed by the Board of Directors of the Corporation.
(2) All dividends paid with respect to shares of Series B
Preferred Stock pursuant to subparagraph 3(a) shall be paid pro rata and in a
like manner to all of the holders entitled thereto.
(3) Nothing herein contained shall in any way or under any
circumstances be construed or deemed to require the Board of Directors to
declare, or the Corporation to pay or set
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apart for payment, any dividends on shares of the Series B Preferred Stock at
any time, except out of funds legally available therefor.
(4) Dividends on account of arrears for any past Dividend
Period may be declared and paid at any time, without reference to any regular
Dividend Payment Date, to holders of record on such date, not less than ten (10)
nor more than sixty (60) days prior to the payment thereof, as may be fixed by
the Board of Directors.
(5) Without the affirmative vote or consent of holders of at
least a majority of the then outstanding shares of Series B Preferred Stock,
voting or consenting, as the case may be, as one class, the Corporation shall
not declare, pay or set apart for payment any dividend on any shares of Junior
Stock or make any payment on account of, or set apart for payment money for a
sinking or other similar fund for, the purchase, redemption or other retirement
of, any shares of Junior Stock or any warrants, rights, puts, calls or options
exercisable for or convertible into any shares of Junior Stock or make any
distribution in respect thereof, either directly or indirectly, whether in cash,
obligations or shares of the Corporation or other property (all such prohibited
payments and other actions set forth above in this subparagraph 3(e) being
collectively referred to as "Restricted Junior Payments") except that:
the Corporation may make Permitted Tax Distributions;
the Corporation may pay dividends or other distributions on Junior
Stock in the form of additional shares of Junior Stock (or the adjustment of the
amount of the liquidation preference, if any, of such Junior Stock);
the Corporation may issue a promissory note, which is expressly
subordinated in payment to dividend, liquidation and other distributions in
respect of the Series B Preferred Stock,
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in satisfaction of a contractual obligation to redeem any such Junior Stock held
by management of the Corporation or its subsidiaries.
(6) Dividends payable on the Series B Preferred Stock for any
period less than a year shall be computed on the basis of a 365-day year and the
actual number of days elapsed in the period for which such dividends are
payable.
K. Liquidation Preference.
(1) The liquidation preference of the Series B Preferred Stock
shall be $10,000.00 per share (the "Liquidation Preference"). In the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation, the holders of shares of Series B Preferred Stock
then outstanding shall be entitled to be paid for each share held, out of the
assets of the Corporation available for distribution to its stockholders, after
satisfaction in full of all payments to be made in liquidation to the holders of
the Series A Preferred Stock under Section 4 of the Certificate of the Powers,
Preferences and Rights of the Series A Preferred Stock (the "Series A
Certificate of Designation"), an amount in cash equal to the aggregate
Liquidation Preference plus an amount in cash equal to all accumulated and
unpaid dividends thereon to the date fixed for liquidation, dissolution or
winding up (including, without duplication, an amount equal to prorated
dividends for the period from the last Dividend Payment Date to the date fixed
for liquidation, dissolution or winding up), before any payment shall be made or
any assets distributed to the holders of any shares of Junior Stock. Except as
provided in the preceding sentence, holders of the Series B Preferred Stock
shall not be entitled to any distribution in the event of any liquidation,
dissolution or winding up of the affairs of the Corporation. If the assets of
the Corporation are not sufficient, after satisfaction in full of the payments
to be made in liquidation to the holders of the Series A
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Preferred Stock pursuant to Section 4 of the Series A Certificate of
Designation, to pay in full the liquidation payments payable to the holders of
outstanding shares of the Series B Preferred Stock, then the holders of all such
shares shall share ratably in such distribution of assets.
(2) For purposes of this paragraph 4, neither the sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all or part of the property or assets of
the Corporation nor the consolidation or merger of the Corporation into or with
one or more other corporations or entities shall be deemed to be a liquidation,
dissolution or winding up, voluntarily or involuntary, of the affairs of the
Corporation.
L. Voting Rights.
(1) So long as any shares of the Series B Preferred Stock are
outstanding, the Corporation shall not reclassify any Junior Stock into any
preferred stock of the Corporation that ranks on a parity or senior (in either
case as to dividends or other distributions or rights upon liquidation,
dissolution or winding up) to the Series B Preferred Stock ("Parity Stock" or
"Senior Stock" respectively) or create or authorize any new class of Parity
Stock or Senior Stock (other than the Series A Preferred Stock) without the
affirmative vote or consent of holders of at least a majority of the then
outstanding shares of Series B Preferred Stock, voting or consenting, as the
case may be, as one class.
(2) So long as any shares of the Series B Preferred Stock are
outstanding, the Corporation shall not amend this Certificate of Designation or
the Certificate of Incorporation of the Corporation so as to adversely affect
the specified rights, preferences, privileges or voting rights of holders of
shares of the Series B Preferred Stock, without the affirmative vote or consent
of at least
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a majority of the issued and outstanding shares of Series B Preferred Stock,
voting or consenting, as the case may be, as one class.
(3) In any case in which the holders of Series B Preferred
Stock shall be entitled to vote pursuant to this paragraph 5 or pursuant to the
General Corporation Law of the State of Delaware, each holder of Series B
Preferred Stock shall be entitled to one vote for each share of Series B
Preferred Stock. Except as otherwise provided in this paragraph 5 and under the
General Corporation Law of the State of Delaware, holders of Series B Preferred
Stock shall not be entitled to vote on any matters.
M. Redemption.
(1) So long as no Series A Preferred Stock is outstanding, the
Series B Preferred Stock may be redeemed in cash, in whole or in part, at any
time or from time to time, at the option of the Corporation by resolution of the
Board of Directors at a price per share equal to the Liquidation Preference plus
an amount equal to all dividends thereon accrued and unpaid (the "Redemption
Price") to the date fixed by the Board of Directors as the redemption date (the
"Redemption Date"). If less than all shares of Series B Preferred Stock are to
be redeemed, shares of Series B Preferred Stock shall be redeemed ratably among
the holders thereof.
(2) Notice of any redemption pursuant to this paragraph 6 (a
"Redemption Notice" shall be mailed, first class, postage prepaid, not less than
fifteen (15) days nor more than sixty (60) days prior to the Redemption Date to
the holders of record of the shares of Series B Preferred Stock to be redeemed,
at their respective addresses as the same appear upon the stock record books of
the Corporation or are supplied by them in writing to the Corporation for the
purpose of such notice. Such notice shall set forth the anticipated Redemption
Price or formula on
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which such Redemption Price will be based, the anticipated Redemption Date
within such fifteen (15) to sixty (60) day period, the number of shares to be
redeemed and the place at which the shares called for redemption will, upon
presentation and surrender of the stock certificates evidencing such shares, be
redeemed.
(3) On or before the anticipated Redemption Date, each holder
of Series B Preferred Stock shall surrender the certificate or certificates
representing such shares of Series B Preferred Stock to the Corporation, in the
manner and at the place designated in the Redemption Notice, and on the
Redemption Date, if the redemption occurs, the full Redemption Price for such
shares shall be payable in cash to the Person whose name appears on such
certificate or certificates as the owner thereof, and each surrendered
certificate shall be canceled and retired. If for any reason the redemption does
not occur, the certificates shall be returned. In the event that fewer than all
of the Series B Preferred Stock represented by any such certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares.
(4) If any Redemption Notice by the Corporation pursuant to
this paragraph 6 shall have been mailed as provided in subparagraph 6(b) and if
on or before the Redemption Date, the consideration necessary for such
redemption shall have been irrevocably set apart in trust for the benefit of the
holders of shares to be so redeemed so as to be available therefor and only
therefor, then on and after the close of business on the Redemption Date, the
shares called for redemption, notwithstanding that any certificate therefor
shall not have been surrendered for cancellation, shall no longer be deemed
outstanding, and all rights with respect to such shares shall forthwith cease
and terminate, except the right of the holders thereof to receive upon surrender
of their certificates the consideration payable upon redemption thereof.
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<PAGE>
N. Payment in Kind. Any payments by the Corporation on account of the
Series B Preferred Stock as a result of the declaration of dividends on the
Series B Preferred Stock may, in the sole discretion of the Board of Directors,
be payable, in whole or in part, in the form of additional shares of Series B
Preferred Stock of the Corporation or any of the assets of the Corporation. For
purposes of such payment, shares of Series B Preferred Stock shall be valued at
the Stated Value or upon such other reasonable basis as the Board of Directors
shall determine in its sole discretion.
O. Business Day. If any payment shall be required by the terms hereof
to be made on a day that is not a Business Day, such payment shall be made on
the immediately succeeding Business Day.
P. Preemptive Rights. The holders of the Series B Preferred Stock
shall not have any preemptive right to subscribe for or purchase any shares of
stock or any other securities which may be issued by the Corporation.
Q. Exclusion of Other Rights. The shares of Series B Preferred Stock
shall not have any designations, preferences, limitations or relative rights,
other than those specifically set forth in these resolutions and in the
Certificate of Incorporation of the Corporation.
R. Legends. Unless the Series B Preferred Stock is to be registered
under the Securities Act of 1933, as amended or any other applicable federal or
state securities law, the following legends shall be placed on the Series B
Preferred Stock:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER APPLICABLE
FEDERAL OR STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION UNLESS THE PROPOSED TRANSFER DOES NOT
REQUIRE ANY SUCH
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<PAGE>
REGISTRATION AND THE CORPORATION HAS RECEIVED AN OPINION OF
COUNSEL TO SUCH EFFECT.
S. Headings. The headings of the various paragraphs and
subparagraphs hereof are for convenience of reference only and shall
not affect the interpretation of any of the provisions hereof.
T. Definitions.
"Board of Directors" has the meaning ascribed to it in the first
paragraph of this resolution.
"Business Day" means any day except a Saturday, Sunday or any day on
which banking institutions in New York City, New York or Los Angeles, California
are required or authorized by law or other governmental action to be closed.
"Capital Stock" means all common stock and any other capital stock of
the Corporation authorized from time to time, and any other shares, options,
interests, participations, or other equivalents (however designated), whether
voting or nonvoting, including, without limitation, common stock, options,
warrants, preferred stock, phantom stock, stock appreciation rights, convertible
notes or debentures, stock purchase rights, and all agreements, instruments,
documents, and securities convertible, exercisable or exchangeable, in whole or
in part, into any one or more of the foregoing.
"Certificate of Designation" shall mean this Certificate of the Powers,
Designations, Preferences and Rights of the Series B Preferred Stock.
"Closing Date" means the date on which the Series A Preferred Stock is
first issued.
"Common Stock" has the meaning ascribed to it in paragraph 2 hereof.
"Corporation" means KII Holding Corp., a Delaware corporation.
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"Dividend Payment Date" means March 31, June 30, September 30 and
December 31 of each year.
"Dividend Period" means the Initial Dividend Period and, thereafter,
each Quarterly Dividend Period.
"Initial Dividend Period" means the dividend period commencing on the
Closing Date and ending on the first Dividend Payment Date to occur thereafter.
"Junior Stock" has the meaning ascribed to it in paragraph 2 hereof.
"Liquidation Preference" has the meaning ascribed to it in paragraph 4
hereof.
"Parity Stock" has the meaning ascribed to it in paragraph 5 hereof.
"Permitted Tax Distributions" means distributions from the Corporation
to the parent corporation of the Corporation up to the amount that the
Corporation would have been required to pay for federal, state, local or other
taxes on income if it were deemed to be the common parent of an affiliated group
(within the meaning of Section 1504 of the Internal Revenue Code of 1986, as
amended) of which only the Corporation and its consolidated subsidiaries were
members.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Quarterly Dividend Period" means the quarterly periods commencing on
each January 1, April 1, July 1 and October 1 and ending on each Dividend
Payment Date, respectively.
"Redemption Date" has the meaning ascribed to it in paragraph 6 hereof.
"Redemption Notice" has the meaning ascribed to it in paragraph 6
hereof.
"Redemption Price" has the meaning ascribed to it in paragraph 6
hereof.
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"Restricted Junior Payments" has the meaning ascribed to it in
paragraph 3 hereof.
"Senior Stock" has the meaning ascribed to it in paragraph 5 hereof.
"Series A Certificate of Designation" has the meaning ascribed to it in
paragraph 4 hereof.
"Series A Preferred Stock" has the meaning ascribed to it in paragraph
2 hereof.
"Series B Preferred Stock" has the meaning ascribed to it in paragraph
1 hereof.
"Stated Value" has the meaning ascribed to it in paragraph 1 hereof.
FURTHER RESOLVED, that the appropriate officers of the Corporation are
hereby authorized to execute and acknowledge a certificate setting forth these
resolutions and to cause such certificate to be filed and recorded, in
accordance with the requirement of Section 151(g) of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, KII HOLDING CORP. has caused this Certificate to be
duly executed as of this 1st day of July, 1997.
KII HOLDING CORP.
By:/s/ Bradley C. Call
Its:President
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KII HOLDING CORP.
CERTIFICATE OF THE POWERS, DESIGNATIONS, PREFERENCES AND
RIGHTS OF THE SERIES A PREFERRED STOCK
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware
The following resolution was duly adopted by the Board of Directors
(the "Board of Directors") of KII HOLDING CORP., a Delaware corporation (the
"Corporation"), pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware:
WHEREAS, the Board of Directors of the Corporation is authorized,
within the limitations and restrictions stated in the Certificate of
Incorporation of the Corporation, to provide by resolution or resolutions for
the issuance of shares of preferred stock, without par value, of the
Corporation, in one or more series with such voting powers, full or limited, or
without voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions as shall be stated and expressed in the resolution or
resolutions providing for the issuance thereof adopted by the Board of
Directors, as are not stated and expressed in the Certificate of Incorporation,
or any amendment thereto, including (but without limiting the generality of the
foregoing) such provisions as may be desired concerning voting, redemption,
dividends, dissolution or the distribution of assets, conversion or exchange,
and such other subjects or matters as may be fixed by resolution or resolutions
of the Board of Directors under the General Corporation Law of the State of
Delaware; and
WHEREAS, it is the desire of the Board of Directors of the Corporation,
pursuant to its authority as aforesaid, to authorize and fix the terms of a
series of preferred stock and the number of shares constituting such series.
NOW, THEREFORE, BE IT RESOLVED:
U. Designation and Number of Shares. There shall be hereby established
a series of the preferred stock, without par value, but with a stated value of
Ten Thousand Dollars ($10,000) per share (the "Stated Value"), designated as
"Series A Preferred Stock" (such series being hereinafter referred to as the
"Series A Preferred Stock"). The authorized number of shares of Series A
Preferred Stock shall be 400.
V. Rank. The Series A Preferred Stock shall, with respect to dividend
distributions and distributions of assets and rights upon the liquidation,
winding up and dissolution of the Corporation, rank senior to all classes of
common stock of the Corporation (including, without limitation, the
<PAGE>
currently authorized common stock, without par value, of the Corporation) (the
"Common Stock"), and to each other class or series of Capital Stock of the
Corporation (including the Series B Preferred Stock) hereinafter created with
respect to dividend distributions and distributions of assets and rights upon
the liquidation, winding up and dissolution of the Corporation (collectively
with the Common Stock, the "Junior Stock").
W. Dividends.
(1) The holders of the outstanding shares of Series A
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors, out of funds legally available therefor, cash dividends on
each share of Series A Preferred Stock at a rate equal to ten percent (10%) per
annum of the sum of (i) the Liquidation Preference (as hereinafter defined) and
(ii) any dividends which may be in arrears. All dividends shall be cumulative,
whether or not earned or declared, from the date of issuance of the Series A
Preferred Stock and shall be payable quarterly in arrears on each Dividend
Payment Date, commencing on the first Dividend Payment Date after the issuance
of the Series A Preferred Stock. Each distribution on the Series A Preferred
Stock shall be payable to holders of record as they appear on the stock record
books of the Corporation on such record dates, not less than ten (10) nor more
than sixty (60) days preceding the applicable Dividend Payment Date, as shall be
fixed by the Board of Directors of the Corporation.
(2) All dividends paid with respect to shares of Series A
Preferred Stock pursuant to subparagraph 3(a) shall be paid pro rata and in a
like manner to all of the holders entitled thereto.
(3) Nothing herein contained shall in any way or under any
circumstances be construed or deemed to require the Board of Directors to
declare, or the Corporation to pay or set
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apart for payment, any dividends on shares of the Series A Preferred Stock at
any time, except out of funds legally available therefor.
(4) Dividends on account of arrears for any past Dividend
Period may be declared and paid at any time, without reference to any regular
Dividend Payment Date, to holders of record on such date, not less than ten (10)
nor more than sixty (60) days prior to the payment thereof, as may be fixed by
the Board of Directors.
(5) Without the affirmative vote or consent of holders of at
least a majority of the then outstanding shares of Series A Preferred Stock,
voting or consenting, as the case may be, as one class, the Corporation shall
not declare, pay or set apart for payment any dividend on any shares of Junior
Stock or make any payment on account of, or set apart for payment money for a
sinking or other similar fund for, the purchase, redemption or other retirement
of, any shares of Junior Stock or any warrants, rights, puts, calls or options
exercisable for or convertible into any shares of Junior Stock or make any
distribution in respect thereof, either directly or indirectly, whether in cash,
obligations or shares of the Corporation or other property (all such prohibited
payments and other actions set forth above in this subparagraph 3(e) being
collectively referred to as "Restricted Junior Payments") except that:
the Corporation may make Permitted Tax Distributions;
the Corporation may pay dividends or other distributions on
Junior Stock in the form of additional shares of Junior Stock (or the adjustment
of the amount of the liquidation preference, if any, of such Junior Stock);
the Corporation may issue a promissory note, which is
expressly subordinated in payment to dividend, liquidation and other
distributions in respect of the Series A Preferred Stock,
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in satisfaction of a contractual obligation to redeem any such Junior Stock held
by management of the Corporation or its subsidiaries.
(6) Dividends payable on the Series A Preferred Stock for any
period less than a year shall be computed on the basis of a 365-day year and the
actual number of days elapsed in the period for which such dividends are
payable.
X. Liquidation Preference.
(1) The liquidation preference of the Series A Preferred Stock
shall be $10,000.00 per share (the "Liquidation Preference"). In the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation, the holders of shares of Series A Preferred Stock
then outstanding shall be entitled to be paid for each share held, out of the
assets of the Corporation available for distribution to its stockholders, an
amount in cash equal to the aggregate Liquidation Preference plus an amount in
cash equal to all accumulated and unpaid dividends thereon to the date fixed for
liquidation, dissolution or winding up (including, without duplication, an
amount equal to pro rated dividends for the period from the last Dividend
Payment Date to the date fixed for liquidation, dissolution or winding up),
before any payment shall be made or any assets distributed to the holders of any
shares of Junior Stock. Except as provided in the preceding sentence, holders of
the Series A Preferred Stock shall not be entitled to any distribution in the
event of any liquidation, dissolution or winding up of the affairs of the
Corporation. If the assets of the Corporation are not sufficient to pay in full
the liquidation payments payable to the holders of outstanding shares of the
Series A Preferred Stock, then the holders of all such shares shall share
ratably in such distribution of assets.
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(2) For purposes of this paragraph 4, neither the sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all or part of the property or assets of
the Corporation nor the consolidation or merger of the Corporation into or with
one or more other corporations or entities shall be deemed to be a liquidation,
dissolution or winding up, voluntarily or involuntary, of the affairs of the
Corporation.
Y. Voting Rights.
(1) So long as any shares of the Series A Preferred Stock are
outstanding, the Corporation shall not reclassify any Junior Stock into any
preferred stock of the Corporation that ranks on a parity or senior (in either
case as to dividends or other distributions or rights upon liquidation,
dissolution or winding up) to the Series A Preferred Stock ("Parity Stock" or
"Senior Stock", respectively) or create or authorize any new class of Parity
Stock or Senior Stock without the affirmative vote or consent of holders of at
least a majority of the then outstanding shares of Series A Preferred Stock,
voting or consenting, as the case may be, as one class.
(2) So long as any shares of the Series A Preferred Stock are
outstanding, the Corporation shall not amend this Certificate of Designation or
the Certificate of Incorporation of the Corporation so as to adversely affect
the specified rights, preferences, privileges or voting rights of holders of
shares of the Series A Preferred Stock, without the affirmative vote or consent
of at least a majority of the issued and outstanding shares of Series A
Preferred Stock, voting or consenting, as the case may be, as one class.
(3) In any case in which the holders of Series A Preferred
Stock shall be entitled to vote pursuant to this paragraph 5 or pursuant to the
General Corporation Law of the State of Delaware, each holder of Series A
Preferred Stock shall be entitled to one vote for each share of
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Series A Preferred Stock. Except as otherwise provided in this paragraph 5 and
under the General Corporation Law of the State of Delaware, holders of Series A
Preferred Stock shall not be entitled to vote on any matters.
Z. Redemption.
(1) The Series A Preferred Stock may be redeemed in cash, in
whole or in part, at any time or from time to time, at the option of the
Corporation by resolution of the Board of Directors at a price per share equal
to the Liquidation Preference plus an amount equal to all dividends thereon
accrued and unpaid (the "Redemption Price") to the date fixed by the Board of
Directors as the redemption date (the "Redemption Date"). If less than all
shares of Series A Preferred Stock are to be redeemed, shares of Series A
Preferred Stock shall be redeemed ratably among the holders thereof.
(2) Notice of any redemption pursuant to this paragraph 6 (a
"Redemption Notice") shall be mailed, first class, postage prepaid, not less
than fifteen (15) days nor more than sixty (60) days prior to the Redemption
Date to the holders of record of the shares of Series A Preferred Stock to be
redeemed, at their respective addresses as the same appear upon the stock record
books of the Corporation or are supplied by them in writing to the Corporation
for the purposes of such notice. Such notice shall set forth the anticipated
Redemption Price or formula on which such Redemption Price will be based, the
anticipated Redemption Date within such fifteen (15) to sixty (60) day period,
the number of shares to be redeemed and the place at which the shares called for
redemption will, upon presentation and surrender of the stock certificates
evidencing such shares, be redeemed.
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(3) On or before the anticipated Redemption Date, each holder
of Series A Preferred Stock shall surrender the certificate or certificates
representing such shares of Series A Preferred Stock to the Corporation, in the
manner and at the place designated in the Redemption Notice, and on the
Redemption Date, if the redemption occurs, the full Redemption Price for such
shares shall be payable in cash to the Person whose name appears on such
certificate or certificates as the owner thereof, and each surrendered
certificate shall be canceled and retired. If for any reason the redemption does
not occur, the certificates shall be returned. In the event that fewer than all
of the Series A Preferred Stock represented by any such certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares.
(4) It any Redemption Notice by the Corporation pursuant to
this paragraph 6 shall have been mailed as provided in subparagraph 6(b) and if
on or before the Redemption Date, the consideration necessary for such
redemption shall have been irrevocably set apart in trust for the benefit of the
holders of shares to be so redeemed so as to be available therefor and only
therefor, then on and after the close of business on the Redemption Date, the
shares called for redemption, notwithstanding that any certificate therefor
shall not have been surrendered for cancellation, shall no longer be deemed
outstanding, and all rights with respect to such shares shall forthwith cease
and terminate, except the right of the holders thereof to receive upon surrender
of their certificates the consideration payable upon redemption thereof.
AA. Payment in Kind. Any payments by the Corporation on account of
the Series A Preferred Stock as a result of the declaration of dividends on the
Series A Preferred Stock may, in the sole discretion of the Board of Directors,
be payable, in whole or in part, in the form of additional shares of Series A
Preferred Stock of the Corporation or any of the assets of the
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Corporation. For the purposes of such payment, shares of Series A Preferred
Stock shall be valued at the Stated Value or upon such other reasonable basis as
the Board of Directors shall determine in its sole discretion.
BB. Business Day. If any payment shall be required by the terms
hereof to be made on a day that is not a Business Day, such payment shall be
made on the immediately succeeding Business Day.
CC. Preemptive Rights, The holders of the Series A Preferred Stock
shall not have any preemptive right to subscribe for or purchase any shares of
stock or any other securities which may be issued by the Corporation.
DD. Exclusion of Other Rights. The shares of Series A Preferred
Stock shall not have any designations, preferences, limitations or relative
rights, other than those specifically set forth in these resolutions and in the
Certificate of Incorporation of the Corporation.
EE. Legends. Unless the Series A Preferred Stock is to be
registered under the Securities Act of 1933, as amended or any other applicable
federal or state securities law, the following legends shall be placed on the
Series A Preferred Stock:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER APPLICABLE
FEDERAL OR STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION UNLESS THE PROPOSED TRANSFER DOES NOT
REQUIRE ANY SUCH REGISTRATION AND THE CORPORATION HAS RECEIVED AN
OPINION OF COUNSEL TO SUCH EFFECT.
FF. Headings. The headings of the various paragraphs and
subparagraphs hereof are for convenience of reference only and shall not affect
the interpretation of any of the provisions hereof.
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GG. Definitions.
"Board of Directors" has the meaning ascribed to it in the first
paragraph of this resolution.
"Business Day" means any day except a Saturday, Sunday or any day on
which banking institutions in New York City, New York or Los Angeles, California
are required or authorized by law or other governmental action to be closed.
"Capital Stock" means all common stock and any other capital stock of
the Corporation authorized from time to time, and any other shares, options,
interests, participations, or other equivalents (however designated), whether
voting or nonvoting, including, without limitation, common stock, options,
warrants, preferred stock, phantom stock, stock appreciation rights, convertible
notes or debentures, stock purchase rights, and all agreements, instruments,
documents, and securities convertible, exercisable or exchangeable, in whole or
in part, into any one or more of the foregoing.
"Certificate of Designation" shall mean this Certificate of the Powers,
Designations, Preferences and Rights of the Series A Preferred Stock.
"Closing Date" means the date on which the Series A Preferred Stock is
first issued.
"Common Stock" has the meaning ascribed to it in paragraph 2 hereof.
"Corporation" means KII Holding Corp., a Delaware corporation.
"Dividend Payment Date" means March 31, June 30, September 30 and
December 31 of each year.
"Dividend Period" means the Initial Dividend Period and, thereafter,
each Quarterly Dividend Period.
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"Initial Dividend Period" means the dividend period commencing on the
Closing Date and ending on the first Dividend Payment Date to occur thereafter.
"Junior Stock" has the meaning ascribed to it in paragraph 2 hereof.
"Liquidation Preference" has the meaning ascribed to it in paragraph 4
hereof.
"Parity Stock" has the meaning ascribed to it in paragraph 5 hereof.
"Permitted Tax Distributions" means distributions from the Corporation
to the parent corporation of the Corporation up to the amount that the
Corporation would have been required to pay for federal, state, local or other
taxes on income if it were deemed to be the common parent of an affiliated group
(within the meaning of Section 1504 of the Internal Revenue Code of 1986, as
amended) of which only the Corporation and its consolidated subsidiaries were
members.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Quarterly Dividend Period" means the quarterly periods commencing on
each January 1, April 1, July 1 and October 1 and ending on each Dividend
Payment Date, respectively.
"Redemption Date" has the meaning ascribed to it in paragraph 6 hereof.
"Redemption Notice" has the meaning ascribed to it in paragraph 6
hereof.
"Redemption Price" has the meaning ascribed to it in paragraph 6
hereof.
"Restricted Junior Payments" has the meaning ascribed to it in
paragraph 3 hereof.
"Senior Stock" has the meaning ascribed to it in paragraph 5 hereof.
"Series A Preferred Stock" has the meaning ascribed to it in paragraph
1 hereof.
"Stated Value" has the meaning ascribed to it in paragraph 1 hereof.
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FURTHER RESOLVED, that the appropriate officers of the Corporation are
hereby authorized to execute and acknowledge a certificate setting forth these
resolutions and to cause such certificate to be filed and recorded, in
accordance with the requirement of Section 151(g) of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, KII HOLDING CORP. has caused this Certificate to be
duly executed as of this 1st day of July, 1997.
KII HOLDING CORP.
By:/s/ Bradley C. Call
Its: President
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BY-LAWS
KII HOLDING CORP.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
Corporation shall be at Corporation Trust Center, 1209 Orange Street, in the
City of Wilmington, County of New Castle, State of Delaware.
Section 2. Additional Offices. The Corporation may also have
offices at such other places, both within and without the State of Delaware, as
the Board of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Time and Place. A meeting of stockholders for any
purpose may be held at such time and place, within or without the State of
Delaware, as the Board of Directors may fix from time to time and as shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. Annual Meeting. Annual meetings of stockholders
shall be held on such date and time as shall, from time to time, be designated
by the Board of Directors and stated in the notice of the meeting. At such
annual meeting, the stockholders shall elect a Board of Directors and transact
such other business as may properly be brought before the meeting.
Section 3. Notice of Annual Meeting. Written notice of the
annual meeting, stating the place, date and time thereof, shall be given to each
stockholder entitled to vote at such meeting not less than 10 (unless a longer
period is required by law) nor more than 60 days prior to the meeting.
Section 4. Special Meetings. Special meetings of the
stockholders, for any purpose or purposes, unless otherwise prescribed by
statute or by the Certificate of Incorporation, may be called by the Chairman of
the Board, if any, or the President and shall be called by the President or
Secretary at the request in writing of a majority of the Board of Directors, or
at the request in writing of the stockholders owning a majority of the shares of
capital stock of the Corporation issued and outstanding and entitled to vote.
Such request shall state the purpose or purposes of the proposed meeting.
Section 5. Notice of Special Meeting. Written notice of a
special meeting, stating the place, date and time thereof and the purpose or
purposes for which the meeting is called, shall be given to each stockholder
entitled to vote at such meeting not less than 10 (unless a longer period is
required by law) nor more than 60 days prior to the meeting.
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Section 6. List of Stockholders. The officer in charge of the
stock ledger of the Corporation or the transfer agent shall prepare and make, at
least 10 days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least 10 days prior to the meeting, at a
place within the city where the meeting is to be held, which place, if other
than the place of the meeting, shall be specified in the notice of the meeting.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present in person thereat.
Section 7. Presiding Officer; Order of Business.
(a) Meetings of stockholders shall be presided over by the
Chairman of the Board, if any, or, if he is not present (or, if there is none),
by the President, or, if he is not present, by a Vice President, or, if he is
not present, by such person who may have been chosen by the Board of Directors,
or, if none of such persons is present, by a chairman to be chosen by the
stockholders owning a majority of the shares of capital stock of the Corporation
issued and outstanding and entitled to vote at the meeting and who are present
in person or represented by proxy. The Secretary of the Corporation, or, if he
is not present, an Assistant Secretary, or if he is not present, such person as
may be chosen by the Board of Directors, shall act as secretary of meetings of
stockholders, or, if none of such persons is present, the stockholders owning a
majority of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote at the meeting and who are present in person or
represented by proxy shall choose any person present to act as secretary of the
meeting.
(b) The following order of business, unless otherwise ordered
at the meeting, shall be observed as far as practicable and consistent with the
purposes of the meeting:
1. Call of the meeting to order.
2. Presentation of proof of mailing of the notice of
the meeting and, if the meeting is a special
meeting, the call thereof.
3. Presentation of proxies.
4. Announcement that a quorum is present.
5. Reading and approval of the minutes of the
previous meeting.
6. Reports, if any, of officers.
7. Election of directors, if the meeting is an
annual meeting or a meeting called for that
purpose.
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8. Consideration of the specific purpose or purposes
for which the meeting has been called (other
than the election of directors), if the meeting
is a special meeting.
9. Transaction of such other business as may
properly come before the meeting.
10. Adjournment.
Section 8. Quorum; Adjournments. The holders of a majority of
the shares of capital stock of the Corporation issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall be
necessary to, and shall constitute a quorum for, the transaction of business at
all meetings of the stockholders, except as otherwise provided by statute or by
the Certificate of Incorporation. If, however, a quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have the power to
adjourn the meeting from time to time, without notice of the adjourned meeting
if the time and place thereof are announced at the meeting at which the
adjournment is taken, until a quorum shall be present or represented. Even if a
quorum shall be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have the power to adjourn the meeting from time to time for good
cause, without notice of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken, until a date which
is not more than 30 days after the date of the original meeting. At any such
adjourned meeting, at which a quorum shall be present in person or represented
by proxy, any business may be transacted which might have been transacted at the
meeting as originally called. If the adjournment is for more than 30 days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote thereat.
Section 9. Voting.
(a) At any meeting of stockholders, every stockholder having
the right to vote shall be entitled to vote in person or by proxy. Except as
otherwise provided by law or the Certificate of Incorporation, each stockholder
of record shall be entitled to one vote for each share of capital stock
registered in his name on the books of the Corporation.
(b) All elections shall be determined by a plurality vote,
and, except as otherwise provided by law or the Certificate of Incorporation,
all other matters shall be determined by a vote of a majority of the shares
present in person or represented by proxy and voting on such other matters.
Section 10. Action by Consent. Any action required or
permitted by law or the Certificate of Incorporation to be taken at any meeting
of stockholders may be taken without a meeting, without prior notice and without
a vote, if a written consent, setting forth the action so taken, shall be signed
by the holders of outstanding stock having not less than the minimum number
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of votes that would be necessary to authorize or take such action at a meeting
at which all shares entitled to vote thereon were present or represented by
proxy and voted. Such written consent shall be filed with the minutes of
meetings of stockholders. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not so consented in writing thereto.
ARTICLE III
DIRECTORS
Section 1. General Powers; Tenure. The business of the
Corporation shall be managed by its Board of Directors, which may exercise all
powers of the Corporation and perform all lawful acts and things which are not
by law, the Certificate of Incorporation or these Bylaws directed or required to
be exercised or performed by the stockholders. Within the limits specified in
this Section 1, the number of directors shall be no fewer than one nor more than
five, which specific number shall be determined by the Board of Directors,
except that if no such determination is made, the number of directors shall be
three. The directors shall be elected at the annual meeting of the stockholders,
except as provided in Section 2 of this Article, and each director elected shall
hold office until his successor is elected and shall qualify. Directors need not
be stockholders.
Section 2. Vacancies. If any vacancies occur in the Board of
Directors, or if any new directorships are created, they may be filled by vote
of a majority of the directors then in office, although less than a quorum, or
by a sole remaining director. Each director so chosen shall hold office until
the next annual meeting of stockholders and until his successor is duly elected
and shall qualify. If there are no directors in office, any officer or
stockholder may call a special meeting of stockholders in accordance with the
provisions of the Certificate of Incorporation or these Bylaws, at which meeting
such vacancies shall be filled.
Section 3. Removal; Resignation.
(a) Except as otherwise provided by law or the Certificate of
Incorporation, any director, directors or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
(b) Any director may resign at any time by giving written
notice to the Board of Directors, the Chairman of the Board, the President or
the Secretary of the Corporation. Unless otherwise specified in such written
notice, a resignation shall take effect upon delivery thereof to the Board of
Directors or the designated officer. It shall not be necessary for a resignation
to be accepted before it becomes effective.
Section 4. Place of Meeting. The Board of Directors may
hold meetings, both regular and special, either within or without the State
of Delaware.
Section 5. Annual Meeting. The annual meeting of each newly
elected Board of Directors shall be held immediately following the annual
meeting of stockholders, and no notice
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of such meeting shall be necessary to the newly elected directors in order
legally to constitute the meeting, provided a quorum shall be present.
Section 6. Regular Meetings. Additional regular meetings of
the Board of Directors may be held without notice, at such time and place as may
from time to rime be determined by the Board of Directors.
Section 7. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, or by two or more
directors on at least two days' notice to each director, if such notice is
delivered personally or sent by telegram, or on at least three days' notice if
sent by mail. Special meetings shall be called by the Chairman of the Board,
President, Secretary or two or more directors in like manner and on like notice
on the written request of one-half or more of the number of directors then in
office. Any such notice need not state the purpose or purposes of such meeting
except as provided in Article XI.
Section 8. Quorum; Adjournments. At all meetings of the Board
of Directors, a majority of the directors then in office shall constitute a
quorum for the transaction of business, and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically provided by law
or the Certificate of Incorporation. If a quorum is not present at any meeting
of the Board of Directors, the directors present may adjourn the meeting, from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
Section 9. Compensation. Directors shall be entitled to such
compensation for their services as directors and to such reimbursement for any
reasonable expenses incurred in attending directors' meetings as may from time
to time be fixed by the Board of Directors. The compensation of directors may be
on such basis as is determined by the Board of Directors. Any director receiving
compensation under these provisions shall not be barred from serving the
Corporation in any other capacity and receiving compensation and reimbursement
for reasonable expenses for such other services.
Section 10. Action by Consent. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if a written consent to such action is signed by all members
of the Board of Directors and such written consent is filed with the minutes of
its proceedings.
Section 11. Meetings by Telephone or Similar Communications.
The Board of Directors may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all directors
participating in the meeting can hear each other, and participation in such
meeting shall constitute presence in person by such director at such meeting.
ARTICLE IV
COMMITTEES
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Section 1. Executive Committee. The Board of Directors, by
resolution adopted by a majority of the whole Board, may appoint an Executive
Committee consisting of not more than three directors, one of whom shall be
designated as Chairman of the Executive Committee. Each member of the Executive
Committee shall continue as a member thereof until the expiration of his term as
a director, or his earlier resignation, unless sooner removed as a member or as
a director.
Section 2. Powers. Unless circumscribed by resolution of the
Board appointing the Executive Committee or except as otherwise provided by law,
the Executive Committee shall have and may exercise all of the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation including, without limitation, the power and
authority to declare a dividend in cash, property or its own shares and to
authorize the issuance of any shares of capital stock of the Corporation of any
class now or hereafter authorized, and any options or warrants for, and right to
subscribe to, such shares, and any securities convertible into or exchangeable
for such shares; and may authorize the seal of the Corporation to be affixed to
all papers which may require it.
Section 3. Procedure; Meetings. The Executive Committee shall
fix its own rules of procedure and shall meet at such times and at such place or
places as may be provided by such rules or as the members of the Executive
Committee shall provide. The Executive Committee shall keep regular minutes of
its meetings and deliver such minutes to the Board of Directors.
The Chairman of the Executive Committee, or, in his absence, a
member of the Executive Committee chosen by a majority of the members present,
shall preside at meetings of the Executive Committee, and another member thereof
chosen by the Executive Committee shall act as Secretary of the Executive
Committee.
Section 4. Quorum. A majority of the Executive Committee shall
constitute a quorum for the transaction of business, and the affirmative vote of
a majority of the members of the Executive Committee present at any meeting at
which there is a quorum shall be the act of the Executive Committee.
Section 5. Other Committees. The Board of Directors, by
resolutions adopted by a majority of the whole Board, may appoint such other
committee or committees as it shall deem advisable and with such functions and
duties as the Board of Directors shall prescribe.
Section 6. Vacancies; Changes; Discharge. The Board of
Directors shall have the power at any time to fill vacancies in, to change the
membership of, and to discharge any committee.
Section 7. Compensation. Members of any committee shall be
entitled to such compensation for their services as members of any such
committee and to such reimbursement for any reasonable expenses incurred in
attending committee meetings as may from time to time be fixed by the Board of
Directors. Any member may waive compensation for any meeting. Any committee
member receiving compensation under these provisions shall not be barred from
serving
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the Corporation in any other capacity and from receiving compensation and
reimbursement of reasonable expenses for such other services.
Section 8. Action by Consent. Any action required or permitted
to be taken at any meeting of any committee of the Board of Directors may be
taken without a meeting if a written consent to such action is signed by all
members of the committee and such written consent is filed with the minutes of
its proceedings.
Section 9. Meetings by Telephone or Similar Communications.
The members of any committee designated by the Board of Directors may
participate in a meeting of such committee by means of a conference telephone or
similar communications equipment by means of which all persons participating in
such meeting can hear each other and participation in such meeting shall
constitute presence in person at such meeting.
ARTICLE V
NOTICES
Section 1. Form; Delivery. Whenever, under the provisions of
law, the Certificate of Incorporation or these Bylaws, notice is required to be
given to any director or stockholder, it shall not be construed to mean personal
notice unless otherwise specifically provided, but such notice may be given in
writing, by mail, addressed to such director or stockholder, at his address as
it appears on the records of the Corporation, with postage thereon prepaid. Such
notices shall be deemed to be given at the time they are deposited in the United
States mail. Notice to a director may also be given personally or by telegram
sent to his address as it appears on the records of the Corporation.
Section 2. Waiver. Whenever any notice is required to be given
under the provisions of law, the Certificate of Incorporation or these Bylaws, a
written waiver thereof, signed by the person or person entitled to said notice,
whether before or after the time stated therein, shall be deemed to be
equivalent to such notice. In addition, any stockholder who attends a meeting of
stockholders in person, or is represented at such meeting by proxy, without
protesting at the commencement of the meeting the lack of notice thereof to him,
or any director who attends a meeting of the Board of Directors without
protesting, at the commencement of the meeting, such lack of notice, shall be
conclusively deemed to have waived notice of such meeting.
ARTICLE VI
OFFICERS
Section 1. Designations. The officers of the Corporation shall
be chosen by the Board of Directors. The Board of Directors may choose a
Chairman of the Board, a Vice Chairman of the Board, a President, a Vice
President or Vice Presidents, a Secretary and a Treasurer, one or more Assistant
Secretaries and/or Assistant Treasurers and other officers and agents as it
shall deem necessary or appropriate. All officers of the Corporation shall
exercise such powers and perform such duties as shall from time to time be
determined by the Board of Directors. Any number of
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offices may be held by the same person, unless the Certificate of Incorporation
or these Bylaws otherwise provide.
Section 2. Term of Office; Removal. The Board of Directors at
its annual meeting after each annual meeting of stockholders shall choose a
President, a Secretary and a Treasurer. The Board of Directors may also choose a
Chairman of the Board, a Vice Chairman of the Board, a Vice President or Vice
Presidents, one or more Assistant Secretaries and/or Assistant Treasurers, and
such other officers and agents as it shall deem necessary or appropriate. Each
officer of the Corporation shall hold office until his successor is chosen and
shall qualify. Any officer elected or appointed by the Board of Directors may be
removed, with or without cause, at any time by the affirmative vote of a
majority of the directors then in office. Such removal shall not prejudice the
contract rights, if any, of the person so removed. Any vacancy occurring in any
office of the Corporation may be filled for the unexpired portion of the term by
the Board of Directors.
Section 3. Compensation. The salaries of all officers of the
Corporation shall be fixed from time to time by the Board of Directors and no
officer shall be prevented from receiving such salary by reason of the fact that
he is also a director of the Corporation.
Section 4. The Chairman of the Board/Vice Chairman of the
Board.
(a) The Chairman of the Board, if any, shall be an officer of
the Corporation and, subject to the direction of the Board of Directors, shall
perform such executive, supervisory and management functions and duties as may
be assigned to him from time to time by the Board of Directors. He shall, if
present, preside at all meetings of stockholders and of the Board of Directors.
The Vice Chairman of the Board, if any, shall be an officer of the Corporation
and, subject to the direction of the Board of Directors, shall perform such
executive, supervisory and management functions and duties as may be assigned to
him from time to time by the Board of Directors and shall, in the absence of the
Chairman, perform the duties and exercise the powers of the Chairman.
(b) Unless otherwise prescribed by the Board of Directors, the
Chairman of the Board shall have full power and authority on behalf of the
Corporation to attend, act and vote at any meeting of security holders of other
corporations in which the Corporation may hold securities. At such meeting the
Chairman of the Board shall possess and may exercise any and all rights and
powers incident to the ownership of such securities which the Corporation might
have possessed and exercised if it had been present. The Board of Directors may
from time to time confer like powers upon any other person or persons.
Section 5. The President.
(a) The President shall be the chief executive officer of the
Corporation and, subject to the direction of the Board of Directors, shall have
general charge of the business, affairs and property of the Corporation and
general supervision over its other officers and agents, other than the Chairman
and Vice Chairman. In general, he shall perform all duties incident to the
office of President and shall see that all orders and resolutions of the Board
of Directors are carried into
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effect. In addition to and not in limitation of the foregoing, the President
shall be empowered to authorize any change of the registered office or
registered agent (or both) of the Corporation in the State of Delaware.
(b) Unless otherwise prescribed by the Board of Directors, the
President shall have full power and authority on behalf of the Corporation to
attend, act and vote at any meeting of security holders of other corporations in
which the Corporation may hold securities. At such meeting the President shall
posses and may exercise any and all rights and powers incident to the ownership
of such securities which the Corporation might have possessed and exercised if
it had been present. The Board of Directors may from time to time confer like
powers upon any other person or persons.
Section 6. The Vice Presidents. The Vice President, if any (or
in the event there be more than one, the Vice Presidents in the order
designated, or in the absence of any designation, in the order of their
election), shall, in the absence of the President or in the event of his
disability, perform the duties and exercise the powers of the President and
shall generally assist the President and perform such other duties and have such
other powers as may from time to time be prescribed by the Board of Directors.
Section 7. The Secretary. The Secretary shall attend all
meetings of the Board of Directors and all meetings of stockholders and record
all votes and the proceedings of the meetings in a book to be kept for that
purpose and shall perform like duties for the Executive Committee or other
committees, if required. He shall give, or cause to be given, notice of all
meetings of the Board of Directors, and shall perform such other duties as may
from time to time be prescribed by the Board of Directors, the Chairman, the
Vice Chairman, or the President, under whose supervision he shall act. He shall
have custody of the seal of the Corporation, and he, or an Assistant Secretary,
shall have authority to affix the same to any instrument requiring it, and, when
so affixed, the seal may be attested by his signature or by the signature of
such Assistant Secretary. The Board of Directors may give general authority to
any other officer to affix the seal of the Corporation and to attest the
affixing thereof by his signature.
Section 8. The Assistant Secretary. The Assistant Secretary,
if any (or in the event there be more than one, the Assistant Secretaries in the
order designated, or in the absence of any designation, in the order of their
election), shall, in the absence of the Secretary or in the event of his
disability, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as may from time to
time be prescribed by the Board of Directors.
Section 9. The Treasurer. The Treasurer shall have the custody
of the corporate funds and other valuable effects, including securities, and
shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may from time to time be designated by the Board of Directors. He shall disburse
the funds of the Corporation as may be ordered by the Board of Directors,
talking proper vouchers for such
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disbursements, and shall render to the Chairman, the Vice Chairman, the
President and the Board of Directors, at regular meetings of the Board, or
whenever they may require it, an account of all his transactions as Treasurer
and of the financial condition of the Corporation.
Section 10. The Assistant Treasurer. The Assistant Treasurer,
if any (or in the event there shall be more than one, the Assistant Treasurers
in the order designated, or in the absence of any designation, in the order of
their election), shall, in the absence of the Treasurer or in the event of his
disability, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as may from time to
time be prescribed by the Board of Directors.
ARTICLE VII
INDEMNIFICATION OF
DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
Reference is made to Section 145 (and any other relevant
provisions) of the General Corporation Law of the State of Delaware. Particular
reference is made to the class of persons (hereinafter called "Indemnitees") who
may be indemnified by a Delaware corporation pursuant to the provisions of such
Section 145, namely, any person (or the heirs, executors or administrators of
such person) who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person is or was a director, officer, employee or agent of such corporation, or
is or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise. The Corporation shall (and is hereby obligated to) indemnify
the Indemnitees, and each of them, in each and every situation where the
Corporation is obligated to make such indemnification pursuant to the aforesaid
statutory provisions. The Corporation shall indemnify the Indemnitees, and each
of them, in each and every situation where, under the aforesaid statutory
provisions, the Corporation is not obligated, but is nevertheless permitted or
empowered, to make such indemnification. With respect to any situation covered
under this Article, the Corporation shall promptly make or cause to be made, by
any of the methods referred to in subsection (d) of such Section 145, a
determination as to whether each Indemnitee acted in good faith and in a manner
such Indemnitee reasonably believed to be in or not opposed to the best
interests of the Corporation, and, in the case of any criminal action or
proceeding, had no reasonable cause to believe that such Indemnitee's conduct
was unlawful. No such indemnification shall be made (where not required by
statute) unless it is determined that such Indemnitee acted in good faith and in
a manner such Indemnitee reasonably believed to be in or not opposed to the best
interests of the Corporation, and, in the case of any criminal action or
proceeding, had no reasonable cause to believe that such Indemnitee's conduct
was unlawful.
ARTICLE VIII
AFFILIATED TRANSACTIONS AND INTERESTED DIRECTORS
Section 1. Affiliated Transactions. No contract or
transaction between the Corporation and one or more of its shareholders,
directors or officers, or between the Corporation
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and any other corporation, partnership, association or other organization in
which one or more of its directors or officers are directors or officers, or
have a financial interest, shall be void or voidable solely for this reason, or
solely because the director or officer is present at or participates in the
meeting of the Board of Directors or committee thereof which authorizes the
contract or transaction or solely because his or their votes are counted for
such purpose, if:
(a) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board of Directors or committee in good
faith authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or
(b) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified by the Board of Directors,
a committee thereof, or the stockholders.
Section 2. Determining Quorum. Common or interested director
s may be counted in determining the presence of a quorum at a meeting of the
Board of Directors or of a committee thereof which authorizes the contract or
transaction.
ARTICLE IX
STOCK CERTIFICATES
Section 1. Form; Signatures.
(a) Every holder of stock in the Corporation shall be entitled
to have a certificate, signed by the Chairman, the Vice Chairman or the
President and the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary of the Corporation, exhibiting the number and class (and
series, if any) of shares owned by him, and bearing the seal of the Corporation.
Such signatures and seal may be facsimile. A certificate may be manually signed
by a transfer agent or registrar other than the Corporation or its employee but
may be a facsimile. In case any officer who has signed, or whose facsimile
signature was placed on, a certificate shall have ceased to be such officer
before such certificate is issued, it may nevertheless be issued by the
Corporation with the same effect as if he were such officer at the date of its
issue.
(b) All stock certificates representing shares of capital
stock which are subject to restrictions on transfer or to other restrictions may
have imprinted thereon such notation to such effect as may be determined by the
Board of Directors.
Section 2. Registration of Transfer. Upon surrender to the
Corporation or any transfer agent of the Corporation of a certificate for shares
duly endorsed or accompanied by proper
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evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation or its transfer agent to issue a new certificate to the
person entitled thereto, to cancel the old certificate and to record the
transaction upon its books.
Section 3. Registered Stockholders.
(a) Except as otherwise provided by law, the Corporation shall
be entitled to recognize the exclusive right of a person who is registered on
its books as the owner of shares of its capital stock to receive dividends or
other distributions, and to vote as such owner, and to hold liable for calls and
assessments any person who is registered on its books as the owner of shares of
its capital stock. The Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person.
(b) If a stockholder desires that notices and/or dividends
shall be sent to a name or address other than the name or address appearing on
the stock ledger maintained by the Corporation (or by the transfer agent or
registrar, if any), such stockholder shall have the duty to notify the
Corporation (or the transfer agent or registrar, if any) in writing, of such
desire. Such written notice shall specify the alternate name or address to be
used.
Section 4. Record Date. In order that the Corporation may
determine the stockholders of record who are entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or entitled to receive
payment of any dividend or other distribution, or to make a determination of the
stockholders of record for any other proper purpose, the Board of Directors may,
in advance, fix a date as the record date for any such determination. Such date
shall not be more than 60 nor less than 10 days before the date of such meeting,
nor more than 60 days prior to the date of any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting taken pursuant to
Section 8 of Article II; provided, however, that the Board of Directors may fix
a new record date
Section 5. Lost, Stolen or Destroyed Certificates. The Board
of Directors may direct a new certificate to be issued in place of any
certificate theretofore issued by the Corporation which is claimed to have been
lost, stolen or destroyed, upon the making of an affidavit of the fact by the
person claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate, or his legal
representative, to advertise the same in such manner as it shall require and/or
to give the Corporation a bond in such sum, or other security in such form, as
it may direct as indemnity against any claim that may be against the Corporation
with respect to the certificate claimed to have been lost, stolen or destroyed.
ARTICLE X
GENERAL PROVISIONS
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Section 1. Dividends. Subject to the provisions of the
Certificate of Incorporation, dividends upon the outstanding capital stock of
the Corporation may be declared by the Board of Directors at any regular or
special meeting, pursuant to law, and may be paid in cash, in property or in
shares of the Corporation's capital stock.
Section 2. Reserves. The Board of Directors shall have full
power, subject to the provisions of law and the Certificate of Incorporation, to
determine whether any, and, if so, what part, of the funds legally available for
the payment of dividends shall be declared as dividends and paid to the
stockholders of the Corporation. The Board of Directors, in its sole discretion,
may fix a sum which may be set aside or reserved over and above the paid-in
capital of the Corporation for working capital or as a reserve for any proper
purpose, and may, from time to time, increase, diminish or vary such fund or
funds.
Section 3. Fiscal Year. The fiscal year of the Corporation
shall be as determined from time to time by the Board of Directors.
Section 4. Seal. The corporate seal, if any, shall have
inscribed thereon the name of the Corporation, the year of its incorporation and
the words "Corporate Seal" and "Delaware".
ARTICLE XI
AMENDMENTS
The Board of Directors shall have the power to make, alter and
repeal these Bylaws, and to adopt new bylaws, by an affirmative vote of a
majority of the whole Board; provided that notice of the proposal to make, alter
or repeal these Bylaws, or to adopt new bylaws, must be included in the notice
of the meeting of the Board of Directors at which such action takes place.
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CERTIFICATE OF INCORPORATION
OF
KII ACQUISITION CORP.
FIRST. The name of the corporation is KII Acquisition Corp.
SECOND. The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of its
registered agent at such address is The Corporation Trust
Company.
THIRD. The nature or purposes of the business to be conducted or
promoted is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation
Law of Delaware.
FOURTH. The Corporation shall have authority to issue 1,000 shares of
Common Stock, without par value, and 500 shares of Serial
Preferred Stock, without par value but with a stated value of
Ten Thousand Dollars ($10,000) per share.
A. Serial Preferred Stock
The Board of Directors is hereby empowered to cause the Serial
Preferred Stock of the Corporation to be issued in series with such of
the variations permitted by clauses (1)-(8), of this paragraph A as
shall have been fixed and determined by the Board of Directors with
respect to any series prior to the issue of any shares of such series.
The shares of the Serial Preferred Stock of different series
may vary as to:
(1) the number of shares constituting such series and
the designation of such series, which shall be such as to
distinguish the shares thereof from the shares of all other
series and classes;
(2) the rate of dividend, the time of payment and, if
cumulative, the dates from which dividends shall be
cumulative, the extent of participation rights, if any, and
the priority in payment of dividends;
(3) any right to vote with holders of shares of any
other series or class and any right to vote as a class, either
generally or as a condition to specified corporate acts;
(4) the price at and the terms and conditions on
which shares may be redeemed;
<PAGE>
(5) the amount payable upon shares and the
priority of payment in event of involuntary liquidation;
(6) the amount payable upon shares and the
priority of payment in event of voluntary liquidation;
(7) any sinking fund provisions for the redemption
or purchase of shares; and
(8) the terms and conditions on which shares may
be converted, if the shares of any series are issued with
the privilege of conversion.
The shares of all series of Serial Preferred Stock shall be
identical except as, within the limitations set forth above in this
section A, shall have been fixed and determined by the Board of
Directors prior to the issuance thereof. Except as specifically set
forth in any Certificate of Serial Designation filed with the Secretary
of State of the State of Delaware or as required by the Delaware
General Corporation Law, none of these shares of any series of Serial
Preferred Stock shall have any right to vote on any matters.
B. Common Stock.
(1) Dividends. When and if declared by the Board of Directors,
the holders of the Common Stock shall only be entitled to receive cash
dividends and dividends payable in property other than securities of
the Corporation at such time as all dividends on the Serial Preferred
Stock through the record date of any such Common Stock dividend have
been paid in full.
(2) Liquidation. In the event of the voluntary or involuntary
liquidation, dissolution, distribution of assets or winding-up of the
Corporation, after distribution in full to the holders of Serial
Preferred Stock of their preferred liquidation payments, the holders of
Common Stock shall be entitled to receive the remaining assets of the
Corporation.
(3) Voting Rights. Except as may be otherwise required by law
or the Certificate of Incorporation of the Corporation, as amended,
each share of Common Stock shall have
one (1) vote on all matters voted upon by the stockholders.
FIFTH. The name and mailing address of the sole incorporator is as
follows:
Halle Fine Terrion 35th Floor, BP America Building
200 Public Square
Cleveland, OH 44114-2302
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The name and mailing address of the person who is to serve as the
director until the first annual meeting of the stockholders or until
his successors are elected and qualified, is as follows:
William L. Remley 1430 Broadway, 13th Floor
New York, New York 10018
SIXTH. The corporation is to have perpetual existence.
SEVENTH. Election of directors need not be by written ballot unless
the by-laws of the corporation shall so provide.
EIGHTH. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.
NINTH. A director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director except for
liability (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law,
or (iv) for any transaction from which the director derived
any improper personal benefit.
I, THE UNDERSIGNED, being the sole incorporator hereinbefore named, for
the purpose of forming a corporation pursuant to the General Corporation Law of
the State of Delaware, do make this Certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 16th day of May, 1997.
/s/ Halle Fine Terrion
--------------------------
Halle Fine Terrion
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<PAGE>
BY-LAWS
_______
KII ACQUISITION CORP.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation
shall be at Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, State of Delaware.
Section 2. Additional Offices. The Corporation may also have offices at
such other places, both within and without the State of Delaware, as the Board
of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Time and Place. A meeting of stockholders for any purpose
may be held at such time and place, within or without the State of Delaware, as
the Board of Directors may fix from time to time and as shall be stated in the
notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meeting. Annual meetings of stockholders shall be
held on such date and time as shall, from time to time, be designated by the
Board of Directors and stated in the notice of the meeting. At such annual
meeting, the stockholders shall elect a Board of Directors and transact such
other business as may properly be brought before the meeting.
Section 3. Notice of Annual Meeting. Written notice of the annual
meeting, stating the place, date and time thereof, shall be given to each
stockholder entitled to vote at such meeting not less than 10 (unless a longer
period is required by law) nor more than 60 days prior to the meeting.
Section 4. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the Chairman of the Board, if
any, or the President and shall be called by the President or Secretary at the
request in writing of a majority of the Board of Directors, or at the request in
writing of the stockholders owning a majority of the shares of capital stock of
the Corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting.
Section 5. Notice of Special Meeting. Written notice of special
meeting, stating the place, date and time thereof and the purpose or purposes
for which the meeting is called, shall be given to each stockholder entitled to
vote at such meeting not less than 10 (unless a longer period is required by
law) nor more than 60 days prior to the meeting.
<PAGE>
Section 6. List of Stockholders. The officer in charge of the stock
ledger of the Corporation or the transfer agent shall prepare and make, at least
10 days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least 10 days prior to the meeting, at a
place within the city where the meeting is to be held, which place, if other
than the place of the meeting, shall be specified in the notice of the meeting.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present in person thereat.
Section 7. Presiding Officer; Order of Business.
(a) Meetings of stockholders shall be presided over by the Chairman
of the Board, if any, or, if he is not present (or, if there is none), by the
President, or, if he is not present, by a Vice President, or, if he is not
present, by such person who may have been chosen by the Board of Directors, or,
if none of such persons is present, by a chairman to be chosen by the
stockholders owning a majority of the shares of capital stock of the Corporation
issued and outstanding and entitled to vote at the meeting and who are present
in person or represented by proxy. The Secretary of the Corporation, or, if he
is not present, an Assistant Secretary, or if he is not present, such person as
may be chosen by the Board of Directors, shall act as secretary of meetings of
stockholders, or, if none of such persons is present, the stockholders owning a
majority of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote at the meeting and who are present in person or
represented by proxy shall choose any person present to act as secretary of the
meeting.
(b) The following order of business, unless otherwise ordered at the
meeting, shall be observed as far as practicable and consistent with the
purposes of the meeting:
1. Call of the meeting to order.
2. Presentation of proof of mailing of the notice of the
meeting and, if the meeting is a special meeting, the call
thereof.
3. Presentation of proxies.
4. Announcement that a quorum is present.
5. Reading and approval of the minutes of the previous meeting.
6. Reports, if any, of officers.
7. Election of directors, if the meeting is an annual meeting
or a meeting called for that purpose.
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8. Consideration of the specific purpose or purposes for which
the meeting has been called (other than the election of
directors), if the meeting is a special meeting.
9. Transaction of such other business as may properly come
before the meeting.
10. Adjournment.
Section 8. Quorum; Adjournments. The holders of a majority of the
shares of capital stock of the Corporation issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall be necessary
to, and shall constitute a quorum for, the transaction of business at all
meetings of the stockholders, except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, a quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have the power to
adjourn the meeting from time to time, without notice of the adjourned meeting
if the time and place thereof are announced at the meeting at which the
adjournment is taken, until a quorum shall be present or represented. Even if a
quorum shall be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have the power to adjourn the meeting from time to time for good
cause, without notice of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken, until a date which
is not more than 30 days after the date of the original meeting. At any such
adjourned meeting, at which a quorum shall be present in person or represented
by proxy, any business may be transacted which might have been transacted at the
meeting as originally called. If the adjournment is for more than 30 days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote thereat.
Section 9. Voting.
(a) At any meeting of stockholders, every stockholder having the
right to vote shall be entitled to vote in person or by proxy. Except as
otherwise provided by law or the Certificate of Incorporation, each stockholder
of record shall be entitled to one vote for each share of capital stock
registered in his name on the books of the Corporation.
(b) All elections shall be determined by a plurality vote, and,
except as otherwise provided by law or the Certificate of Incorporation, all
other matters shall be determined by a vote of a majority of the shares present
in person or represented by proxy and voting on such other matters.
Section 10. Action by Consent. Any action required or permitted by law
or the Certificate of Incorporation to be taken at any meeting of stockholders
may be taken without a meeting, without prior notice and without a vote, if a
written consent, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon
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<PAGE>
were were present or represented by proxy and voted. Such written consent shall
be filed with the minutes of meetings of stockholders. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not so consented in
writing thereto.
ARTICLE III
DIRECTORS
Section 1. General Powers; Number; Tenure. The business of the
Corporation shall be managed by its Board of Directors, which may exercise all
powers of the Corporation and perform all lawful acts and things which are not
by law, the Certificate of Incorporation or these Bylaws directed or required to
be exercised or performed by the stockholders. Within the limits specified in
this Section 1, the number of directors shall be no fewer than one nor more than
five, which specific number shall be determined by the Board of Directors,
except that if no such determination is made, the number of directors shall be
three. The directors shall be elected at the annual meeting of the stockholders,
except as provided in Section 2 of this Article, and each director elected shall
hold office until his successor is elected and shall qualify. Directors need not
be stockholders.
Section 2. Vacancies. If any vacancies occur in the Board of Directors,
or if any new directorships are created, they may be filled by vote of a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. Each director so chosen shall hold office until the
next annual meeting of stockholders and until his successor is duly elected and
shall qualify. If there are no directors in office, any officer or stockholder
may call a special meeting of stockholders in accordance with the provisions of
the Certificate of Incorporation or these Bylaws, at which meeting such
vacancies shall be filled.
Section 3. Removal; Resignation.
(a) Except as otherwise provided by law or the Certificate of
Incorporation, any director, directors or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
(b) Any director may resign at any time by giving written notice to
the Board of Directors, the Chairman of the Board, the President or the
Secretary of the Corporation. Unless otherwise specified in such written
notice, a resignation shall take effect upon delivery thereof to the Board of
Directors or the designated officer. It shall not be necessary for a
resignation to be accepted before it becomes effective.
Section 4. Place of Meetings. The Board of Directors may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. Annual Meeting. The annual meeting of each newly elected
Board of Directors shall be held immediately following the annual meeting of
stockholders, and no notice of
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such meeting shall be necessary to the newly elected directors in order legally
to constitute the meeting, provided a quorum shall be present.
Section 6. Regular Meetings. Additional regular meetings of the Board
of Directors may be held without notice, at such time and place as may from time
to time be determined by the Board of Directors.
Section 7. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board, or by two or more directors on at
least two days' notice to each director, if such notice is delivered personally
or sent by telegram, or on at least three days' notice if sent by mail. Special
meetings shall be called by the Chairman of the Board, President, Secretary or
two or more directors in like manner and on like notice on the written request
of one-half or more of the number of directors then in office. Any such notice
need not state the purpose or purposes of such meeting except as provided in
Article XI.
Section 8. Quorum; Adjournments. At all meetings of the Board of
Directors, a majority of the directors then in office shall constitute a quorum
for the transaction of business, and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors, except as may be otherwise specifically provided by law or the
Certificate of Incorporation. If a quorum is not present at any meeting of the
Board of Directors, the directors present may adjourn the meeting, from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 9. Compensation. Directors shall be entitled to such
compensation for their services as directors and to such reimbursement for any
reasonable expenses incurred in attending directors' meetings as may from time
to time be fixed by the Board of Directors. The compensation of directors may be
on such basis as is determined by the Board of Directors. Any director receiving
compensation under these provisions shall not be barred from serving the
Corporation in any other capacity and receiving compensation and reimbursement
for reasonable expenses for such other services.
Section 10. Action by Consent. Any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting if
a written consent to such action is signed by all members of the Board of
Directors and such written consent is filed with the minutes of its proceedings.
Section 11. Meetings by Telephone or Similar Communications. The Board
of Directors may participate in a meeting by means of conference telephone or
similar communications equipment by means of which all directors participating
in the meeting can hear each other, and participation in such meeting shall
constitute presence in person by such director at such meeting.
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ARTICLE IV
COMMITTEES
Section 1. Executive Committee. The Board of Directors, by resolution
adopted by a majority of the whole Board, may appoint an Executive Committee
consisting of not more than three directors, one of whom shall be designated as
Chairman of the Executive Committee. Each member of the Executive Committee
shall continue as a member thereof until the expiration of his term as a
director, or his earlier resignation, unless sooner removed as a member or as a
director.
Section 2. Powers. Unless circumscribed by resolution of the Board
appointing the Executive Committee or except as otherwise provided by law, the
Executive Committee shall have and may exercise all of the powers and authority
of the Board of Directors in the management of the business and affairs of the
Corporation including, without limitation, the power and authority to declare a
dividend in cash, property or its own shares and to authorize the issuance of
any shares of capital stock of the Corporation of any class now or hereafter
authorized, and any options or warrants for, and right to subscribe to, such
shares, and any securities convertible into or exchangeable for such shares; and
may authorize the seal of the Corporation to be affixed to all papers which may
require it.
Section 3. Procedure; Meetings. The Executive Committee shall fix its
own rules of procedure and shall meet at such times and at such place or places
as may be provided by such rules or as the members of the Executive Committee
shall provide. The Executive Committee shall keep regular minutes of its
meetings and deliver such minutes to the Board of Directors.
The Chairman of the Executive Committee, or, in his absence, a member
of the Executive Committee chosen by a majority of the members present, shall
preside at meetings of the Executive Committee, and another member thereof
chosen by the Executive Committee shall act as Secretary of the Executive
Committee.
Section 4. Quorum. A majority of the Executive Committee shall
constitute a quorum for the transaction of business, and the affirmative vote of
a majority of the members of the Executive Committee present at any meeting at
which there is a quorum shall be the act of the Executive Committee.
Section 5. Other Committees. The Board of Directors, by resolutions
adopted by a majority of the whole Board, may appoint such other committee or
committees as it shall deem advisable and with such functions and duties as the
Board of Directors shall prescribe.
Section 6. Vacancies; Changes; Discharge. The Board of Directors shall
have the power at any time to fill vacancies in, to change the membership of,
and to discharge any committee.
Section 7. Compensation. Members of any committee shall be entitled to
such compensation for their services as members of any such committee and to
such reimbursement for any reasonable expenses incurred in attending committee
meetings as may from time to time be
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fixed by the Board of Directors. Any member may waive compensation for any
meeting. Any committee member receiving compensation under these provisions
shall not be barred from serving the Corporation in any other capacity and from
receiving compensation and reimbursement of reasonable expenses for such other
services.
Section 8. Action by Consent. Any action required or permitted to be
taken at any meeting of any committee of the Board of Directors may be taken
without a meeting if a written consent to such action is signed by all members
of the committee and such written consent is filed with the minutes of its
proceedings.
Section 9. Meetings by Telephone or Similar Communications. The members
of any committee designated by the Board of Directors may participate in a
meeting of such committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in such
meeting can hear each other and participation in such meeting shall constitute
presence in person at such meeting.
ARTICLE V
NOTICES
Section 1. Form; Delivery. Whenever, under the provisions of law, the
Certificate of Incorporation or these Bylaws, notice is required to be given to
any director or stockholder, it shall not be construed to mean personal notice
unless otherwise specifically provided, but such notice may be given in writing,
by mail, addressed to such director or stockholder, at his address as it appears
on the records of the Corporation, with postage thereon prepaid. Such notices
shall be deemed to be given at the time they are deposited in the United States
mail. Notice to a director may also be given personally or by telegram sent to
his address as it appears on the records of the Corporation.
Section 2. Waiver. Whenever any notice is required to be given under
the provisions of law, the Certificate of Incorporation or these Bylaws, a
written waiver thereof, signed by the person or person entitled to said notice,
whether before or after the time stated therein, shall be deemed to be
equivalent to such notice. In addition, any stockholder who attends a meeting of
stockholders in person, or is represented at such meeting by proxy, without
protesting at the commencement of the meeting the lack of notice thereof to him,
or any director who attends a meeting of the Board of Directors without
protesting, at the commencement of the meeting, such lack of notice, shall be
conclusively deemed to have waived notice of such meeting.
ARTICLE VI
OFFICERS
Section 1. Designations. The officers of the Corporation shall be
chosen by the Board of Directors. The Board of Directors may choose a Chairman
of the Board, a Vice Chairman of the Board, a President, a Vice President or
Vice Presidents, a Secretary and a Treasurer, one or more Assistant Secretaries
and/or Assistant Treasurers and other officers and agents as it shall deem
necessary or appropriate. All officers of the Corporation shall exercise such
powers and perform
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such duties as shall from time to time be determined by the Board of Directors.
Any number of offices may be held by the same person, unless the Certificate of
Incorporation or these Bylaws otherwise provide.
Section 2. Term of Office; Removal. The Board of Directors at its
annual meeting after each annual meeting of stockholders shall choose a
President, a Secretary and a Treasurer. The Board of Directors may also choose a
Chairman of the Board, a Vice Chairman of the Board, a Vice President or Vice
Presidents, one or more Assistant Secretaries and/or Assistant Treasurers, and
such other officers and agents as it shall deem necessary or appropriate. Each
officer of the Corporation shall hold office until his successor is chosen and
shall qualify. Any officer elected or appointed by the Board of Directors may be
removed, with or without cause, at any time by the affirmative vote of a
majority of the directors then in office. Such removal shall not prejudice the
contract rights, if any, of the person so removed. Any vacancy occurring in any
office of the Corporation may be filled for the unexpired portion of the term by
the Board of Directors.
Section 3. Compensation. The salaries of all officers of the
Corporation shall be fixed from time to time by the Board of Directors and no
officer shall be prevented from receiving such salary by reason of the fact that
he is also a director of the Corporation.
Section 4. The Chairman of the Board/Vice Chairman of the Board.
(a) The Chairman of the Board, if any, shall be an officer of the
Corporation and, subject to the direction of the Board of Directors, shall
perform such executive, supervisory and management functions and duties as may
be assigned to him from time to time by the Board of Directors. He shall, if
present, preside at all meetings of stockholders and of the Board of Directors.
The Vice Chairman of the Board, if any, shall be an officer of the Corporation
and, subject to the direction of the Board of Directors, shall perform such
executive, supervisory and management functions and duties as may be assigned to
him from time to time by the Board of Directors and shall, in the absence of the
Chairman, perform the duties and exercise the powers of the Chairman.
(b) Unless otherwise prescribed by the Board of Directors, the
Chairman of the Board shall have full power and authority on behalf of the
Corporation to attend, act and vote at any meeting of security holders of other
corporations in which the Corporation may hold securities. At such meeting the
Chairman of the Board shall possess and may exercise any and all rights and
powers incident to the ownership of such securities which the Corporation might
have possessed and exercised if it had been present. The Board of Directors may
from time to time confer like powers upon any other person or persons.
Section 5. The President.
(a) The President shall be the chief executive officer of the
Corporation and, subject to the direction of the Board of Directors, shall have
general charge of the business, affairs and property of the Corporation and
general supervision over its other officers and agents, other than the Chairman
and Vice Chairman. In general, he shall perform all duties incident to the
office of
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President and shall see that all orders and resolutions of the Board of
Directors are carried into effect. In addition to and not in limitation of the
foregoing, the President shall be empowered to authorize any change of the
registered office or registered agent (or both) of the Corporation in the State
of Delaware.
(b) Unless otherwise prescribed by the Board of Directors, the
President shall have full power and authority on behalf of the Corporation to
attend, act and vote at any meeting of security holders of other corporations in
which the Corporation may hold securities. At such meeting the President shall
possess and may exercise any and all rights and powers incident to the ownership
of such securities which the Corporation might have possessed and exercised if
it had been present. The Board of Directors may from time to time confer like
powers upon any other person or persons.
Section 6. The Vice Presidents. The Vice President, if any (or in the
event there be more than one, the Vice Presidents in the order designated, or in
the absence of any designation, in the order of their election), shall, in the
absence of the President or in the event of his disability, perform the duties
and exercise the powers of the President and shall generally assist the
President and perform such other duties and have such other powers as may from
time to time be prescribed by the Board of Directors.
Section 7. The Secretary. The Secretary shall attend all meetings of
the Board of Directors and all meetings of stockholders and record all votes and
the proceedings of the meetings in a book to be kept for that purpose and shall
perform like duties for the Executive Committee or other committees, if
required. He shall give, or cause to be given, notice of all meetings of the
Board of Directors, and shall perform such other duties as may from time to time
be prescribed by the Board of Directors, the Chairman, the Vice Chairman, or the
President, under whose supervision he shall act. He shall have custody of the
seal of the Corporation, and he, or an Assistant Secretary, shall have authority
to affix the same to any instrument requiring it, and, when so affixed, the seal
may be attested by his signature or by the signature of such Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing thereof
by his signature.
Section 8. The Assistant Secretary. The Assistant Secretary, if any (or
in the event there be more than one, the Assistant Secretaries in the order
designated, or in the absence of any designation, in the order of their
election), shall, in the absence of the Secretary or in the event of his
disability, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as may from time to
time be prescribed by the Board of Directors.
Section 9. The Treasurer. The Treasurer shall have the custody of the
corporate funds and other valuable effects, including securities, and shall keep
full and accurate accounts of receipts and disbursements in books belonging to
the Corporation and shall deposit all moneys and other valuable effects in the
name and to the credit of the Corporation in such depositories as may from time
to time be designated by the Board of Directors. He shall disburse the funds of
the Corporation as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and
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shall render to the Chairman, the Vice Chairman, the President and the Board of
Directors, at regular meetings of the Board, or whenever they may require it, an
account of all his transactions as Treasurer and of the financial condition of
the Corporation.
Section 10. The Assistant Treasurer. The Assistant Treasurer, if any
(or in the event there shall be more than one, the Assistant Treasurers in the
order designated, or in the absence of any designation, in the order of their
election), shall, in the absence of the Treasurer or in the event of his
disability, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as may from tine to
time be prescribed by the Board of Directors.
ARTICLE VII
INDEMNIFICATION OF
DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
Reference is made to Section 145 (and any other relevant provisions) of
the General Corporation Law of the State of Delaware. Particular reference is
made to the class of persons (hereinafter called "Indemnitees") who may be
indemnified by a Delaware corporation pursuant to the provisions of such Section
145, namely, any person (or heirs, executors or administrators of such person)
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person is or
was a director, officer, employee or agent of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise. The Corporation shall (and is hereby obligated to) indemnify the
Indemnitees, and each of them, in each and every situation where the Corporation
is obligated to make such indemnification pursuant to the aforesaid statutory
provisions. The Corporation shall indemnify the Indemnitees, and each of them,
in each and every situation where, under the aforesaid statutory provisions, the
Corporation is not obligated, but is nevertheless permitted or empowered, to
make such indemnification. With respect to any situation covered under this
Article, the Corporation shall promptly make or cause to be made, by any of the
methods referred to in subsection (d) of such Section 145, a determination as to
whether each Indemnitee acted in good faith and in a manner such Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, in the case of any criminal action or proceeding, had no
reasonable cause to believe that such Indemnitee's conduct was unlawful. No such
indemnification shall be made (where not required by statute) unless it is
determined that such Indemnitee acted in good faith and in a manner such
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Corporation, and, in the case of any criminal action or proceeding, had no
reasonable cause to believe that such Indemnitee's conduct was unlawful.
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ARTICLE VIII
AFFILIATED TRANSACTIONS AND INTERESTED DIRECTORS
Section 1. Affiliated Transactions. No contract or transaction between
the Corporation and one or more of its shareholders, directors or officers, or
between the Corporation and any other corporation, partnership, association or
other organization in which one or more of its directors or officers are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer is present at
or participates in the meeting of the Board of Directors or committee thereof
which authorizes the contract or transaction or solely because his or their
votes are counted for such purpose, if:
(a) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of Directors
or the committee, and the Board of Directors or committee in good faith
authorizes the contract or transaction by the affirmative vote of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum; or
(b) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the Corporation as of
the time it is authorized, approved or ratified by the Board of Directors, a
committee thereof, or the stockholders.
Section 2. Determining Quorum. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee thereof which authorizes the contract or
transaction.
ARTICLE IX
STOCK CERTIFICATES
Section 1. Form; Signatures.
(a) Every holder of stock in the Corporation shall be entitled to
have a certificate, signed by the Chairman, the Vice Chairman or the President
and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Corporation, exhibiting the number and class (and series, if
any) of shares owned by him, and bearing the seal of the Corporation. Such
signatures and seal may be facsimile. A certificate may be manually signed by a
transfer agent or registrar other than the Corporation or its employee but may
be a facsimile. In case any officer who has signed, or whose facsimile signature
was placed on, a certificate shall have ceased to be such officer before such
certificate is issued, it may nevertheless be issued by the Corporation with the
same effect as if he were such officer at the date of its issue.
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(b) All stock certificates representing shares of capital stock which
are subject to restrictions on transfer or to other restrictions may have
imprinted thereon such notation to such effect as may be determined by the Board
of Directors.
Section 2. Registration of Transfer. Upon surrender to the Corporation
or any transfer agent of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation or its transfer
agent to issue a new certificate to the person entitled thereto, to cancel the
old certificate and to record the transaction upon its books.
Section 3. Registered Stockholders.
(a) Except as otherwise provided by law, the Corporation shall be
entitled to recognize the exclusive right of a person who is registered on its
books as the owner of shares of its capital stock to receive dividends or other
distributions, and to vote as such owner, and to hold liable for calls and
assessments any person who is registered on its books as the owner of shares of
its capital stock. The Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person.
(b) If a stockholder desires that notices and/or dividends shall be
sent to a name or address other than the name or address appearing on the stock
ledger maintained by the Corporation (or by the transfer agent or registrar, if
any), such stockholder shall have the duty to notify the Corporation (or the
transfer agent or registrar, if any) in writing, of such desire. Such written
notice shall specify the alternate name or address to be used.
Section 4. Record Date. In order that the Corporation may determine the
stockholders of record who are entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or entitled to receive payment of
any dividend or other distribution, or to make a determination of the
stockholders of record for any other proper purpose, the Board of Directors may,
in advance, fix a date as the record date for any such determination. Such date
shall not be more than 60 nor less than 10 days before the date of such meeting,
nor more than 60 days prior to the date of any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting taken pursuant to
Section 8 of Article II; provided, however, that the Board of Directors may fix
a new record date for the adjourned meeting.
Section 5. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct a new certificate to be issued in place of any certificate
theretofore issued by the Corporation which is claimed to have been lost, stolen
or destroyed, upon the making of an affidavit of the fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate, the Board of Directors may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate, or his legal representative, to advertise the
same in such manner as it shall require and/or to give the Corporation a bond in
such sum, or other security in such form, as it may direct as indemnity against
any claim
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that may be against the Corporation with respect to the certificate claimed to
have been lost, stolen or destroyed.
ARTICLE X
GENERAL PROVISIONS
Section 1. Dividends. Subject to the provisions of the Certificate of
Incorporation, dividends upon the outstanding capital stock of the Corporation
may be declared by the Board of Directors at any regular or special meeting,
pursuant to law, and may be paid in cash, in property or in shares of the
Corporation's capital stock.
Section 2. Reserves. The Board of Directors shall have full power,
subject to the provisions of law and the Certificate of Incorporation, to
determine whether any, and, if so, what part, of the funds legally available for
the payment of dividends shall be declared as dividends and paid to the
stockholders of the Corporation. The Board of Directors, in its sole discretion,
may fix a sum which may be set aside or reserved over and above the paid-in
capital of the Corporation for working capital or as a reserve for any proper
purpose, and may, from time to time, increase, diminish or vary such fund or
funds.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be as
determined from time to time, by the Board of Directors.
Section 4. Seal. The corporate seal, if any, shall have inscribed
thereon the name of the Corporation, the year of its incorporation and the words
"Corporate Seal" and "Delaware".
ARTICLE XI
AMENDMENTS
The Board of Directors shall have the power to make, alter and repeal
these Bylaws, and to adopt new bylaws, by an affirmative vote of a majority of
the whole Board, provided that notice of the proposal to make, alter or repeal
these Bylaws, or to adopt new bylaws, must be included in the notice of the
meeting of the Board of Directors at which such action takes place.
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ARTICLES OF INCORPORATION
OF
KLEINERT INDUSTRIES, INC.
I
The name of this corporation is KLEINERT INDUSTRIES, INC.
II
The purpose of this corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust company
business, or the practice of a profession permitted to be incorporated by the
California Corporations Code.
III
The name and address in the State of California of this
corporation's initial agent for service of process is: DAVID AMSTERDAM, 2029
Century Park East, Suite 4280, Los Angeles, California 90067.
IV
This corporation is authorized to issue only one class of
shares of stock; and the total number of shares which this corporation is
authorized to issue is one million (1,000,000).
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V
The liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
VI
The corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the Corporations Code) for breach of duty
to the corporation and its stockholders through bylaws provisions or through
agreements with the agents, or both, in excess of the indemnification otherwise
permitted by Section 317 of the Corporations Code, subject to the limits on such
excess indemnification set forth in Section 204 of the Corporations Code.
/s/ Robert Wyser
ROBERT WYSER
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CERTIFICATE OF OWNERSHIP
OF
KLEINERT INDUSTRIES, INC.
BRADLEY C. CALL and JULIUS HODGE III certify that:
1. They are the president and the secretary respectively, of
KLEINERT INDUSTRIES, INC., a California corporation.
2. This corporation owns all of the outstanding shares of
RICHARDSON X-RAY, INC., a California corporation.
3. The Board of Directors of this corporation duly adopted
the following resolution on December 28, 1994:
RESOLVED: That this corporation merger RICHARDSON X-RAY,
INC., a California corporation, its wholly-owned subsidiary
corporation, into itself and assume of its obligations pursuant to
Section 1110 of the California Corporations Code.
We further declare under penalty of perjury under the laws of
the State of California the matters set forth in this certificate are true and
correct of our own knowledge.
Executed at Los Angeles, California on the 3rd day of June,
1996.
/s/ Bradley C. Call
BRADLEY C. CALL, President
/s/ Julius Hodge
JULIUS HODGE III, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
KLEINERT INDUSTRIES, INC.
(Corporation I.D. No. 1440153)
BRADLEY C. CALL and JULIUS E. HODGE certify that:
1. They are the President and the Secretary, respectively, of
Kleinert Industries, Inc.
2. Article I of the Articles of Incorporation of this
corporation is amended to read as follows:
"The name of this corporation is Stellex
Aerospace."
3. The foregoing amendment of the Articles of Incorporation
has been duly approved by the Board of Directors.
4. The foregoing amendment of Articles of Incorporation has
been duly approved by the required votes of shareholders in accordance with
Section 902 of the Corporations Code. The total number of outstanding shares of
the corporation is 10,000. The number of shares voting in favor of the amendment
equaled or exceeded the vote required. The percentage vote required was more
than 50%.
We further declare under penalty of perjury under the laws of
the State of California that the matters set forth in this certificate are true
and correct of our own knowledge.
Dated: July 1, 1997 /s/ Bradley C. Call
BRADLEY C. CALL, President
/s/ Julius E. Hodge
JULIUS E. HODGE, Asst. Secretary
<PAGE>
BYLAWS OF
KLEINERT INDUSTRIES, INC.
(A California Corporation)
ARTICLE I
SHAREHOLDERS' MEETINGS
Section 1. TIME. An annual meeting for the election of directors and for the
transaction of any other proper business shall be held on the first (1st) day of
August of each year or if such day falls on a weekend or a holiday, then on the
next succeeding business day. Any special meetings shall be held on the date and
at the time as the Board of Directors shall from time to time fix.
Section 2. PLACE. Annual meetings and special meetings shall be held at such
places, within or without the State of California, as the Directors may, from
time to time, fix. Whenever the Directors shall fail to fix such place, the
meetings shall be held at the principal executive office of the corporation.
Section 3. CALL. Annual meetings may be called by the Board of Directors, by the
Chairman of the Board, if any, Vice Chairman of the Board, if any, the
President, the Secretary, or by any officer instructed by the Board of Directors
to call the meeting. Special meetings may be called in like manner and by the
holders of shares entitled to cast not less than ten percent (10%) of the votes
at the meeting being called in the following manner. Upon request in writing to
the Chairman of the Board, the President, any Vice President or the Secretary by
any person(s), firm(s) and/or entity(ies) (other than the Board) entitled to
call a special meeting of shareholders, the officer to whom such request is
delivered shall as soon as reasonably possible cause notice to be given to the
shareholders entitled to vote that a meeting will be held at a time requested by
the person(s), firm(s) and/or entity(ies) calling the meeting, which time shall
not be less than thirty-five (35) nor more than sixty (60) days after the
receipt of the request unless the request indicates that a longer or shorter
period is necessary. If the notice is not given within twenty (20) days after
receipt of the request, the persons entitled to call the meeting may give the
notice.
Section 4. NOTICE. Written notice stating the place, day and hour of each
meeting, and, in the case of a special meeting, the general nature of the
business to be transacted or, in the case of an annual meeting, those matters
which the Board of Directors, at the time of mailing of the notice, intends to
present for action by the shareholders, shall be given not less than ten (10)
days (or not less than any such other minimum period of days as may be
<PAGE>
prescribed by the General Corporation Law of the State of California - the
"General Corporation Law") or more than sixty (60) days (or more than an such
maximum period of days as may be prescribed by the General Corporation Law)
before the date of the meeting, by mail, personally, or by other means of
written Communication, charges prepaid by or at the direction of the Board of
Directors, the President, the Secretary or the officer or persons calling the
meeting, addressed to each shareholder calling the meeting, addressed to each
shareholder at the address of such shareholder appearing on the books of the
corporation or given by the shareholder to the corporation for the purpose of
notice, or, if no such address appears or is given, at the place where the
principal executive office of the corporation is located or by publication at
least once in a newspaper of general circulation in the county in which the said
Principal executive office is located. Such notice shall be deemed to have been
given at the time when delivered personally or when deposited in the United
States mail with first class postage thereon prepaid, or sent by other means of
written communication addressed to the shareholder at his address, as it appears
on the stock transfer books of the corporation. The notice of any meeting at
which directors are to be elected shall include the names of nominees intended
at the time of the notice to be presented by management for election. At an
annual meeting of shareholders, any matter relating to the affairs of the
corporation, whether or not stated in the notice of the meeting, may be brought
up for action except matters which the General Corporation Law requires to be
stated in the notice of the meeting. The notice of any annual or special meeting
shall also include, or be accompanied by, any additional information, or
documents prescribed by the General Corporation Law. When a meeting is adjourned
to another time or place, notice of the adjourned meeting need not be given if
the time and place thereof are announced at the meeting at which the adjournment
is taken; provided that, if after the adjournment a new record date is fixed for
the adjourned meeting, or if more than forty-five (45) days pass from the date
of the original meeting, a notice of the adjourned meeting shall be given to
each shareholder. At the adjourned meeting, the corporation may transact any
business which might have been transacted at the original meeting.
Section 5. CONSENT. The transaction of any meeting, however called and noticed,
and wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice if a quorum is present and if, either before or after
the meeting, each of the shareholders or his proxy signs a written waiver of
notice or a consent to the holding of the meeting or an approval of the minutes
thereof. All such waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting. Attendance of a
person at a meeting constitutes a waiver of notice of such meeting, except when
the person objects, at the beginning of the meeting in writing, to the
transaction of any business because the meeting is not lawfully called or
convened
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and except that attendance at a meeting shall not constitute a waiver of any
right to object to the consideration of matters required by the General
Corporation Law to be included in the notice but not so included, if such
objection is expressly made at the meeting in writing. Except as otherwise
provided in subdivision (f) of Section 601 of the General Corporation Law,
neither the business to be transacted at nor the purpose of any regular or
special meeting need be specified in any written waiver of notice.
Section 6. CONDUCT OF MEETING. Meetings of the shareholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting -- the Chairman of the Board, if any, the Vice Chairman of the Board,
if any, the President, a Vice President, or, if none of the foregoing is in
office and present and acting, by a chairman to be chosen b the shareholders.
The Secretary of the corporation, or in his or her absence, an Assistant
Secretary, shall act as secretary of every meeting, but, if neither the
Secretary nor an Assistant Secretary is present, the chairman of the meeting
shall appoint a secretary of the meeting.
Section 7. PROXY REPRESENTATION. Every shareholder may authorize another person
or persons to act as his, her or its proxy at a meeting or by written consent.
No proxy shall be valid after the expiration of eleven (11) months from the date
of its execution unless otherwise provided in the proxy. Every proxy shall be
revocable at the pleasure of the person executing it prior to the vote or
written consent pursuant thereto, except as otherwise provided by the General
Corporation Law. As used herein, a "proxy" shall be deemed to mean a written
authorization, signed by a shareholder or a shareholder's attorney in fact,
giving another person or persons other than the shareholder the power to vote"or
consent in writing with respect to the shares of such shareholder; and "signed"
as used herein shall be deemed to mean the placing of such shareholder's name on
the proxy by the shareholder or the shareholder's attorney in fact, whether by
manual signature, typewriting, telegraphic transmission or otherwise. Where
applicable, the form of any proxy shall comply with the provisions of Section
604 of the General Corporation Law.
Section 8. INSPECTORS - APPOINTMENT. In advance of any meeting, the Board of
Directors may appoint inspectors of election to act. at the meeting and any
adjournment thereof. If inspectors of election are not so appointed, or, if any
persons so appointed fail to appear or refuse to act, the chairman of any
meeting of shareholders may, and on the request of any shareholder or a
shareholder's proxy shall, appoint inspectors of election (or persons to replace
those who so fail or refuse) at the meeting. The number of inspectors shall be
either one (1) or three (3). If appointed at a meeting on the request of one or
more shareholders or proxies, the majority of shares represented shall determine
whether one or three inspectors are to be appointed. The
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inspectors of election shall determine the number of shares outstanding and the
voting power of each and determine the shares represented at the meeting;
determine the existence of a quorum and the authenticity, validity, and effect
of proxies; receive votes, ballots, if any, or consents; hear and determine all
challenges and questions in any way arising in connection with the right to
vote; count and tabulate all votes or consents; determine when the polls shall
close; determine the result; and do such acts as may be proper to conduct the
election or vote with fairness to all shareholders. If there are three (3)
inspectors of election, the decision, act, or certificate of a majority shall be
effective in all respects as the decision, act, or certificate of all.
Section 9. SUBSIDIARY CORPORATIONS. Shares of this corporation owned by a
subsidiary shall not be entitled to vote on any matter. A subsidiary for these
purposes is defined as a corporation, the shares of which possessing more than
twenty-five percent (25%) of the total combined voting power of all classes of
shares entitled to vote, are owned by this corporation, directly or indirectly,
including, but not limited to, through one or more subsidiaries of this
corporation.
Section 10. QUORUM; VOTE; WRITTEN CONSENT. The holders of a majority of the
voting shares shall constitute a quorum at a meeting of shareholders for the
transaction of any business. The shareholders present at a duly called or held
meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum, if any action taken, other than adjournment, is approved by at
least a majority of the shares required to constitute a quorum. In the absence
of a quorum, any meeting of shareholders may be adjourned from time to time by
the vote of a majority of the shares represented thereat, but no other business
may be transacted except as hereinbefore provided.
In the election of directors, a plurality of the votes cast
shall elect. No shareholder shall be entitled to exercise the right of
cumulative voting at a meeting for the election of directors unless the
candidate's name or the candidates, names have been placed in nomination prior
to the voting and the shareholder has given notice at the meeting prior to the
voting of the shareholder's intention to cumulate the shareholder's votes. If
any one shareholder has given such notice, all shareholders may cumulate their
votes for such candidates in nomination.
Except as otherwise provided by the General Corporation Law,
the Articles of Incorporation or these Bylaws, any action required or permitted
to be taken at a meeting at which a quorum is present shall be authorized by the
affirmative vote of a majority of the shares represented at the meeting.
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Except in the election of directors by written consent in lieu
of a meeting, and except as may otherwise be provided by the General Corporation
Law, the Articles of Incorporation or these Bylaws, any action which may be
taken at any annual or special meeting may be taken without a meeting and
without prior notice, if a consent in writing, setting forth the action so
taken, shall be signed by holders of shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Directors may not be elected by written consent except by unanimous written
consent of all shares entitled to vote for the election of directors. Notice of
shareholder approval, pursuant to Sections 310, 317, 1201 or 2007, without a
meeting by less than unanimous written consent shall be given at least ten (10)
days before the consummation of the action authorized by such approval, and
prompt notice shall be given of the taking of any other corporate action
approved by shareholders without a meeting by less than unanimous written
consent to those shareholders entitled to vote who have not consented in
writing.
Section 11. BALLOT. Elections of directors at a meeting need not
be by ballot unless a shareholder demands election by ballot at the
election and before the voting begins. In all other matters,
voting need not be by ballot.
ARTICLE II
BOARD OF DIRECTORS
Section 1. FUNCTIONS. The business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction of
its Board of Directors. The Board of Directors may delegate the management of
the day-to-day operation of the business of the corporation to a management
company or other person, firm or entity provided that the business and affairs
of the corporation shall be managed and all corporate powers shall be managed
and all corporate powers shall be exercised under the ultimate direction of the
Board of Directors. The Board of Directors shall have authority to fix the
compensation of directors for services in any lawful capacity.
Each director shall exercise such powers and otherwise perform
such duties in good faith, in the manner such director believes to be in the
best interests of the corporation, and with such care, including reasonable
inquiry, as an ordinarily prudent person in a like position would use under
similar circumstances.
Without prejudice to such general powers, but subject to the
same limitations, it is hereby expressly declared that the Board of Directors
shall have the following powers in addition to the other powers enumerated in
these Bylaws:
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(a) To select and remove all the other officers,
agents, and employees of the corporation, prescribe the powers and duties for
them as may not be inconsistent with law, the Articles of Incorporation or these
Bylaws, fix their compensation, and require from them security for faithful
service.
(b) To conduct, manage and control the affairs and
business of the corporation and to make such rules and regulations therefor not
inconsistent with law, the Articles of Incorporation or these Bylaws, as they
may deem best.
(c) To adopt, make, and use a corporate seal and to
prescribe the forms of certificates of stock, and to alter the form of such seal
and of such certificates from time to time as, in their judgment, they may deem
best.
(d) To authorize the issuance of shares of stock of
the corporation from time to time, upon such terms and for such considerations
as may be lawful.
(e) To borrow money and incur indebtedness for the
purposes of the corporation, and to cause to be executed and delivered therefor,
in the corporate name, promissory notes, bonds, debentures, deeds of trust,
mortgage, pledges, hypothecations, or other evidences of debt and securities
therefor.
(f) To fill all vacancies in the Board of Directors
not filled by the shareholders.
SEE AMENDMENTS IN MINUTES
Section 2. QUALIFICATIONS AND NUMBER. A director need not be a shareholder of
the corporation, resident or citizen of the United States, or a resident of the
State of California. The authorized number of directors constituting the Board
of Directors until further changed shall be five (5). Thereafter, the authorized
number of directors constituting the Board of Directors shall be at least three
(3), provided that, whenever the corporation shall have only two (2)
shareholders, the number of directors may be at least two (2), and, whenever the
corporation shall have only one (1) shareholder, the number of directors may be
at least one (1). Subject to the foregoing provisions, the number of directors
may be charged from time to time by an amendment of these Bylaws adopted by the
shareholders. Any such amendment reducing the fixed number or the minimum number
of directors to fewer than five (5) cannot be adopted if the votes cast against
its adoption at a meeting, or the shares not consenting in writing in the case
of action by written consent, are equal to more than sixteen and two-thirds
percent (16 2/3%) of the outstanding shares entitled to vote. No decrease in the
authorized number of directors shall have the effect of shortening the term of
any incumbent director.
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Section 3. ELECTION AND TERM. The initial Board of Directors shall consist of
the persons elected at the meeting of the incorporator(s), all of whom shall
hold office until the first annual meeting of shareholders and until their
successors have been elected and qualified, or until their earlier resignation
or removal from office. Thereafter, directors who are elected to replace any or
all of the members of the initial Board of Directors or who are elected at an
annual meeting of shareholders, and directors who are elected in the interim to
fill vacancies, shall hold office until the next annual meeting of shareholders
and until their successors have been elected and qualified, or until their
earlier resignation, removal from office, or death. In the interim between
annual meetings of shareholders or of special meetings of shareholders called
for the election of directors, any vacancies in the Board of Directors,
including vacancies resulting from an increase in the authorized number of
directors which have not been filled by the shareholders, including any other
vacancies which the General Corporation Law authorizes directors to fill, and
including vacancies resulting from the removal of directors which are not filled
at the meeting of shareholders at which any such removal has been effected, if
the Articles of Incorporation or a Bylaw adopted by the shareholders so
provides, may be filled by the vote of a majority of the directors then in
office or of the sole remaining director, although less than a quorum exists.
Any director may resign effective upon giving written notice to the Chairman of
the Board, in any, the President, the Secretary or the Board of Directors,
unless the notice specifies a later time for the effectiveness of such
resignation. If the resignation is effective at a future time, a successor may
be elected to the office when the resignation becomes effective.
The shareholders may elect a director at any time to fill any
vacancy which the directors are entitled to fill, but which they have not
filled. Any such election by written consent shall require the consent of a
majority of the shares.
Section 4. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The
corporation may indemnify any director, officers agent or employee as to those
liabilities and on those terms and conditions as are specified in Section 317 of
the General Corporation Law. In any event, the corporation shall have the right
to purchase and maintain insurance on behalf of any such persons whether or not
the corporation would have the power to indemnify such person against the
liability insured against.
Section 5. MEETINGS.
TIME. Meetings shall be held at such time as the Board of
Directors shall fix, except that the first meeting of a newly elected Board
shall be held as soon after its election as the directors may conveniently
assemble.
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PLACE. Meetings may be held at any place, within or without
the State of California, which has been designated in any notice of the meeting,
or, if not stated in said notice, or, if there is no notice given, at the place
designated by resolution of the Board of Directors.
CALL. Meetings may be called by the Chairman of the Board, if
any, by the President, by any Vice President or Secretary, or by any two (2)
directors, or if there are only two directors, the meeting may be called by any
one (1) director.
NOTICE AND WAIVER THEREOF. No notice shall be required for
regular meetings for which the time and place have been fixed by the Board of
Directors. Special meetings shall be held upon at least four (4) days' notice by
mail or upon at least forty-eight (48) hours' notice delivered personally or by
telephone or telegraph. Notice of a meeting need not be given to any director
who signs a waiver of notice, whether before or after the meeting, or who
attends the meeting without protesting, prior thereto or at its commencement in
writing, the lack of notice to such director. A notice or waiver of notice need
not specify the purpose of any regular or special meeting of the Board of
Directors.
Section 6. SOLE DIRECTOR PROVIDED BY ARTICLES OF INCORPORATION. In the event
only one (1) director is required by the Bylaws or Articles of Incorporation,
then any reference herein to notices, waivers, consents, meetings or other
actions by a majority or quorum of the directors shall be deemed to refer to
such notice, waiver, etc., by such sole director, who shall have all the rights
and duties and shall be entitled to exercise all of the powers and shall assume
all the responsibilities otherwise herein described as given to a Board of
Directors.
Section 7. QUORUM AND ACTION. A majority of the authorized number of directors
shall constitute a quorum except when a vacancy or vacancies prevents such
majority, whereupon a majority of the directors in office shall constitute a
quorum provided such majority shall constitute at least either one-third (1/3)
of the authorized number of directors or at least two (2) directors, whichever
is larger, or unless the authorized number of directors is only one (1). A
majority of the directors present, whether or not a quorum is present, may
adjourn any meeting to another time and place. If the meeting is adjourned for
more than twenty-four (24) hours, notice of any adjournment to another time or
place shall be given prior to the time of the adjourned meeting to the
directors, if any, who were not present at the time of the adjournment. Except
as the Articles of Incorporation, these Bylaws and the General Corporation Law
may otherwise provide, the act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
the act of the Board of Directors. Members of the Board of Directors may
participate in a meeting through use of conference telephone or
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similar communications equipment, so long as all members participating in such
meeting can hear one another, and participation by such use shall be deemed to
constitute presence in person at any such meeting.
A meeting at which a quorum is initially present may continue
to transact business notwithstanding the withdrawal of directors, provided that
any action which may be taken is approved by at least a majority of the required
quorum for such meeting.
Section 8. CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, the Vice Chairman of the Board, if any and if present and
acting, shall preside at all meetings. Otherwise, the President, if present and
acting, or any director chosen by the Board of Directors, shall preside.
Section 9. REMOVAL OF DIRECTORS. The entire Board of Directors or any individual
director may be removed from office without cause by approval of the holders of
at least a majority of the shares provided, that unless the entire Board of
Directors is removed, an individual director shall not be removed when the votes
cast against such removal, or not consenting in writing to such removal, would
be sufficient to elect such director if voted cumulatively at an election of
directors at which the same total number of votes were cast (or, if such action
is taken by written consent in lieu of a meeting, all shares entitled to vote
were voted) and the entire number of directors authorized at the time of the
director's most recent election were then being elected. If any or all directors
are so removed, new directors may be elected at the same meeting or by such
written consent. The Board of Directors may declare vacant the office of any
director who has been declared of unsound mind by an order of court or convicted
of a felony.
Section 10. COMMITTEES. The Board of Directors, by resolution adopted by a
majority of the authorized number of directors, may designate one (1) or more
committees, each consisting of two (2) or more directors to serve at the
pleasure of the Board of Directors. The Board of Directors may designate one (1)
or more directors as alternate members of any such committee, who may replace
any absent member at any meeting of such committee. Any such committee, to the
extent provided in the resolution of the Board of Directors, shall have all the
authority of the Board of Directors except such authority as may not be
delegated by the provisions of the General Corporation Law.
Section 11. INFORMAL ACTION. The transactions of any meeting of the Board of
Directors, however called and noticed or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice, if a quorum is
present and if, either before or after the meeting, each of the directors not
present signs a written waiver of notice, a consent to holding the meeting, or
an approval of the minutes thereof. All such waivers, consents,
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or approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Section 12. WRITTEN ACTION. Any action required or permitted to be taken may be
taken without a meeting if all of the members of the Board of Directors shall
individually or collectively consent in writing to such action. Any such consent
or consents shall be filed with the minutes of the proceedings of the Board of
Directors. Such action by written consent shall have the same force and effect
as a unanimous vote of such directors.
ARTICLE III
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be a Chairman of the
Board or a President or both, a Secretary and a Chief Financial Officer. The
corporation may also have, at the discretion of the Board of Directors, one or
more Vice Presidents, one or more Assistant Secretaries and such other officers
as may be appointed in accordance with the provisions of Section 3 of this
Article. One person may hold two or more offices.
Section 2. ELECTION. The officers of the corporation, except such officers as
may be appointed in accordance with the provisions of Section 3 or Section 5 of
this Article shall be chosen annually by the Board of Directors, and each shall
hold his office until he shall resign or shall be removed or otherwise
disqualified to serve, or his successor shall be elected and qualified.
Section 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint such
other officers as the business of the corporation may require, each of whom
shall hold office for such period, have such authority and perform such duties
as are provides in the Bylaws or as the Board of Directors may from time to time
determine.
Section 4. REMOVAL AND RESIGNATION. Any officer may be removed, either with or
without cause, by a majority of the directors at the time in office, at any
regular or special meeting of the Board of Directors, or, except in case of an
officer chosen by the Board of Directors, by any officer upon whom such power of
removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to
the Board of Directors, or to the President, or to the Secretary of the
corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
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Section 5. VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled in the manner
prescribed in the Bylaws for regular appointments to such office.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall be
such an officer, shall, if present, preside at all meetings of the Board of
Directors, and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by the
Bylaws.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be
given by the Board of Directors to the Chairman of the Board, if there be such
an officer, the President shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. He shall preside at all meetings of the shareholders and, in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board of Directors. He shall be ex officio a member of all the standing
committees, including the Executive Committee, if any, and shall have the
general powers and duties of management usually vested in the office of
President of a corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or the Bylaws.
Section 8. VICE PRESIDENT. In the absence or disability of the President, the
Vice Presidents, in order of their rank as fixed by the Board of Directors, or
if not ranked, the Vice President designated by the Board of Directors, shall
perform all the duties of the President, and when so acting shall have all the
powers of, and be subject to, all the restrictions upon, the President. The Vice
Presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the Board of Directors
or the Bylaws.
Section 9. SECRETARY. The Secretary shall keep, or cause to be kept, a book of
minutes at the principal office or such other place as the Board of Directors
may order, of all meetings of Directors and Shareholders, with the time and
place of holding, whether regular or special, and if special, how authorized,
the notice thereof given, the names of those present at Directors' meetings, the
number of shares present or represented at Shareholders' meetings and the
proceedings thereof.
The Secretary shall keep, or cause to be kept, at the
principal office or at the office of the corporation's transfer agent, a share
register, or duplicate share register, showing the names of the shareholders and
their addresses; the number and classes of shares held by each; the number and
date of certificates issued for the same; and the number and date of
cancellation of every certificate surrendered for cancellation.
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The Secretary shall give, or cause to be given, notice of all
the meetings of the shareholders and of the Board of Directors required by the
Bylaws to be given, and he shall keep the seal of the corporation in safe
custody, and shall have such other powers and perform such other duties as may
be prescribed by the Board of Directors or by the Bylaws.
Section 10. CHIEF FINANCIAL OFFICER. This officer shall keep and maintain, or
cause to be kept and maintained in accordance with generally accepted accounting
principles, adequate and correct accounts of the properties and business
transactions of the corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, earnings (or surplus) and
shares. The books of account shall at all reasonable times be open to inspection
by any director.
This officer shall deposit all monies and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the Board of Directors. He shall disburse the funds of the
corporation as may be ordered by the Board of Directors, shall render to the
President and directors, whenever they request it, an account of all his
transactions and of the financial condition of the corporation, and shall have
such other powers and perform such other duties as may be prescribed by the
Board of Directors or the Bylaws.
ARTICLE IV
CERTIFICATES AND TRANSFERS OF SHARES
Section 1. CERTIFICATES FOR SHARES. Each certificate for shares of the
corporation shall set forth therein the name of the record holder of the shares
represented thereby, the number of shares and the class or series of shares
owned by said holder, the par value, if any, of the shares represented thereby,
and such other statements, as applicable, prescribed by Sections 416 - 419,
inclusive, and other relevant sections of the General Corporation Law and such
other statements as applicable, which may be prescribed by the Corporation
Securities Law of the state of California and any other applicable provisions of
the law. Each such certificate issued shall be signed in the name of the
corporation by the Chairman of the Board, if any, or the Vice Chairman of the
Board, if any, the President or a Vice President, if any, and by the Chief
Financial Officer or an Assistant Treasurer or the Secretary or an Assistant
Secretary. Any or all of the signatures on a certificate for shares may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate for shares shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by
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the corporation with the same effect as if such person were an officer, transfer
agent or registrar at the date of issue.
In the event that the corporation shall issue the whole or any
part of its shares as partly paid and subject to call for the remainder of the
consideration to be paid therefor, any such certificate for shares shall set
forth thereon the statements prescribed by Section 409 of the General
Corporation Law.
Section 2. LOST OR DESTROYED CERTIFICATES FOR SHARES. The corporation may issue
a new certificate for shares or for any other security, in the place of any
other certificate theretofore issued by it which is alleged to have been lost,
stolen or destroyed. As a condition to such issuance, the corporation may
require any such owner of the allegedly lost, stolen or destroyed certificate or
any such owner's legal representative to give the corporation a bond, or other
adequate security, sufficient to indemnify it against any claim that may be made
against it, including any expense or liability, on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate.
Section 3. SHARE TRANSFERS. Upon compliance with any provisions of the General
Corporation Law and/or the Corporate Securities Law of 1968 which may restrict
the transferability of shares, transfers of shares of the corporation shall be
made on the record of shareholders of the corporation only by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary of the corporation or with a transfer
agent or a registrar, if any, and on surrender of the certificate or
certificates for such shares properly endorsed and the payment of all taxes, if
any, due thereon.
Section 4. RECORD DATE FOR SHAREHOLDERS. In order that the corporation may
determine the shareholders entitled to notice of and to vote at any meeting, or
to receive payment of any dividend or other distribution or allotment of any
rights, or to exercise an rights in respect of any other lawful action, the
Board of Directors may fix, in advance, a record date, which shall not be more
than sixty (60) days or fewer than ten (10) days prior to the date of such
meeting or more than sixty (60) days prior to any other action.
If the Board of Directors shall not have fixed a record date
as aforesaid, the record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day, next preceding the day on
which the meeting is held; the record date for determining shareholders entitled
to give consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors has been
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taken, shall be the day on which the first written consent is given; and the
record date for determining shareholders for any other purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto, or the sixtieth (60th) day prior to the day of such
other action, whichever is later.
A determination of shareholders of record entitled to notice
of or to vote at a meeting of shareholders shall apply to any adjournment of the
meeting unless the Board of Directors fixes a new record date for the adjourned
meeting, but the Board of Directors shall fix a new record date if the meeting
is adjourned for more than forty-five (45) days from the date set for the
original meeting.
Except as may be otherwise provided by the General Corporation
Law, shareholders on the record date shall be entitled to notice, to vote, to
receive any dividend, distribution or allotment of rights, or to exercise any
rights, as the case may be, notwithstanding any transfer of any shares on the
books of the corporation after the record date.
Section 5. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares of other
corporations standing in the name of this corporation may be voted or
represented and all incidents thereto may be exercised on behalf of the
corporation by the Chairman of the Board, the President or any Vice President or
any other person authorized by resolution of the Board of Directors.
Section 6. MEANING OF CERTAIN TERMS. As used in these Bylaws in respect of the
right to notice of a meeting of shareholders or a waiver thereof or to
participate or vote thereat or to assent or consent or dissent in writing in
lieu of a meeting, as the case may be, the terms "share" or "shares" or
"shareholder" or "shareholders" refers to an outstanding share or shares and to
a holder or holders of record of outstanding shares when the corporation is
authorized to issue only one class of shares, and said reference is also
intended to include any outstanding share or shares and any holder or holders of
record of outstanding shares of any class upon which or upon whom the Articles
of Incorporation confer such rights where there are two or more classes or
series of shares or upon which or upon whom the General Corporation Law confers
such rights notwithstanding that the Articles of Incorporation may provide for
more than one class or series of shares, one or more of which are limited or
denied such rights thereunder.
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ARTICLE V
EFFECT OF SHAREHOLDERS AGREEMENT-CLOSE CORPORATION
Any Shareholders' Agreement authorized by Section 300(b) shall
only be effective to modify the terms of these Bylaws if this corporation elects
to become a close corporation with appropriate filing of or amendment to its
Articles of Incorporation as required by Section 202 and shall terminate when
this corporation ceases to be a close corporation. Such an agreement cannot
waive or alter Sections 158 (defining close corporations), 202 (requirement of
Articles of Incorporation), 500 and 501 (relative to distributions), 1111
(merger), 1201(e) (reorganization) or Chapters 15 (Records and Reports), 16
(Rights of Inspection), 18 (Involuntary Dissolution) or 22 (Crimes and
Penalties). Any other provisions of the General Corporation Law or these Bylaws
may be altered or waived thereby, but to the extent they are not so altered or
waived, these Bylaws shall be applicable.
ARTICLE VI
CORPORATE CONTRACTS AND INSTRUMENT-HOW EXECUTED
The Board of Directors, except as the Bylaws otherwise
provide, may authorize any officer or officers, agent or agents, to enter into
any contract or execute any instrument in the name of and on behalf of the
corporation. Such authorization may be general or confined to specific
instances. Unless so authorized by the Board of Directors, no officer, agent or
employee shall have any power or authority to bind the corporation by any
contract or agreement, or to pledge its credit, or to render it liable for any
purposes or any amount, except as provided in Section 313 of the General
Corporation Law.
ARTICLE VII
CONTROL OVER BYLAWS
After the initial Bylaws of this corporation shall have been
adopted by the incorporator(s) of the corporation, the Bylaws may be amended or
repealed or new Bylaws may be adopted by the shareholders entitled to exercise a
majority of the voting power or by the Board of Directors; provided, however,
that the Board of Directors shall have no control over any Bylaw which fixes or
changes the authorized number of directors of the corporation; provided,
further, that any control over the Bylaws herein vested in the Board of
Directors shall be subject to the authority of the aforesaid shareholders to
amend or repeal the Bylaws or to adopt new Bylaws; and provided further that any
Bylaw amendment or new Bylaw which changes the fixed number or minimum number of
directors
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to fewer than five (5) cannot be adopted if the votes cast against its adoption
at a meeting, or the shares not consenting in the case of action by written
consent, are equal to more than sixteen and two-thirds percent (16 2/3%) of the
outstanding shares entitled to vote.
ARTICLE VIII
BOOKS AND RECORDS - STATUTORY AGENT
Section 1. RECORDS; STORAGE AND INSPECTION. The corporation shall keep at its
principal executive office in the State of California, or, if its principal
executive office is not in the State of California, at its principal business
office in the State of California, the original or a copy of the Bylaws as
amended to date, which shall be open to inspection by the shareholders at all
reasonable times during office hours. If the principal executive office of the
corporation is outside the State of California, and, if the corporation has no
principal business office in the State of California, it shall upon request of
any shareholder furnish a copy of the Bylaws as amended to date.
The corporation shall keep adequate and correct books and
records of account and shall keep minutes of the proceedings of its
shareholders, Board of Directors and committees, if any, of the Board of
Directors. The corporation shall keep at its principal executive office, or at
the office of its transfer agent or registrar, a record of its shareholders,
giving the names and addresses of all shareholders and the number and class of
shares held by each. Such minutes shall be in written form. Such other books and
records shall be kept either in written form or in any other form capable of
being converted into written form.
Section 2. RIGHTS OF INSPECTION. Every director shall have the absolute right at
any reasonable time to inspect and copy, at his sole cost and expense, all
books, records, and documents of every kind and to inspect the physical
properties of the corporation and also of its subsidiary corporations, domestic
or foreign. Such inspection by a director may be made in person or by agent or
attorney and includes the right to copy and obtain extracts.
Section 3. INSPECTION OF CORPORATE RECORDS.
A shareholder or shareholders holding at least five percent
(5%) in the aggregate of the outstanding voting shares of the corporation or who
holds or hold at least one percent (1%) of such voting shares and has or have
filed a Schedule 14B with the United States Securities and Exchange Commission
relating to the election of directors of the corporation shall have an absolute
right to do either or both of the following:
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(a) Inspect and copy at his or their sole cost and
expense the record of shareholders' names and addresses and shareholdings during
usual business hours upon five (5) business days' prior written demand upon the
corporation; or
(b) obtain from the transfer agent, if any, for the
corporation, upon five (5) business days' prior written demand and upon the
tender of its usual charges for such a list (the amount of which charges shall
be stated to the shareholder by the transfer agent upon request), a list of the
shareholders, names and addresses who are entitled to vote for the election of
directors and their shareholdings, as of the most recent record date for which
it has been compiled or as of a date specified by the shareholder subsequent to
the date of demand.
The record of shareholders shall also be open to inspection
and copying by any shareholder or holder of a voting trust certificate at any
time during usual business hours upon written demand on the corporation, for a
purpose reasonably related to such holder's interest as a shareholder or holder
of a voting trust certificate.
The accounting books and records and minutes of proceedings of
the shareholders and the Board of Directors and committees of the Board of
Directors shall be open to inspection upon written demand on the Corporation of
any shareholder or holder of a voting trust certificate at any reasonable time
during usual business hours, for a purpose reasonably related to such holder's
interest as a shareholder or as a holder of such voting trust certificate.
Any inspection and copying authorized by this Section may be
made in person or by agent or attorney.
Section 4. RECORD OF PAYMENTS. All checks, drafts or other orders for payment of
money, notes or other evidences of indebtedness, issued in the name of or
payable to the corporation, shall be signed or endorsed by such person or
persons and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
Section 5. ANNUAL REPORT. Whenever the corporation shall have fewer than one
hundred shareholders, the Board of Directors shall not be required to cause to
be sent to the shareholders of the corporation the annual report prescribed by
Section 1501 of the General Corporation Law unless it shall determine that a
useful purpose would be served by causing the same to be sent or unless the
Department of Corporations, pursuant to the provisions of the Corporate
Securities Law of 1968, shall direct the sending of the same.
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Section 6. AGENT FOR SERVICE. The name and address of the agent for service of
process within the State of California is Bradley Call, 21550 Oxnard Street,
Suite 570, Woodland Hills, CA 91367.
ARTICLE IX
OFFICES
Section 1. PRINCIPAL EXECUTIVE OFFICE. The principal executive
office of the corporation is hereby fixed and located at 21550.
Oxnard Street, Suite 570, Woodland Hills, CA 91367.
The Board of Directors is hereby granted full power and
authority to change said principal executive office from one location to
another. Any such change shall be noted on the Bylaws opposite this Section or
this Section may be amended to state the new location.
Section 2. OTHER OFFICES. Branch or subordinate offices may at any time be
established by the Board of Directors at any place or places.
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RESOLUTIONS OF THE SHAREHOLDERS OF
KLEINERT INDUSTRIES, INC.
In accordance with the provisions of the Bylaws of the
Corporation and the California General Corporation Law, the shareholders are
authorized to take action by unanimous written consent without a meeting.
The sole shareholder hereby adopts, by written consent, the
following resolutions:
WHEREAS, the shareholder has received a letter of resignation
from David Amsterdam from his position on the Board of Directors of this
Corporation, and;
WHEREAS, the shareholder has accepted the resignation of
David Amsterdam from the Board of Directors of this Corporation;
NOW, THEREFORE, BE IT RESOLVED: That David Amsterdam be
removed from the Board of Directors of Kleinert Industries, Inc.
WHEREAS, there now exists a vacancy on the Board of
Directors; and
WHEREAS, it has been determined to be in the best interest of
the corporation to amend the Bylaws of the corporation to decrease the
authorized number of directors from five (5) to four (4).
NOW, THEREFORE, BE IT RESOLVED: That Section 2 of Article
II of the Bylaws of the corporation be, and hereby is, amended to read as
follows:
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"Section 2. QUALIFICATIONS AND NUMBER ... The authorized
number of directors constituting the Board of Directors until further changed
shall be four (4) ...
The Secretary of the corporation is hereby directed to file
this written consent and the resolutions adopted hereby with the Minutes of the
proceedings of the shareholders.
EFFECTIVE: November 2, 1989
KLEINERT UNTERNEHMUNGEN HOLDING AG
By: /s/ V. Kleinert
----------------
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<PAGE>
ARTICLES OF INCORPORATION
OF
3420 SFR, INC.
I
The name of this corporation is 3420 SFR, INC.
II
The purpose of this corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust company
business, or the practice of a profession permitted to be incorporated by the
California Corporations Code.
III
The name and address in the State of California of this
corporation's initial agent for service of process is: BRADLEY C. CALL,
21550 Oxnard Street, Suite 570, Woodland Hills, California 91367.
IV
This corporation is authorized to issue only one class of
shares of stock; and the total number of shares which this corporation is
authorized to issue is one million (1,000,000).
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<PAGE>
V
The liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
VI
The corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the Corporations Code) for breach of duty
to the corporation and its stockholders through bylaws provisions or through
agreements with the agents, or both, in excess of the indemnification otherwise
permitted by Section 317 of the Corporations Code, subject to the limits on such
excess indemnification set forth in Section 204 of the Corporations Code.
/s/ Joan M. Marquardt
---------------------
JOAN M. MARQUARDT
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<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
3420 SFR, INC.
(CORPORATION I.D. NO. 1675487)
Brett Bandy and Jay Hodge certify that:
1. They are the president and the secretary, respectively,
of 3420 SFR, Inc.
2. Article I of the Articles of Incorporation of this
corporation is amended to read as follows:
"The name of this corporation is BANDY HINGE, INC."
3. The foregoing amendment of Articles of Incorporation
has been duly approved by the Board of Directors.
4. The foregoing amendment of Articles of Incorporation has
been duly approved by the required vote of shareholders in accordance with
Section 902 of the Corporations Code. The total number of outstanding shares of
the corporation is 100. The number of shares voting in favor of the amendment
equaled or exceeded the vote required. The percentage vote required was more
than 50%.
We further declare under penalty of perjury under the laws of
the State of California that the matters set forth in this certificate are true
and correct of our own knowledge.
Dated: November 13, 1990
/s/ Brett Bandy
--------------------------
Brett Bandy, President
/s/ Jay Hodge
--------------------------
Jay Hodge, Secretary
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<PAGE>
CERTIFICATE OF ELECTION TO WIND UP AND DISSOLVE
DAVID J. AUGUSTINE CERTIFY THAT:
I AM THE SOLE DIRECTOR AND THAT ALSO
1. I AM THE PRESIDENT, OF BANDY HINGE, INC., A
CALIFORNIA CORPORATION.
2. THE CORPORATION HAS ELECTED TO WIND UP AND DISSOLVE.
3. THE ELECTION WAS MADE BY THE SHAREHOLDER WHICH
REPRESENTS 100% OWNERSHIP AND VOTING POWER OF THE CORPORATION.
WE FURTHER DECLARE UNDER PENALTY OF PERJURY UNDER THE
LAWS OF CALIFORNIA THAT THE MATTERS SET FORTH IN THIS CERTIFICATE ARE TRUE
AND CORRECT OF OUR OWN KNOWLEDGE.
DATE: March 15, 1992
/s/ David J. Augustine
----------------------
DAVID J. AUGUSTINE
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
BANDY HINGE, INC.
(CORPORATION I.D. NO. 1675487)
BRADLEY C. CALL and JAY HODGE certify that:
1. They are the president and the secretary, respectively,
of Bandy Hinge, Inc.
2. Article I of the Articles of Incorporation of this
corporation is amended to read as follows:
"The name of this corporation is BANDY MACHINING
INTERNATIONAL."
3. The foregoing amendment of Articles of Incorporation has
been duly approved by the Board of Directors.
4. The foregoing amendment of Articles of Incorporation has
been duly approved by the required vote of shareholders in accordance with
Section 902 of the Corporations Code. The total number of outstanding shares of
the corporation is 100. The number of shares voting in favor of the amendment
equaled or exceeded the vote required. The percentage vote required was more
than 50%.
We further declare under penalty of perjury under the laws of
the State of California that the matters set forth in this certificate are true
and correct of our own knowledge.
Dated: August 11, 1995
/s/ Bradley C. Call
------------------------------
Bradley C. Call, President
/s/ Jay Hodge
------------------------------
Jay Hodge, Secretary
<PAGE>
BYLAWS OF
3420 SFR, INC.
(A California Corporation)
ARTICLE I
SHAREHOLDERS' MEETINGS
Section 1. TIME. An annual meeting for the election of directors and for the
transaction of any other proper business shall be held on the first (1st) day of
December of each year or if such day falls on a weekend or a holiday, then on
the next succeeding business day. Any special meeting shall be held on the date
and at the time as the Board of Directors shall from time to time fix.
Section 2. PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of California, as the Directors may, from
time to time, fix. Whenever the Directors shall fail to fix such place, the
meetings shall be held at the principal executive office of the corporation.
Section 3. CALL. Annual meetings may be called by the Board of Directors, by the
Chairman of the Board, if any, Vice Chairman of the Board, if any, the
President, the Secretary, or by any officer instructed by the Board of Directors
to call the meetings. Special meetings may be called in like manner and by the
holders of shares entitled to cast not less than ten percent (10%) of the votes
at the meeting being called in the following manner. Upon request in writing to
the Chairman of the Board, the President, any Vice President or the Secretary by
any person(s), firm(s) and/or entity(ies) (other than the Board) entitled to
call a special meeting of shareholders, the officer to whom such request is
delivered shall as soon as reasonably possible cause notice to be given to the
shareholders entitled to vote that a meeting will be held at a time requested by
the person(s), firm(s) and/or entity(ies) calling the meeting, which time shall
not be less than thirty-five (35) or more than sixty (60) days after the receipt
of the request unless the request indicates that a longer or shorter period is
necessary. If the notice is not given within twenty (20) days after receipt of
the request, the persons entitled to call the meeting may give the notice.
Section 4. NOTICE. Written notice stating the place, day and hour of each
meeting, and, in the case of a special meeting, the general nature of the
business to be transacted or, in the case of an annual meeting, those matters
which the Board of Directors, at the time of mailing of the notice, intend to
present for action by the shareholders, shall be given not less than ten (10)
days (or not less than any such other minimum period of days as
<PAGE>
may be prescribed by the General Corporation Law of the State of California -
the "General Corporation Law") or more than sixty (60) days (or more than any
such maximum period of days as may be prescribed by the General Corporation Law)
before the date of the meeting, by mail, personally, or by other means of
written communication, charges prepaid by or at the direction of the Board of
Directors, the President, the Secretary or the officer or persons calling the
meeting, addressed to each shareholder at the address of such shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice, or, if no such address appears or is
given, at the place where the principal executive office of the corporation is
located or by publication at least once in a newspaper of general circulation in
the county in which the said principal executive office is located. Such notice
shall be deemed to have been given at the time when delivered personally or when
deposited in the United States mail with first class postage thereon prepaid, or
sent by other means of written communication addressed to the shareholder at his
address as it appears on the stock transfer books of the corporation. The notice
of any meeting at which directors are to be elected shall include the names of
nominees intended at the time of the notice to be presented by management for
election. At an annual meeting of shareholders, any matter relating to the
affairs of the corporation, whether or not stated in the notice of the meeting,
may be brought up for action except matters which the General Corporation Law
requires to be stated in the notice of the meeting. The notice of any annual or
special meeting shall also include, or be accompanied by, any additional
information, or documents prescribed by the General Corporation Law. When a
meeting is adjourned to another time or place, notice of the adjourned meeting
need not be given if the time and place thereof are announced at the meeting at
which the adjournment is taken; provided that, if after the adjournment a new
record date is fixed for the adjourned meeting, or if more than forty-five (45)
days pass from the date of the original meeting, a notice of the adjourned
meeting shall be given to each shareholder. At the adjourned meeting, the
corporation may transact any business which might have been transacted at the
original meeting.
Section 5. CONSENT. The transaction of any meeting, however called and noticed,
and wherever held, shall be valid as though taking place at a meeting duly held
after regular call and notice if a quorum is present and if, either before or
after the meeting, each of the shareholders or his proxy signs a written waiver
of notice or a consent to the holding of the meeting or an approval of the
minutes thereof. All such waivers, consents and approvals shall be filed with
the corporate records or made a part of the minutes of the meeting. Attendance
of a person at a meeting constitutes a waiver of notice of such meeting, except
when the person objects, at the beginning of the meeting in writing, to the
transaction of any business because the meeting
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<PAGE>
is not lawfully called or convened and except that attendance at a meeting shall
not constitute a waiver of any right to object to the consideration of matters
required by the General Corporation Law to be included in the notice but not so
included, if such objection is expressly made at the meeting in writing. Except
as otherwise provided in subdivision (f) of Section 601 of the General
Corporation Law, neither the business to be transacted at nor the purpose of any
regular or special meeting need be specified in any written waiver of notice.
Section 6. CONDUCT OF MEETING. Meetings of the shareholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting -- the Chairman of the Board, if any, the Vice Chairman of the Board,
if any, the President, a Vice President, or, if none of the foregoing is in
office and present and acting, by a chairman to be chosen by the shareholders.
The Secretary of the corporation, or in his or her absence, an Assistant
Secretary, shall act as secretary of every meeting, but, if neither the
Secretary nor an Assistant Secretary is present, the chairman of the meeting
shall appoint a secretary of the meeting.
Section 7. PROXY REPRESENTATION. Every shareholder may authorize another person
or persons to act as his, her or its proxy at a meeting or by written consent.
No proxy shall be valid after the expiration of eleven (11) months from the date
of its execution unless otherwise provided in the proxy. Every proxy shall be
revocable at the sole discretion of the person executing it prior to the vote or
written consent pursuant thereto, except as otherwise provided by the General
Corporation Law. As used herein, a "proxy" shall be deemed to mean a written
authorization, signed by a shareholder or a shareholder's attorney in fact,
giving another person or persons other than the shareholder the power to vote or
consent in writing with respect to the shares of such shareholder; and "signed"
as used herein shall be deemed to mean the placing of such shareholder's name on
the proxy by the shareholder or the shareholder's attorney in fact, whether by
manual signature, typewriting, telegraphic transmission or otherwise. Where
applicable, the form of any proxy shall comply with the provisions of Section
604 of the General Corporation Law.
Section 8. INSPECTORS - APPOINTMENT. In advance of any meeting, the Board of
Directors may appoint inspectors of election to act at the meeting. If
inspectors of election are not so appointed, or if any persons so appointed fail
to appear or refuse to act, the chairman of any meeting of shareholders may, and
on the request of any shareholder or a shareholder's proxy shall, appoint
inspectors of election (or persons to replace those who so fail or refuse) at
the meeting. The number of inspectors shall be either one (1) or three (3). If
appointed at a meeting on the request of one or more shareholders or
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<PAGE>
proxies, the majority of shares represented shall determine whether one or three
inspectors are to be appointed. The inspectors of election shall determine the
number of shares outstanding and the voting power of each and determine the
shares represented at the meeting; determine the existence of a quorum and the
authenticity, validity, and effect of proxies; receive votes, ballots, if any,
or consents; hear and determine all challenges and questions in any way arising
in connection with the right to vote; count and tabulate all votes or consents;
determine when the polls shall close; determine the result; and do such acts as
may be proper to conduct the election or vote with fairness to all shareholders.
If there are three (3) inspectors of election, the decision, act, or certificate
of a majority shall be effective in all respects as the decision, act, or
certificate of all.
Section 9. SUBSIDIARY CORPORATIONS. Shares of this corporation owned by a
subsidiary shall not be entitled to vote on any matter. A subsidiary for these
purposes is defined as a corporation, the shares of which possessing more than
twenty-five percent (25%) of the total combined voting power of all classes of
shares entitled to vote are owned by this corporation, directly or indirectly,
including, but not limited to, through one or more subsidiaries of this
corporation.
Section 10. QUORUM; VOTE; WRITTEN CONSENT. The holders of a majority of the
voting shares shall constitute a quorum at a meeting of shareholders for the
transaction of any business. The shareholders present at a duly called or held
meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum, if any action taken, other than adjournment, is approved by at
least a majority of the shares required to constitute a quorum. In the absence
of a quorum, any meeting of shareholders may be adjourned from time to time by
the vote of a majority of the shares represented thereat, but no other business
may be transacted except as hereinbefore provided.
In the election of directors, a plurality of the votes cast
shall elect. No shareholder shall be entitled to exercise the right of
cumulative voting at a meeting for the election of directors unless the
candidate's name or the candidates' names have been placed in nomination prior
to the voting and the shareholder has given notice at the meeting prior to the
voting of the shareholder's intention to cumulate the shareholder's votes. If
any one shareholder has given such notice, all shareholders may cumulate their
votes for such candidates in nomination.
Except as otherwise provided by the General Corporation Law,
the Articles of Incorporation or these Bylaws, any action required or permitted
to be taken at a meeting at which a quorum
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<PAGE>
is present shall be authorized by the affirmative vote of a majority of the
shares represented at the meeting.
Except in the election of directors by written consent in lieu
of a meeting, and except as may otherwise be provided by the General Corporation
Law, the Articles of Incorporation or these Bylaws, any action which may be
taken at any annual or special meeting may be taken without a meeting and
without prior notice, if a consent in writing, setting forth the action so
taken, shall be signed by holders of shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Directors may not be elected by written consent except by unanimous written
consent of all shares entitled to vote for the election of directors. Notice of
shareholder approval, pursuant to Sections 310, 317, 1201 or 2007, without a
meeting by less than unanimous written consent shall be given at least ten (10)
days before the consummation of the action authorized by such approval, and
prompt notice shall be given of the taking of any other corporate action
approved by shareholders without a meeting by less than unanimous written
consent to those shareholders entitled to vote who have not consented in
writing.
Section 11. BALLOT. Elections of directors at a meeting need not be by ballot
unless a shareholder demands election by ballot at the election and before the
voting begins. In all other matters, voting need not be by ballot.
ARTICLE II
BOARD OF DIRECTORS
Section 1. FUNCTIONS. The business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction of
its Board of Directors. The Board of Directors may delegate the management of
the day-to-day operation of the business of the corporation to a management
company or other person, firm or entity provided that the business and affairs
of the corporation shall be managed and all corporate powers shall be managed
and all corporate powers shall be exercised under the ultimate direction of the
Board of Directors. The Board of Directors shall have authority to fix the
compensation of directors for services in any lawful capacity.
Each director shall exercise such powers and otherwise perform
such duties in good faith, in the manner such director believes to be in the
best interests of the corporation, and with such care, including reasonable
inquiry, as an ordinarily prudent person in a like position would use under
similar circumstances.
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<PAGE>
Without prejudice to such general powers, but subject to the
same limitations, it is hereby expressly declared that the Board of Directors
shall have the following powers in addition to the other powers enumerated in
these Bylaws:
(a) To select and remove all the other officers, agents, and
employees of the corporation, prescribe the powers and duties for them as may
not be inconsistent with law, the Articles of Incorporation or these Bylaws, fix
their compensation, and require from them security for faithful service.
(b) To conduct, manage and control the affairs and business of
the corporation and to make such rules and regulations therefor not inconsistent
with law, the Articles of Incorporation or these Bylaws, as they may deem best.
(c) To adopt, make, and use a corporate seal and to prescribe
the forms of certificates of stock, and to alter the form of such seal and of
such certificates from time to time as, in their judgment, they may deem best.
(d) To authorize the issuance of shares of stock of the
corporation from time to time, upon such terms and for such considerations as
may be lawful.
(e) To borrow money and incur indebtedness for the purposes of
the corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations, or other evidences of debt and securities therefor.
(f) To fill all vacancies in the Board of Directors not
filled by the shareholders.
Section 2. QUALIFICATIONS AND NUMBER. A director need not be a shareholder of
the corporation, resident or citizen of the United States, or a resident of the
State of California. The authorized number of directors constituting the Board
of Directors until further changed shall be two (2). Thereafter, the authorized
number of directors constituting the Board of Directors shall be at least three
(3), provided that, whenever the corporation shall have only two (2)
shareholders, the number of directors may be at least two (2), and, whenever the
corporation shall have only one (1) shareholder, the number of directors may be
at least one (1). Subject to the foregoing provisions, the number of directors
may be changed from time to time by an amendment of these Bylaws adopted by the
shareholders. Any such amendment reducing the fixed number or the minimum number
of directors to fewer than five (5) cannot be adopted if the votes cast against
its adoption at a meeting, or the shares
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<PAGE>
not consenting in writing in the case of action by written consent, are equal to
more than sixteen and two-thirds percent (16 2/3%) of the outstanding shares
entitled to vote. No decrease in the authorized number of directors shall have
the effect of shortening the term of any incumbent director.
Section 3. ELECTION AND TERM. The initial Board of Directors shall consist of
the persons elected at the meeting of the incorporator(s), all of whom shall
hold office until the first annual meeting of shareholders and until their
successors have been elected and qualified, or until their earlier resignation
or removal from office. Thereafter, directors who are elected to replace any or
all of the members of the initial Board of Directors or who are elected at an
annual meeting of shareholders, and directors who are elected in the interim to
fill vacancies, shall hold office until the next annual meeting of shareholders
and until their successors have been elected and qualified, or until their
earlier resignation, removal from office, or death. In the interim between
annual meetings of shareholders or of special meetings of shareholders called
for the election of directors, any vacancies in the Board of Directors,
including vacancies resulting from an increase in the authorized number of
directors which have not been filled by the shareholders, including any other
vacancies which the General Corporation Law authorizes directors to fill and
including vacancies resulting from the removal of directors which are not filled
at the meeting of shareholders at which any such removal has been effected, if
the Articles of Incorporation or a Bylaw adopted by the shareholders so
provides, may be filled by the vote of a majority of the directors then in
office or of the sole remaining director, although less than a quorum exists.
Any director may resign effective upon giving written notice to the Chairman of
the Board, if any, the President, the Secretary or the Board of Directors,
unless the notice specifies a later time for the effectiveness of such
resignation. If the resignation is effective at a future time, a successor may
be elected to the office when the resignation becomes effective.
The shareholders may elect a director at any time to fill any
vacancy which the directors are entitled to fill, but which they have not
filled. Any such election by written consent shall require the consent of a
majority of the shares.
Section 4. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The
corporation may indemnify any director, officer, agent or employee as to those
liabilities and on those terms and conditions as are specified in Section 317 of
the General Corporation Law. In any event, the corporation shall have the right
to purchase and maintain insurance on behalf of any such persons whether or not
the corporation would have the power to indemnify such person against the
liability insured against.
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<PAGE>
Section 5. MEETINGS.
TIME. Meetings shall be held at such time as the Board of
Directors shall fix, except that the first meeting of a newly elected Board
shall be held as soon after its election as the directors may conveniently
assemble.
PLACE. Meetings may be held at any place, within or without
the State of California, which has been designated in any notice of the meeting,
or, if not stated in said notice, or, if there is no notice given, at the place
designated by resolution of the Board of Directors.
CALL. Meetings may be called by the Chairman of the Board, if
any, by the President, by any Vice President or Secretary, or by any two (2)
directors, or if there are only two directors, by any one (1) director.
NOTICE AND WAIVER THEREOF. No notice shall be required for
regular meetings for which the time and place have been fixed by the Board of
Directors. Special meetings shall be held upon at least four (4) days' notice by
mail or upon at least forty-eight (48) hours' notice delivered personally or by
telephone or telegraph. Notice of a meeting need not be given to any director
who signs a waiver of notice, whether before or after the meeting, or who
attends the meeting without protesting, prior thereto or at its commencement in
writing, the lack of notice to such director. A notice or waiver of notice need
not specify the purpose of any regular or special meeting of the Board of
Directors.
Section 6. SOLE DIRECTOR PROVIDED BY ARTICLES OF INCORPORATION. In the event
only one (1) director is required by the Bylaws or Articles of Incorporation,
then any reference herein to notices, waivers, consents, meetings or other
actions by a majority or quorum of the directors shall be deemed to refer to
such notice, waiver, etc., by such sole director, who shall have all the rights
and duties and shall be entitled to exercise all of the powers and shall assume
all the responsibilities otherwise herein described as given to a Board of
Directors.
Section 7. QUORUM AND ACTION. A majority of the authorized number of directors
shall constitute a quorum except when a vacancy or vacancies prevents such
majority, whereupon a majority of the directors in office shall constitute a
quorum provided such majority shall constitute at least either one-third (1/3)
of the authorized number of directors or at least two (2) directors, whichever
is larger, or unless the authorized number of directors is only one (1). A
majority of the directors present, whether or not a quorum is present, may
adjourn any meeting to another time and place. If the meeting is adjourned for
more than twenty-four (24) hours, notice of any adjournment to another time or
place
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<PAGE>
shall be given prior to the time of the adjourned meeting to the directors, if
any, who were not present at the time of the adjournment. Except as the Articles
of Incorporation, these Bylaws and the General Corporation Law may otherwise
provide, the act or decision done or made by a majority of the directors present
at a meeting duly held at which a quorum is present shall be the act of the
Board of Directors. Members of the Board of Directors may participate in a
meeting through use of conference telephone or similar communications equipment,
so long as all members participating in such meeting can hear one another, and
participation by such use shall be deemed to constitute presence in person at
any such meeting.
A meeting at which a quorum is initially present may continue
to transact business notwithstanding the withdrawal of directors, provided that
any action which may be taken is approved by at least a majority of the required
quorum for such meeting.
Section 8. CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, the Vice Chairman of the Board, if any and if present and
acting, shall preside at all meetings. Otherwise, the President, if present and
acting, or any director chosen by the Board of Directors, shall preside.
Section 9. REMOVAL OF DIRECTORS. The entire Board of Directors or any individual
director may be removed from office without cause by approval of the holders of
at least a majority of the shares, provided that unless the entire Board of
Directors is removed, an individual director shall not be removed when the votes
cast against such removal, or not consenting in writing to such removal, would
be sufficient to elect such director if voted cumulatively at an election of
directors at which the same total number of votes were cast (or, if such action
is taken by written consent in lieu of a meeting, all shares entitled to vote
were voted) and the entire number of directors authorized at the time of the
director's most recent election were then being elected. If any or all directors
are so removed, new directors may be elected at the same meeting or by such
written consent. The Board of Directors may declare vacant the office of any
director who has been declared of unsound mind by an order of court or convicted
of a felony.
Section 10. COMMITTEES. The Board of Directors, by resolution adopted by a
majority of the authorized number of directors, may designate one (1) or more
committees, each consisting of two (2) or more directors to serve at the
pleasure of the Board of Directors. The Board of Directors may designate one (1)
or more directors as alternate members of any such committee, who may replace
any absent member at any meeting of such committee. Any such committee, to the
extent provided in the resolution of the Board of Directors, shall have all the
authority of the Board of
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<PAGE>
Directors except such authority as may not be delegated by the provisions of the
General Corporation Law.
Section 11. INFORMAL ACTION. The transactions of any meeting of the Board of
Directors, however called and noticed or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice, if a quorum is
present and if, either before or after the meeting, each of the directors not
present signs a written waiver of notice, a consent to holding the meeting, or
an approval of the minutes thereof. All such waivers, consents, or approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting.
Section 12. WRITTEN ACTION. Any action required or permitted to be taken may be
taken without a meeting if all of the members of the Board of Directors shall
individually or collectively consent in writing to such action. Any such consent
or consents shall be filed with the minutes of the proceedings of the Board of
Directors. Such action by written consent shall have the same force and effect
as a unanimous vote of such directors.
ARTICLE III
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be a Chairman of the
Board or a President or both, a Secretary and a Chief Financial Officer. The
corporation may also have, at the discretion of the Board of Directors, one or
more Vice Presidents, one or more Assistant Secretaries and such other officers
as may be appointed in accordance with the provisions of Section 3 of this
Article. One person may hold two or more offices.
Section 2. ELECTION. The officers of the corporation, except such officers as
may be appointed in accordance with the provisions of Section 3 or Section 5 of
this Article, shall be chosen annually by the Board of Directors, and each shall
hold his office until he shall resign or shall be removed or otherwise
disqualified to serve, or his successor shall be elected and qualified.
Section 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint such
other officers as the business of the corporation may require, each of whom
shall hold office for such period, have such authority and perform such duties
as are provided in the Bylaws or as the Board of Directors may from time to time
determine.
Section 4. REMOVAL AND RESIGNATION. Any officer may be removed, either with
or without cause, by a majority of the
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<PAGE>
directors at the time in office, at any regular or special meeting of the Board
of Directors, or, except in case of an officer chosen by the Board of Directors,
by any officer upon whom such power of removal may be conferred by the Board of
Directors.
Any officer may resign at any time by giving written notice to
the Board of Directors, or to the President, or to the Secretary of the
corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 5. VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled in the manner
prescribed in the Bylaws for regular appointments to such office.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall be
such an officer, shall, if present, preside at all meetings of the Board of
Directors, and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by the
Bylaws.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be
given by the Board of Directors to the Chairman of the Board, if there be such
an officer, the President shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. He shall preside at all meetings of the shareholders and, in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board of Directors. He shall be ex officio a member of all the standing
committees, including the Executive Committee, if any, and shall have the
general powers and duties of management usually vested in the office of
President of a corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or the Bylaws.
Section 8. VICE PRESIDENT. In the absence or disability of the President, the
Vice Presidents, in order of their rank as fixed by the Board of Directors, or
if not ranked, the Vice President designated by the Board of Directors, shall
perform all the duties of the President, and when so acting shall have all the
powers of, and be subject to, all the restrictions upon, the President. The Vice
Presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the Board of Directors
or the Bylaws.
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Section 9. SECRETARY. The Secretary shall keep, or cause to be kept, a book of
minutes at the corporation's principal office or such other place as the Board
of Directors may order, of all meetings of Directors and Shareholders, with the
time and place of holding, whether regular or special, and if special, how
authorized, the notice thereof given, the names of those present at Directors'
meetings, the number of shares present or represented at Shareholders' meetings
and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the
corporation's principal office or at the office of the corporation's transfer
agent, a share register, or duplicate share register, showing the names of the
shareholders and their addresses; the number and classes of shares held by each;
the number and date of certificates issued for the same; and the number and date
of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all
the meetings of the shareholders and of the Board of Directors required by the
Bylaws to be given, and he shall keep the seal of the corporation in safe
custody, and shall have such other powers and perform such other duties as may
be prescribed by the Board of Directors or by the Bylaws.
Section 10. CHIEF FINANCIAL OFFICER. This officer shall keep and maintain, or
cause to be kept and maintained in accordance with generally accepted accounting
principles, adequate and correct accounts of the properties and business
transactions of the corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, earnings (or surplus) and
shares. The books of account shall at all reasonable times be open to inspection
by any director.
This officer shall deposit all monies and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the Board of Directors. He shall disburse the funds of the
corporation as may be ordered by the Board of Directors, shall render to the
President and directors, whenever they request it, an account of all his
transactions and of the financial condition of the corporation, and shall have
such other powers and perform such other duties as may be prescribed by the
Board of Directors or the Bylaws.
ARTICLE IV
CERTIFICATES AND TRANSFERS OF SHARES
Section 1. CERTIFICATES FOR SHARES. Each certificate for shares of the
corporation shall set forth therein the name of the record holder of the shares
represented thereby, the number of
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shares and the class or series of shares owned by said holder, the par value, if
any, of the shares represented thereby, and such other statements, as
applicable, prescribed by Sections 416 - 419, inclusive, and other relevant
sections of the General Corporation Law and such other statements as applicable,
which may be prescribed by the Corporation Securities Law of the State of
California and any other applicable provisions of the law. Each such certificate
issued shall be signed in the name of the corporation by the Chairman of the
Board, if any, or the Vice Chairman of the Board, if any, the President or a
Vice President, if any, and by the Chief Financial Officer or an Assistant
Treasurer or the Secretary or an Assistant Secretary. Any or all of the
signatures on a certificate for shares may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate for shares shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if such person were an officer,
transfer agent or registrar at the date of issue.
In the event that the corporation shall issue the whole or any
part of its shares as partly paid and subject to call for the remainder of the
consideration to be paid therefor, any such certificate for shares shall set
forth thereon the statements prescribed by Section 409 of the General
Corporation Law.
Section 2. LOST OR DESTROYED CERTIFICATES FOR SHARES. The corporation may issue
a new certificate for shares, or for any other security, in the place of any
other certificate theretofore issued by it which is alleged to have been lost,
stolen or destroyed. As a condition to such issuance, the corporation may
require any such owner of the allegedly lost, stolen or destroyed certificate or
any such owner's legal representative to give the corporation a bond, or other
adequate security, sufficient to indemnify it against any claim that may be made
against it, including any expense or liability, on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate.
Section 3. SHARE TRANSFERS. Upon compliance with any provisions of the General
Corporation Law and/or the Corporate Securities Law of 1968 which may restrict
the transferability of shares, transfers of shares of the corporation shall be
made on the record of shareholders of the corporation only by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary of the corporation or with a transfer
agent or a registrar, if any, and on surrender of the certificate or
certificates for such shares properly endorsed and the payment of all taxes, if
any, due thereon.
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Section 4. RECORD DATE FOR SHAREHOLDERS. In order that the corporation may
determine the shareholders entitled to notice of and to vote at any meeting, or
to receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any other lawful action, the
Board of Directors may fix, in advance, a record date, which shall not be more
than sixty (60) days or fewer than ten (10) days prior to the date of such
meeting or more than sixty (60) days prior to any other action.
If the Board of Directors shall not have fixed a record date
as aforesaid, the record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day next preceding the day on
which the meeting is held; the record date for determining shareholders entitled
to give consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors has been taken, shall be the day on which the
first written consent is given; and the record date for determining shareholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto, or the sixtieth
(60th) day prior to the day of such other action, whichever is later.
A determination of shareholders of record entitled to notice
of or to vote at a meeting of shareholders shall apply to any adjournment of the
meeting unless the Board of Directors fixes a new record date for the adjourned
meeting, but the Board of Directors shall fix a new record date if the meeting
is adjourned for more than forty-five (45) days from the date set for the
original meeting.
Except as may be otherwise provided by the General Corporation
Law, shareholders on the record date shall be entitled to notice, to vote, to
receive any dividend, distribution or allotment of rights, or to exercise any
rights, as the case may be, notwithstanding any transfer of any shares on the
books of the corporation after the record date.
Section 5. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares of other
corporations standing in the name of this corporation may be voted or
represented and all incidents thereto may be exercised on behalf of the
corporation by the Chairman of the Board, the President or any Vice President or
any other person authorized by resolution of the Board of Directors.
Section 6. MEANING OF CERTAIN TERMS. As used in these Bylaws in respect of the
right to notice of a meeting of shareholders or a waiver thereof or to
participate or vote thereat or to assent or consent or dissent in writing in
lieu of a meeting, as the
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<PAGE>
case may be, the terms "share" or "shares" or "shareholder" or "shareholders"
refers to an outstanding share or shares and to a holder or holders of record of
outstanding shares when the corporation is authorized to issue only one class of
shares, and said reference is also intended to include any outstanding share or
shares and any holder or holders of record of outstanding shares of any class
upon which or upon whom the Articles of Incorporation confer such rights where
there are two or more classes or series of shares or upon which or upon whom the
General Corporation Law confers such rights notwithstanding that the Articles of
Incorporation may provide for more than one class or series of shares, one or
more of which are limited or denied such rights thereunder.
ARTICLE V
EFFECT OF SHAREHOLDERS' AGREEMENT CLOSE CORPORATION
Any Shareholders' Agreement authorized by Section 300(b) shall
only be effective to modify the terms of these Bylaws if this corporation elects
to become a close corporation with appropriate filing of or amendment to its
Articles of Incorporation as required by General Corporation Law Section 202 and
shall terminate when this corporation ceases to be a close corporation. Such an
agreement cannot waive or alter General Corporation Law Sections 158 (defining
close corporations), 202 (requirement of Articles of Incorporation), 500 and 501
(relative to distributions), 1111 (merger), 1201(e) (reorganization) or Chapters
15 (Records and Reports), 16 (Rights of Inspection), 18 (Involuntary
Dissolution) or 22 (Crimes and Penalties). Any other provisions of the General
Corporation Law or these Bylaws may be altered or waived thereby, but to the
extent they are not so altered or waived, these Bylaws shall be applicable.
ARTICLE VI
CORPORATE CONTRACTS AND INSTRUMENT HOW EXECUTED
The Board of Directors, except as the Bylaws otherwise
provide, may authorize any officer or officers or agent or agents to enter into
any contract or execute any instrument in the name of and on behalf of the
corporation. Such authorization may be general or confined to specific
instances. Unless so authorized by the Board of Directors, no officer, agent or
employee shall have any power or authority to bind the corporation by any
contract or agreement, or to pledge its credit, or to render it liable for any
purposes or any amount, except as provided in Section 313 of the General
Corporation Law.
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<PAGE>
ARTICLE VII
CONTROL OVER BYLAWS
After the initial Bylaws of this corporation shall have been
adopted by the incorporator(s) of the corporation, the Bylaws may be amended or
repealed or new Bylaws may be adopted by the shareholders entitled to exercise a
majority of the voting power or by the Board of Directors; provided, however,
that the Board of Directors shall have no control over any Bylaw which fixes or
changes the authorized number of directors of the corporation; provided,
further, that any control over the Bylaws herein vested in the Board of
Directors shall be subject to the authority of the aforesaid shareholders to
amend or repeal the Bylaws or to adopt new Bylaws; and provided further that any
Bylaw amendment or new Bylaw which changes the fixed number or minimum number of
directors to fewer than five (5) cannot be adopted if the votes cast against its
adoption at a meeting, or the shares not consenting in the case of action by
written consent, are equal to more than sixteen and two-thirds percent (16 2/3%)
of the outstanding shares entitled to vote.
ARTICLE VIII
BOOKS AND RECORDS - STATUTORY AGENT
Section 1. RECORDS; STORAGE AND INSPECTION. The corporation shall keep at its
principal executive office, or, if its principal executive office is not in the
State of California, at its principal business office in the State of
California, the original or a copy of the Bylaws as amended to date, which shall
be open to inspection by the shareholders at all reasonable times during office
hours. If the principal executive office of the corporation is outside the State
of California, and, if the corporation has no principal business office in the
State of California, it shall upon request of any shareholder furnish a copy of
the Bylaws as amended to date.
The corporation shall keep adequate and correct books and
records of account and shall keep minutes of the proceedings of its
shareholders, Board of Directors and committees, if any, of the Board of
Directors. The corporation shall keep at its principal executive office, or at
the office of its transfer agent or registrar, a record of its shareholders,
giving the names and addresses of all shareholders and the number and class of
shares held by each. Such minutes shall be in written form. Such other books and
records shall be kept either in written form or in any other form capable of
being converted into written form.
Section 2. RIGHTS OF INSPECTION. Every director shall have the absolute right at
any reasonable time to inspect and copy, at his sole cost and expense, all
books, records, and documents of
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every kind and to inspect the physical properties of the corporation and also of
its subsidiary corporations, domestic or foreign. Such inspection by a director
may be made in person or by agent or attorney and includes the right to copy and
obtain extracts.
Section 3. INSPECTION OF CORPORATE RECORDS. A shareholder or shareholders
holding at least five percent (5%) in the aggregate of the outstanding voting
shares of the corporation or who holds or hold at least one percent (1%) of such
voting shares and has or have filed a Schedule 14B with the United States
Securities and Exchange Commission relating to the election of directors of the
corporation shall have an absolute right to do either or both of the following:
(a) Inspect and copy at his or their sole cost and
expense the record of shareholders' names and addresses and shareholdings during
usual business hours upon five (5) business days' prior written demand upon the
corporation; or
(b) Obtain from the transfer agent, if any, for
the corporation, upon five (5) business days' prior written demand and upon the
tender of its usual charges for such a list (the amount of which charges shall
be stated to the shareholder by the transfer agent upon request), a list of the
names and addresses of the shareholders who are entitled to vote for the
election of directors and their shareholdings, as of the most recent record date
for which it has been compiled or as of a date subsequent to the date of demand
specified by the shareholder.
The record of shareholders shall also be open to inspection
and copying by any shareholder or holder of a voting trust certificate at any
time during usual business hours upon written demand on the corporation, for a
purpose reasonably related to such holder's interest as a shareholder or holder
of a voting trust certificate.
The accounting books and records and minutes of proceedings of
the shareholders and the Board of Directors and committees of the Board of
Directors shall be open to inspection upon written demand on the corporation of
any shareholder or holder of a voting trust certificate at any reasonable time
during usual business hours, for a purpose reasonably related to such holder's
interest as a shareholder or as a holder of such voting trust certificate.
Any inspection and copying authorized by this Section may be
made in person or by agent or attorney.
Section 4. RECORD OF PAYMENTS. All checks, drafts or other orders for payment of
money, notes or other evidences of indebtedness, issued in the name of or
payable to the
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corporation, shall be signed or endorsed by such person or persons and in such
manner as shall be determined from time to time by resolution of the Board of
Directors.
Section 5. ANNUAL REPORT. Whenever the corporation shall have fewer than one
hundred shareholders, the Board of Directors shall not be required to cause to
be sent to the shareholders of the corporation the annual report prescribed by
Section 1501 of the General Corporation Law unless it shall determine that a
useful purpose would be served by causing the same to be sent or unless the
Department of Corporations, pursuant to the provisions of the Corporate
Securities Law of 1968, shall direct the sending of the same.
Section 6. AGENT FOR SERVICE. The name and address of the initial agent for
service of process within the State of California is BRADLEY C. CALL, 21550
Oxnard Street, Suite 570, Woodland Hills, California 91367.
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<PAGE>
BANDY MACHINING INTERNATIONAL
ACTION BY CONSENT IN LIEU OF A MEETING
In lieu of a meeting of the stockholder of Bandy Machining
International (the "Corporation"), a California corporation, the stockholder of
the Corporation acting without a meeting and in accordance with Section 603(a)
of the California Corporate Code hereby agrees to the following resolutions:
Election of Directors
RESOLVED, that the Board of Directors of the Corporation shall consist
of three directors, who shall serve until the next annual meeting of
shareholders and/or until their successors are elected and qualify; and
RESOLVED, FURTHER, that Richard L. Kramer, William L. Remley
and Bradley C. Call are hereby elected as the Directors to
serve aforesaid.
The stockholder, by signing this consent, waives notice of the time,
place and purpose of a Meeting and agree to the transaction of business of a
Meeting by written consent in lieu of such meeting.
IN WITNESS WHEREOF, the stockholder has, by its duly authorized
representative acting for and on its behalf, executed this Action as of the 1st
day of July, 1997.
KLEINERT INDUSTRIES, INC.
By: /s/ Bradley C. Call
------------------------------
Bradley C. Call, President
<PAGE>
ARTICLES OF INCORPORATION
OF
PARAGON PRECISION PRODUCTS
KNOW ALL MEN BY THESE PRESENTS:
That we, the undersigned, have this day voluntarily associated
ourselves together for the purpose of forming a corporation under the laws of
the State of California, and we do hereby certify:
FIRST: That the name of the corporation shall be PARAGON
PRECISION PRODUCTS.
SECOND: The purposes for which this corporation is
formed are:
(a) The specific business in which the corporation is
primarily to engage is: The business of machining of precision mechanical
metal parts.
(b) To engage in any one or more business or transactions
which the Board of Directors of this corporation may from time to time authorize
or approve, whether related or unrelated to the business described in (a) above
or to any other business then or theretofore done by this corporation.
(c) To act as principal, agent, joint venturer, partner,
or in any other capacity which may be authorized or approved by the Board of
Directors of this corporation.
(d) To engage, generally, in the business of financing
any lawful enterprise in any lawful way.
(e) To exercise any and all rights and powers which a
corporation may now or hereafter exercise.
The foregoing statement of purposes shall be construed as a
statement of both purposes and powers, and the purposes and powers in each
clause shall, except where otherwise expressed, be
1
<PAGE>
in nowise limited or restricted by reference to or inference from the terms and
provisions of any other clause, but shall be regarded as independent purposes
and powers.
THIRD: The principal office for transaction of
business of this corporation is located in the County of Los
Angeles, State of California.
FOURTH: This corporation is authorized to issue only
one class of shares of stock; the total number of shares shall be Ten Thousand
(10,000); the aggregate par value of all of said shares shall be One Million
Dollars ($1,000,000.00); and the par value of each of said shares shall be One
Hundred Dollars ($100.00);
FIFTH: The number of directors of said corporation
shall be six (6), and the names and addresses of those who are appointed to act
until the first annual meeting of shareholders or until the election and
qualification of their successors are:
NAME ADDRESS
JACK D. MOST 1718 Ambassador Avenue
Beverly Hills, California 90210
DIANE BIALOBRODA 1942 Pelham Avenue
Los Angeles, California 90025
MARSHA E. SUTTON 314 North Almont Drive
Beverly Hills, California 90211
FLORA FISHER 1236 McClellan Drive
Los Angeles, California 90025
JOYCE SACKETT 1723 South Shenandoah Street
Los Angeles, California 90035
KENNETH C. GIBBS 11750 National Boulevard
Los Angeles, California 90064
2
<PAGE>
SIXTH: The number of directors of the corporation
may be fixed or altered from time to time by amendment to the By-Laws of the
corporation, by a vote or written assent of the stockholders entitled to
exercise a majority of the voting powers as provided by the Corporations Code of
the State of California.
IN WITNESS WHEREOF, we, the undersigned, who are all of the
directors named herein, have hereunto set our hands this 21st day of February,
1974.
/s/ Jack D. Most /s/ Diane Bialobroda
JACK D. MOST DIANE BIALOBRODA
/s/ Marsha E. Sutton /s/ Flora Fisher
MARSHA E. SUTTON FLORA FISHER
/s/ Joyce Sackett /s/ Kenneth C. Gibbs
JOYCE SACKETT KENNETH C. GIBBS
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On this 21st day of February, 1974, before me, the
undersigned, a Notary Public in and for the State of California, County of Los
Angeles, residing therein, duly commissioned and sworn, personally appeared JACK
D. MOST, DIANE BIALOBRODA, MARSHA E. SUTTON, FLORA FISHER, JOYCE SACKETT, and
KENNETH C. GIBBS, known to me to be the persons described in and who executed
the foregoing Articles of Incorporation, and they duly acknowledged to me that
they executed the same.
/s/ George Sykulski
GEORGE SYKULSKI, Notary Public
in and for said County and
State
3
<PAGE>
AGREEMENT OF MERGER
BETWEEN
PARAGON PRECISION PRODUCTS
AND
NOVO-PARAGON, INC.
THIS AGREEMENT OF MERGER is entered into by and between
PARAGON PRECISION PRODUCTS a California corporation ("Surviving Corporation"),
and NOVO-PARAGON, INC., a California corporation ("Merging Corporation").
1. Merging Corporation will be merged into Surviving
Corporation.
2. The outstanding shares of Surviving Corporation
presently held by Merging Corporation will be cancelled.
3. The outstanding shares of Merging Corporation will be
cancelled and one share of Surviving Corporation will be issued in exchange for
each outstanding share of Merging Corporation.
4. Merging Corporation will from time to time, as and when
requested by Surviving Corporation, execute and deliver all such documents and
instruments and take all such action necessary or desirable to evidence or carry
out this merger.
5. The effect of the merger and the effective date of the
merger are as prescribed by law.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of October 31, 1982.
PARAGON PRECISION PRODUCTS, a
California corporation
By:/s/ Jan A. Hiszpanski
Jan A. Hiszpanski, President
By:/s/ Charles Manganaro
Charles Manganaro, Secretary
"Surviving Corporation"
NOVO-PARAGON, INC., a
California corporation
By:/s/ Diethelm T. Utzinger
Diethelm T. Utzinger, President
By:/s/ Diethelm T. Utzinger
Diethelm T. Utzinger, Secretary
"Merging Corporation"
2
<PAGE>
CERTIFICATE OF APPROVAL
OF
AGREEMENT OF MERGER
JAN A. HISZPANSKI and CHARLES MANGANARO certify that:
1. They are the President and the Secretary
respectively, of PARAGON PRECISION PRODUCTS, a California
corporation.
2. The Agreement of Merger in the form attached was
duly approved by the board of directors and shareholder of the
corporation.
3. The shareholder approval was by the holder of 100%
of the outstanding shares of the corporation.
4. There is only one class of shares and the number of
shares outstanding is one thousand six hundred and seven (1,607).
/s/ Jan A. Hiszpanski
JAN A. HISZPANSKI,
President
/s/ Charles Manganaro
CHARLES MANGANARO,
Secretary
The undersigned declare under penalty of perjury that the
matters set forth in the foregoing certificate are true of their own knowledge.
Executed at Los Angeles, California, as of October 31, 1982.
/s/ Jan A. Hiszpanski
JAN A. HISZPANSKI,
/s/ Charles Manganaro
CHARLES MANGANARO,
<PAGE>
CERTIFICATE OF APPROVAL
OF
AGREEMENT OF MERGER
DIETHELM T. UTZINGER certifies that:
1. He is the President and the Secretary, respectively,
of NOVO-PARAGON, INC., a California corporation.
2. The Agreement of Merger in the form attached was
duly approved by the board of directors and shareholder of the
corporation.
3. The shareholder approval was by the holder of 100%
of the outstanding shares of the corporation.
4. There is only one class of shares and the number of
shares outstanding is One Hundred (100).
/s/ Diethelm T. Utzinger
DIETHELM T. UTZINGER,
President
/s/ Diethelm T. Utzinger
DIETHELM T. UTZINGER,
Secretary
The undersigned declares under penalty of perjury that the
matters set forth in the foregoing certificate are true of his own knowledge.
Executed at Los Angeles, California, as of October 31, 1982.
/s/ Diethelm T. Utzinger
DIETHELM T. UTZINGER
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
PARAGON PRECISION PRODUCTS
JAN A. HISZPANSKI and CHARLES MANGANARO, certify that:
1. They are the president and the secretary, respectively,
of PARAGON PRECISION PRODUCTS, a California corporation.
2. Article FOURTH of the Articles of Incorporation of this
corporation is amended to read as follows:
"This corporation is authorized to issue only one class of
shares of stock; the total number of shares shall be Ten
Thousand (10,000); the aggregate par value of all of said
shares shall be One Million Dollars ($1,000,000.00); and the
par value of each of said shares shall be One Hundred Dollars
($100.00). Upon amendment of this article to read as
hereinabove set forth, each outstanding share is split up and
converted into Forty-Six and Seven-One Hundreds (46.07)
shares."
3. The foregoing amendment of the Articles of Incorporation
has been duly approved by the board of directors.
4. The foregoing amendment of the Articles of Incorporation
has been duly approved by the required vote of
shareholders in accordance with Section 902 of the
Corporations Code. The total number of outstanding
shares of the corporation is 100 shares. The number of
shares voting in favor of the amendment equaled or
exceeded the vote required. The percentage vote required
for the approval of the amendment herein set forth was
more than 50 percent.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true of our own
knowledge.
Date: March 31, 1983
/s/ Jan A. Hiszpanski
JAN A. HISZPANSKI, President
/s/ Charles Manganaro
CHARLES MANGANARO, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
PARAGON PRECISION PRODUCTS
JAN A. HISZPANSKI and KEITH P. HARRISON certify that:
1. They, are the president and the secretary,
respectively, of PARAGON PRECISION PRODUCTS, a California
corporation.
2. Article FOURTH of the articles of incorporation of
this corporation is amended to read as follows:
"This corporation is authorized to issue only one class of
shares of stock; the total number of shares shall be Fifty
Thousand (50,000); the aggregate par value of all of said
shares shall be Five Million Dollars ($5,000,000.00); and the
par value of each of said shares shall be One Hundred Dollars
($100.00).
3. The foregoing amendment of articles of incorporation
has been duly approved by the Board of Directors.
4. The foregoing amendment of articles of incorporation
has been duly approved by the required vote of shareholders in accordance with
Section 902 of the Corporations Code. The total number of outstanding shares of
the corporation is 11,000. The number of shares in favor of the amendment
equaled or exceeded the vote required. The percentage vote required was more
than 50%.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Date: March 3, 1987
/s/ Jan A. Hiszpanski
JAN A. HISZPANSKI, President
/s/ Keith P. Harrison
KEITH P. HARRISON, Secretary
<PAGE>
CERTIFICATE OF OWNERSHIP
KENNETH A. PALMER and JULIUS HODGE certify that:
1. They are the president and the secretary,
respectively, of PARAGON PRECISION PRODUCTS, a California
corporation.
2. This corporation owns all the outstanding shares of
PURE-COTE CORPORATION, a California corporation.
3. The board of directors of this corporation duly
adopted the following resolution:
RESOLVED, that this corporation merge PURE-COTE CORPORATION,
its wholly-owned subsidiary corporation, into itself and assume all its
obligations pursuant to Section 1110 of the California Corporations
Code.
We further declare under penalty of perjury under the laws of
the State of California that the matters set forth in this Certificate are true
and correct of our own knowledge.
DATED: December 14, 1989 /s/ Kenneth A. Palmer
KENNETH A. PALMER, President
/s/ Julius Hodge
JULIUS HODGE, Secretary
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BY - LAWS
OF
PARAGON PRECISION PRODUCTS
A CALIFORNIA CORPORATION
Article I.
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office for the
transaction of business of the corporation is hereby fixed and located at 11035
Sutter Avenue, Avenue, City of Pacoima _____________, State of California. The
Board of Directors is hereby granted full power and authority to change said
principal office from one location to another in said county.
Section 2. OTHER OFFICES. Branch or subordinate offices may
at any time be established by the Board of Directors at any place or places
where the corporation is qualified to do business.
Article II.
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. All annual meetings of
shareholders shall be held at the principal office of the corporation, and all
other meetings of shareholders shall be held either at the principal office or
at any other place within or without the State of California which may be
designated either by the Board of Directors pursuant to authority hereinafter
granted to said board, or by written consent of all shareholders entitled to
vote thereat, given either before or after the meeting and filed with the
secretary of the corporation.
Section 2. ANNUAL MEETINGS. The annual meetings of
shareholders shall be held on the first day of June, of each year at 10:00
o'clock A.M.; provided, however, that should said day fall upon a legal holiday,
then such annual meeting of shareholders shall be held at the same time and
place on the next day thereafter ensuing which is not a legal holiday.
Written notice of each annual meeting shall be given to each
shareholder entitled to vote thereat, either personally or by mail or other
means of written communication, charges prepaid, addressed to such shareholder
at his or her address appearing on the books of the corporation or given by him
or her to the corporation for the purpose of notice. If a shareholder gives no
address, notice shall be deemed to have been given him or her if sent by mail or
other means of written communication addressed to the place where the principal
office of the corporation is situated, or if published at least once in some
newspaper of
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general circulation in the county in which said office is located. All such
notices shall be sent to such shareholder entitled thereto, not less than three
(3) days before such annual meeting, and shall specify the place, day and hour
of such meeting, and shall also state the general nature of the business or
proposal to be considered or acted upon at such meeting before action may be
taken at such meeting on:
(a) A proposal to sell, lease, convey, exchange transfer
or otherwise dispose of all or substantially all of
the property or assets of the corporation except
under Section 3900 of the California Corporation
Code;
(b) A proposal to merge or consolidate with
another corporation, domestic or foreign;
(c) A proposal to reduce the stated capital of the
corporation;
(d) A proposal to amend the Articles of
Incorporation, except to extend the term of
the corporate existence;
(e) A proposal to wind up and dissolve the
corporation;
(f) A proposal to adopt a plan of distribution of shares,
securities or any consideration other than money in
the process of winding up.
Section 3. SPECIAL MEETINGS. Special meetings of the
shareholders, for any purpose or purposes whatsoever may be called at any time
by the president or by the Board of Directors, or by one or more shareholders
holding not less than one-fifth of the voting power of the corporation. Except
in special cases where other express provision is made by statute, notice of
such special meetings shall be given in the same manner as for annual meetings
of shareholders. Notices of any special meeting shall specify, in addition to
the place, day and hour of such meeting, the general nature of the business to
be transacted.
Section 4. ADJOURNED MEETINGS AND NOTICE THEREOF: Any
shareholders' meeting, annual or special, whether or not a quorum is present,
may be adjourned from time to time by vote of a majority of the shares, the
holders of which are either present in person or by proxy thereat, but in the
absence of a quorum, no other business may be transacted at any such meeting.
When any shareholders' meeting, either annual or special, is
adjourned for thirty days or more, notice of the adjourned meeting shall be
given as in the case of an original meeting. Save
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as aforesaid, it shall not be necessary to give any notice of an adjournment or
of the business to be transacted at an adjourned meeting, other than by
announcement at the meeting at which such adjournment is taken.
Section 5. ENTRY OF NOTICE. Whenever any shareholder entitled
to vote has been absent from any meeting of shareholders, whether annual or
special, an entry in the minutes to the effect that notice has been duly given
shall be sufficient evidence that due notice of such meeting was given to such
shareholder, as required by law and the by-laws of the corporation.
Section 6. VOTING. At all meetings of shareholders, every
shareholder entitled to vote shall have the right to vote in person or by proxy
the number of shares standing in his or her name on the stock records of the
corporation. Such vote may be given by viva voce or by ballot; provided,
however, that for all purposes and matters upon which the shareholders shall be
entitled to vote at law, it shall require a majority of the shares of the issued
and outstanding stock of the said corporation to vote affirmatively before any
resolution may be passed. This provision shall not apply to the election of
directors who shall be elected as is provided by the California Corporation
Code. At all elections of directors of the corporation, each stockholder shall
be entitled to as many votes as shall equal the number of his or her shares of
stock multiplied by the number of directors to be elected, and he or she may
cast all of such votes for a single director or may distribute them, as he or
she may see fit.
Section 7. QUORUM. The presence in person or by proxy of the
holders of a majority of the shares entitled to vote at any meeting shall
constitute a quorum for the transaction of business. The shareholders present at
a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
Section 8. CONSENT OF ABSENTEES. The proceedings and
transactions of any meeting of shareholders, either annual or special, however
called and noticed, shall be as vallid as though had at a meeting duly held
after regular call and notice, if a quorum be present either in person or by
proxy, and if, either before or after the meeting, each of the shareholders
entitled to vote, not present in person or by proxy, sign a written waiver of
notice, or a consent to the holding of such meeting, or an approval of the
minutes thereof. All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Section 9. ACTION WITHOUT MEETING. Any actions, which under
the provisions of Section 2239 of the California Corporation Code may be taken
at a meeting of the shareholders, may
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be taken without a meeting if authorized by a writing signed by all of the
holders of shares who would be entitled to vote at a meeting for such purpose,
and filed with the secretary of the corporation.
Section 10. PROXIES. Every person entitled to vote or execute
consents shall have the right to do so either in person or by an agent or agents
authorized by a written proxy executed by such person or his or her duly
authorized agent and filed with the secretary of the corporation; provided, that
no such proxy shall be valid after the expiration of eleven (11) months from the
date of its execution, unless the shareholder executing it specifies therein the
length of time for which such proxy is to continue in force, which in no case
shall exceed seven (7) years from the date of its execution.
Article III.
DIRECTORS
Section 1. POWERS. Subject to limitations of the Articles of
Incorporation, of the by-laws and particularly Article II, Section 6 of these
by-laws, and Section 800 of the California Corporation Code as to action to be
authorized or approved by the shareholders, and subject to the duties of
directors as prescribed by the by-laws, all corporate power shall be exercised
by or under the authority of, and the business and affairs of the corporation
shall be controlled by, the Board of Directors. Without prejudice to such
general powers, but subject to the same limitations, it is hereby expressly
declared that the directors shall have the following powers, to wit:
First: To select and remove all other officers, agents and
employees of the corporation, prescribe such powers and duties for them as may
not be inconsistent with law, with the Articles of Incorporation or the by-laws,
fix their compensation, and require from them security for faithful service.
Second: To conduct, manage and control the affairs and
business of the corporation, and to make such rules and regulations therefor not
inconsistent with law, the Articles of Incorporation or the by-laws, as they may
deem best.
Third: To change the principal office for the transaction of
the business of the corporation from one location to another within the same
county as provided in Article 1 Section 1 hereof; to fix and locate from time to
time, one or more branch or subsidiary offices of the corporation within or
without the State of California, as provided in Article 1, Section 2 hereof; to
designate any place within or without the State of California for the holding of
any shareholders' meetings except annual meetings; and to adopt, make and use a
corporate seal, and to prescribe the form of certificates of stock, and to alter
the form of such seal and of such stock certificates from time to time, as in
their
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judgment they may deem best, provided, such seal and such certificates shall at
all times comply with the provisions of the law.
Fourth: To authorize the issue of stock of the corporation
from time to time, upon such terms as may be lawful, in consideration of money
paid, labor done or services actually rendered, debts or securities cancelled,
or tangible or intangible property actually received, or in case of shares
issued as a dividend, against amounts transferred from surplus to stated
capital.
Fifth: To borrow money and incur indebtedness for the purpose
of the corporation and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations or other evidences of debt and securities therefor.
Sixth: To appoint an executive committee and other committees,
and to delegate to the executive committee any of the powers and authority of
the board in the management of the business and affairs of the corporation,
except the power to declare dividends and to adopt, amend or repeal by-laws. The
executive committee shall be composed of two or more directors.
"Section 2. NUMBER AND QUALIFICATIONS Of DIRECTORS. The
authorized number of directors of the corporation shall be three (3) until
changed by amendment of the Articles of Incorporation or by a by-law amending
this Section 2, Article III of these by-laws duly adopted by the vote or written
assents of the shareholders entitled to exercise fifty-one percent of the
voting power of the corporation."; and
Section 3. ELECTION AND TERM. The board of directors shall be
elected at each annual meeting of the shareholders, but if any such annual
meeting is not held, or the directors are not elected thereat, the directors may
be elected at any special meeting of the shareholders held for that purpose. All
directors shall hold office at the pleasure of shareholders or until their
respective successors are elected. The shareholders may at any time, either at a
regular or special meeting, remove any director and elect his or her successor.
Section 4. VACANCIES. Vacancies in the Board of Directors
may be filled by the remaining directors, though less than a quorum, or
by a sole remaining director, and each director so elected shall hold office
until his or her successor is elected at an annual or special meeting of the
shareholders.
A vacancy or vacancies in the Board of Directors shall be
deemed to exist in case of the death, resignation or removal of any director, or
if the authorized number of directors be increased, or if the shareholders fail
at any annual or special meeting of
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shareholders at which any director or directors are elected to elect the full
authorized number of directors to be voted for at that meeting.
The shareholders may elect a director or directors at any time
to fill any vacancy or vacancies not filled by the directors. If the Board of
Directors accept the resignation of a director tendered to take effect at a
future time, the board or the shareholders shall have power to elect a successor
to take office when the resignation is to become effective.
No reduction of the authorized number of directors shall have
the effect of removing any director prior to the expiration of his or her term
of office.
Section 5. PLACE OF MEETING. Meetings of the Board of
Directors shall be held at any place within or without the State which has been
designated from time to time. Meetings shall be held at the office of the
corporation unless otherwise designated by resolution of the Board of Directors
or by written consent of all members of the board.
Section 6. ORGANIZATION MEETING. Immediately following each
annual meeting of shareholders, the Board of Directors shall hold a regular
meeting for the purpose of organization, election of officers, and the
transaction of other business. Notice of such meetings is hereby dispensed with.
Section 7. CONVENING MEETINGS. Meetings shall be called at
any time by the president, or, if he is absent or unable or refuses to act, by
any vice president, or, if he is absent or unable or refuses to act, by any
director.
Written notice of the time and place of such meetings shall be
delivered personally to the directors or sent to each director by mail or other
form of written communication, charges prepaid, addressed to him or her at his
or her address as it is shown upon the records of the corporation, or if it is
not so shown on such records or is not readily ascertainable, at the place in
which the meetings of the directors are regularly held. In case such notice is
mailed or telegraphed, it shall be deposited in the U.S. mail or delivered to
the telegraph company in the place in which the principal office of the
corporation is located at least 48 hours prior to the time of the holding of the
meeting. In case such notice is delivered personally as above provided, it shall
be so delivered at least 24 hours prior to the time of the holding of the
meeting. Such mailing, telegraphing or delivery as above provided, shall be due,
timely, legal and personal notice to such director.
Section 8. ACTION WITHOUT MEETING. Any action required or
permitted to be taken by the Board of Directors by law,
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according to the Articles of Incorporation or according to these By-Laws may be
taken without a meeting, if all members of the Board shall individually or
collectively consent in writing to such action. Such written consent or consents
shall be filed with the minutes of the proceedings of the Board, and shall have
the same force and effect as a unanimous vote of such directors.
Section 9. NOTICE OF ADJOURNMENT. Notice of the time and
place of holding an adjourned meeting need not be given to absent directors if
the time and place be fixed at the meeting adjourned.
Section 10. ENTRY OF NOTICE. Whenever any director has been
absent from any special meeting of the Board of Directors, an entry in the
minutes to the effect that notice has been duly given shall be sufficient
evidence that due notice of such special meeting was given to such director, as
required by law and the by-laws of the corporation.
Section 11. WAIVER OF NOTICE. The transactions of any meeting
of the Board of Directors, however called and noticed or wherever held, shall be
as valid as though had at a meeting duly held after regular call and notice, if
a quorum be present, and if, either before or after the meeting, each of the
directors not present, sign a written waiver of notice or a consent to holding
such meeting or an approval of the minutes thereof. All such waivers, consents
or approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Section 12. Quorum. A majority of the authorized number of
directors shall be necessary to constitute a quorum for the transaction of
business, except to adjourn as hereinafter provided. Every act or decision done
or made by majority of the directors present at a meeting duly held at which a
quorum is present, shall be regarded as the act of the Board of Directors,
unless a greater number be required by law, the Articles of Incorporation or the
by-laws.
Section 13. ADJOURNMENT. A quorum of the directors may adjourn
any directors' meeting to meet again at a stated time, place and hour, provided
however, that in the absence of a quorum, the directors present at any
directors' meeting, either regular or special, may adjourn from time to time,
until the time fixed for the next regular meeting of the board.
Section 14. FEES AND COMPENSATION. Directors shall not receive
any stated salary for their services as directors, but, by resolution of the
board, a fixed fee, with or without expenses of attending, may be allowed for
attendance at each meeting. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity as an
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officer, agent, employee, or otherwise, and receiving compensation therefor.
Article IV.
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall
be:
1. Chairman of the Board
2. President
3. Vice-President
4. Secretary
5. Treasurer
The corporation may also have, at the discretion of the Board
of Directors, a chairman of the board, one or more additional vice-presidents,
one or more assistant-secretaries, one or more assistant-treasurers, and such
other officers as may be appointed by the Board of Directors. Officers need not
be directors. One person may hold two or more offices, except those of president
and secretary.
Section 2. ELECTIONS. The officers of the corporation
designated in the preceding section of this Article, shall be chosen annually by
the Board of Directors, and each shall hold his or her office at the pleasure of
the Board of Directors, who may, either at a regular or special meeting, remove
any such officer and appoint his or her successor.
Section 3. SUBORDINATE OFFICERS, ETC. The Board of Directors
may appoint such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority and perform
such duties as are provided in the by-laws or as the Board of Directors may from
time to time determine.
Section 4. REMOVAL AND RESIGNATION. Any officer may be
removed, either with or without cause, by majority of the directors at the time
in office, at a regular or special meeting of the board, or, except in case of
an officer chosen by the Board of Directors, by any officer upon whom such power
of removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to
the Board of Directors or to the president, or to the secretary of the
corporation. Any such resignation shall take
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effect at the date of the receipt of such notice or at any later time specified
therein; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 5. VACANCIES. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be filled
in the manner described in the by-laws for regular appointments to such office.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the board,
if there shall be such an officer, shall, if present, preside at all meetings of
the Board of Directors, and exercise and perform such other powers and duties as
may be from time to time assigned to him or her by the Board of Directors as
prescribed by the by-laws.
Section 7. PRESIDENT. Subject to such supervisory powers, if
any, as may be given by Board of Directors to the chairman of the board, if
there be such an officer, the president shall be the chief executive officer of
the corporation and shall, subject to the control of the Board of Directors,
have general supervision, direction and control of the business and affairs of
the corporation. He shall preside at all meetings of the shareholders, and in
the absence of the chairman of the board, or if there be none, at all meetings
of the Board of Directors. He shall be ex-officio a member of all the standing
committees, including the executive committee, if any, and shall have the
general powers and duties of management usually vested in the office of
president of a corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or the by-laws.
Section 8. VICE-PRESIDENT. In the absence or disability of the
president, the vice-presidents in order of their rank as fixed by the Board of
Directors, or if not ranked, the vice-president designated by the Board of
Directors, shall perform all the duties of the president, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice-presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors or the by-laws.
Section 9. SECRETARY. The secretary shall keep, or cause to be
kept, a book of minutes at the principal office or such other place as the Board
of Directors may order, of all meetings of directors and shareholders, with the
time and place of holding, whether regular or special, and if special, how
authorized, the notice thereof given, the names of those directors and
shareholders present, the names of those present at the directors' meeting, the
number of shares present or represented at shareholders' meetings and the
proceedings thereof.
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The secretary shall keep, or cause to be kept, at the
principal office or at the office of the corporation's transfer agency, a share
register, or a duplicate share register, showing the names of the shareholders
and their addresses; the number and classes of shares held by each; the number
and date of certificates issued for the same; the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give or cause to be given, notice of all
meetings of shareholders and the Board of Directors, as required by the by-laws
or by-law to be given, and he or she shall keep the seal of the corporation in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or the by-laws.
Section 10. TREASURER. The treasurer shall keep and maintain,
or cause to be kept and maintained, adequate and correct accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
surplus and surplus shares. Any surplus, including earned surplus, paid-in
surplus and surplus arising from a reduction of stated capital, shall be
classified according to source and shown in a separate account. The books of
account shall at all times be open for inspection by any director.
The treasurer shall deposit all monies and other valuables in
the name and to the credit of the corporation with such depositories as may be
designated by the Board of Directors. He or she shall disburse the funds of the
corporation as may be ordered by the Board of Directors and shall render to the
president and directors, when they request it, an account of all of his or her
transactions as treasurer and of the financial condition of the corporation, and
shall have such other powers and perform such other duties as may be prescribed
by the Board of Directors or the by-laws.
Article V.
EXECUTIVE AND OTHER COMMITTEES
The Board of Directors may appoint an executive committee, and
such other committees as may be necessary from time to time, consisting of such
number of its members and with such powers as it may designate, consistent with
the Articles of Incorporation and by-laws and the General Corporation Laws of
the State of California. Such committees shall hold office at the pleasure of
the board.
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Article VI.
CORPORATE RECORDS AND REPORTS--INSPECTION
Section 1. RECORDS. The corporation shall maintain adequate
and correct accounts, books and records of its business and properties. All of
such books, records and accounts shall be kept at its principal place of
business in the State of California, as fixed by the Board of Directors from
time to time.
Section 2. INSPECTION OF BOOKS AND RECORDS. All books and
records provided for in Sections 3003-3005 of the Corporation Code of California
shall be open to inspection of the directors and shareholders from time to time
and in the manner provided in said Sections 3003-3005.
Section 3. CERTIFICATION AND INSPECTION OF BY-LAWS. The
original or a copy of these by-laws, as amended or otherwise altered to date,
certified by the Secretary, shall be open to inspection by the shareholders of
the company, as provided in Section 502 of the Corporation Code of California.
Section 4. CHECKS, DRAFTS, ETC. All checks, drafts or other
orders for payment of money, notes or other evidences of indebtedness, issued in
the name of or payable to the corporation, shall be signed or endorsed by such
person or persons and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
Section 5. CONTRACTS, ETC. -- HOW EXECUTED. The Board of
Directors, except as in the by-laws otherwise provided, may authorize any
officer or officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the corporation. Such authority may
be general or confined to specific instances. Unless so authorized by the Board
of Directors, no officer, agent or employee shall have any power or authority to
bind the corporation by any contract or engagement, or to pledge its credit, or
to render it liable for any purpose or to any amount.
Section 6. ANNUAL REPORTS. The Board of Directors shall cause
such annual reports to be made to the shareholders as provided by Sections 3006
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cause such annual reports to be sent to the shareholders not later than one
hundred twenty (120) days after the close of the fiscal or calendar year.
Article VII.
CERTIFICATES AND TRANSFER OF SHARES
Section 1. CERTIFICATES FOR SHARES. Certificates for
shares shall be of such form and device as the Board of Directors
may designate and shall state the name of the record holder of the
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shares represented thereby; its number; date of issuance; the number of shares
for which it is issued; the par value, if any, or a statement that such shares
are without par value; a statement of the rights, privileges, preferences and
restrictions, if any; a statement as to redemption or conversion, if any; a
statement of liens or restrictions upon transfer or voting, if any; if the
shares be assessable, or, if assessments are collectible by personal action, a
plain statement of such facts.
Every certificate for shares must be signed by the president
or a vice-president and the secretary or an assistant-secretary or must be
authenticated by facsimiles of the signatures of the president and secretary or
by a facsimile of the signature of its president and the written signature of
its secretary or an assistant-secretary. Before it becomes effective every
certificate for shares authenticated by a facsimile of a signature must be
countersigned by a transfer agent or transfer clerk and must be registered by an
incorporated bank or trust company, either domestic or foreign, as registrar of
transfers.
Section 2. TRANSFER ON THE BOOKS. Upon surrender to the
secretary or transfer agent of the corporation by proper evidence of succession,
assignment or authority to transfer, it shall be the duty of the corporation to
issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books.
Section 3. LOST OR DESTROYED CERTIFICATES. Any person
claiming a certificate of stock to be lost or destroyed shall make an affidavit
or affirmation of that fact and advertise the same in such manner as the Board
of Directors may require, and shall if the directors so require give the
corporation a bond of indemnity, in form and with one or more sureties
satisfactory to the board, in at least double the value of the stock represented
by said certificate, whereupon a new certificate may be issued of the same tenor
and for the same number of shares as the one alleged to be lost or destroyed.
Section 4. TRANSFER AGENTS AND REGISTRARS. The Board of
Directors may appoint one or more transfer agents or transfer clerks, and one or
more registrars, which shall be an incorporated bank or trust company -- either
domestic or foreign, who shall be appointed at such times and places as the
requirements of the corporation may necessitate and the Board of Directors may
designate.
Section 5. CLOSING STOCK TRANSFER BOOKS. The Board of
Directors may close the transfer books in their discretion for a period not
exceeding thirty days preceding any meeting, annual or special, of the
shareholders, or the day appointed for the payment of a dividend.
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Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
president or any vice-president and the secretary or assistant-secretary of this
corporation are authorized to vote, represent and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority herein
granted to said officers to vote or represent on behalf of this corporation any
and all shares held by this corporation in any other corporation or
corporations, may be exercised either by such officers in person or by any
person authorized so to do by proxy or power of attorney duly executed by said
officers.
Section 7. INSPECTION OF BY-LAWS. The corporation shall keep
in its principal office for the transaction of business the original or a copy
of the by-laws as amended or otherwise altered to date, certified by the
secretary, which shall be open to inspection by the shareholders at all
reasonable times during business hours.
Article VIII.
CORPORATE SEAL
The corporate seal shall be circular in form, and shall have
inscribed thereon the name of the corporation, the date of its incorporation,
and the word California.
Article IX.
AMENDMENTS TO BY-LAWS
Section 1. BY SHAREHOLDERS. New by-laws may be adopted or
these by-laws may be repealed or amended at their annual meeting, or at any
other meeting of the shareholders called for that purpose, by a vote of
shareholders entitled to exercise a majority of the voting power of the
corporation, or by written assent of such shareholders.
Section 2. POWERS OF DIRECTORS. Subject to the right of the
shareholders to adopt, amend or repeal by-laws, as provided in Section 1 of this
Article IX, the Board of Directors may adopt, amend or repeal any of these
by-laws other than a by-law or amendment thereof changing the authorized number
of directors.
Section 3. RECORD OF AMENDMENTS. Whenever an amendment or new
by-law is adopted, it shall be copied in the book of by-laws with the original
by-laws, in the appropriate place. If any by-law is repealed, the fact of repeal
with the date of the meeting at which the repeal was enacted or written assent
was filed shall be stated in said book.
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Article X.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Each director, officer and member of a committee of
the corporation, and any person who may have served at the request of this
corporation as a director, officer or member of the committee of any other
corporation in which this corporation owns shares of capital stock or which this
corporation is a creditor, his heirs, executors and administrators shall be and
hereby is indemnified by the corporation against all costs and expenses
reasonably incurred by him for advice or assistance concerning, or in connection
with the defense of any claim asserted or suit or proceeding brought against him
by reason of his being or having been a director, officer or member of a
committee of this corporation, or a director, officer or member of a committee
of such other corporation, whether or not he continues to be a director, officer
or member of a committee at the time of incurring such costs or expenses, except
costs and expenses incurred in relation to matters as to which such director,
officer or member of a committee shall have been derelict in the performance of
his duty as such director, officer and member of a committee.
Section 2. For the purposes of this Article, a director,
officer or member of the committee shall conclusively be deemed not to have been
derelict in the performance of his duty as such director, officer or member of a
committee: (a) in a matter which shall have been the subject of a suit or
proceeding in which he was a party disposed of by adjudication on the merits,
unless he shall have been finally adjudged in such suit or proceeding to have
been derelict in the performance of his duty as such director, officer or member
of the committees, or (b) in a matter not falling within (a) next preceding if
either all disinterested members of the Board of Directors or Committee of
disinterested shareholders of the corporation (excluding therefrom any director,
officer or member of a committee) selected as hereinafter provided, shall
determine that he is not derelict.
The selection of the committee of shareholders provided above
may be made by unanimous action of the disinterested directors, or if there be
no disinterested director or directors, by the chief executive officer of the
corporation, provided that not less than three shareholders shall be selected in
any case. A director or shareholder shall be deemed disinterested in the matter
if he has no interest therein other than as a director or shareholder of the
corporation as the case may be. The foregoing shall not constitute exclusive
tests as to dereliction and no determination as to dereliction shall be
questioned on the ground it is made otherwise than as provided above. The
corporation may pay the fees and expenses of the shareholders or directors, as
the case may be, incurred in connection with making a determination above
provided.
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<PAGE>
Section 3. The foregoing right of indemnification shall be in
addition to any rights to which any director or officer may otherwise be
entitled as a matter of law.
KNOW ALL MEN BY THESE PRESENTS:
That we, the undersigned, being all of the persons appointed in the Articles of
Incorporation to act as the first Board of Directors of PARAGON PRECISION
PRODUCTS hereby assent to the foregoing by-laws, and adopt the same as the
by-laws of said corporation.
IN WITNESS WHEREOF, we have hereunto set our hands this 12th day of March, 1974.
NEW DIRECTORS INCORPORATORS
/s/ Arnold Familian /s/ Jack D. Most
ARNOLD FAMILIAN JACK D. MOST
/s/ Alfred Gamper /s/ Diane Bialobroda
ALFRED GAMPER DIANE BIALOBRODA
/s/ Robert Wyser /s/ Marsha E. Sutton
ROBERT WYSER MARSHA E. SUTTON
/s/ Gary R. Familian /s/ Joyce Sackett
GARY R. FAMILIAN JOYCE SACKETT
/s/ Flora Fisher
FLORA FISHER
/s/ Kenneth C. Gibbs
KENNETH C. GIBBS
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<PAGE>
WAIVER OF NOTICE AND CONSENT TO HOLDING
OF SPECIAL MEETING OF DIRECTORS OF
PARAGON PRECISION PRODUCTS
A CALIFORNIA CORPORATION
We, the undersigned, being all of the directors of PARAGON
PRECISION PRODUCTS, a California corporation, duly formed by the filing of
Articles of Incorporation in the office of the California Secretary of State on
the 26th day of February, 1974, and desiring to hold a meeting of directors of
said corporation for the purpose of completing the organization of its affairs,
do hereby waive notice of said meeting, and consent to the holding thereof at
11035 Sutter Avenue, in the City of Pacoima, County of Los Angeles, State of
California, on the 12th day of March, 1974, at 9:00 a.m., for the purpose of
adopting By-Laws, electing officers, adopting a form of corporate seal and share
certificate, authorizing application for permit to issue shares, confirming
transfer to this corporation of assets, subject to liabilities, of Paragon
Precision Products, a partnership, and transacting such other business as may be
brought before said meeting; and do hereby further agree that any business
transacted at said meeting shall be as valid and legal and of the same force and
effect as though said meeting were held after notice duly given.
WITNESS our signatures this 12th day of March, 1974.
/s/ Robert Wyser /s/ Alfred Gamper
ROBERT WYSER ALFRED GAMPER
/s/ Arnold Familian /s/ Gary R. Familian
ARNOLD FAMILIAN GARY R. FAMILIAN
<PAGE>
RESOLUTIONS OF THE BOARD OF DIRECTORS OF
PARAGON PRECISION PRODUCTS
In accordance with the provisions of the By-laws of this
corporation and the California General Corporation Law, the Board of Directors
is authorized to take action by unanimous written consent without a meeting.
The Board of Directors hereby adopts by unanimous written
consent of the undersigned, constituting all of the directors of this
corporation, the following resolutions:
WHEREAS, VIKTOR KLEINERT, THERESE KLEINERT and
DIETHELM T. UTZINGER have tendered their resignations as members of
the Board of Directors;
WHEREAS, it is in the best interests of this
corporation to accept such resignations; and
WHEREAS, it is in the best interests of this
corporation to fill two (2) of the vacancies created by the above
resignations and to amend its By-laws to reduce the number of Directors
of this corporation to four (4).
NOW, THEREFORE, BE IT RESOLVED: That this corporation
accept the resignations of VIKTOR KLEINERT, THERESE KLEINERT and
DIETHELM T. UTZINGER as Directors of this corporation.
RESOLVED FURTHER: That Section 2 of Article III of
the By-laws of this corporation shall be amended to read in full as
follows:
"Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The
authorized number of directors of the corporation shall be
four (4) until changed by amendment of the Articles of
Incorporation or by a by-law amending this Section 2, Article
III of these by-laws duly adopted by the vote or written
assents of the shareholders entitled to exercise fifty-one
percent (51%) of the voting power of the corporation."
RESOLVED FURTHER: That KURT WEDER and BEAT ELSASSER
be, and they hereby are, elected as Directors of
<PAGE>
this corporation and shall serve as such until the election and
qualification of their successors.
The Secretary of this corporation is hereby directed to file
this written consent and the resolutions adopted hereby with the Minutes of the
proceedings of the Board of Directors.
EFFECTIVE: January 1, 1987
/s/ Heinz Stuecklin
HEINZ STUECKLIN
/s/ Robert Wyser
ROBERT WYSER
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<PAGE>
RESOLUTIONS OF THE SOLE SHAREHOLDER OF
PARAGON PRECISION PRODUCTS
In accordance with the provisions of the By-laws of this
corporation and the California General Corporation Law, the shareholders are
authorized to take action by unanimous written consent without a meeting.
The sole shareholder hereby adopts, by written consent, the
following resolutions:
WHEREAS, it is in the best interests of this
corporation to amend its By-laws to reduce the number of Directors of
this corporation to four (4).
NOW, THEREFORE, BE IT RESOLVED: That Section 2 of
Article III of the By-laws of this corporation shall be amended to read
in full as follows:
"Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The
authorized number of directors of the corporation shall be
four (4) until changed by amendment of the Articles of
Incorporation or by a by-law amending this Section 2, Article
III of these by-laws duly adopted by the vote or written
assents of the shareholders entitled to exercise fifty-one
percent (51%) of the voting power of the corporation."
<PAGE>
The Secretary of this corporation is hereby directed to file
this written consent and the resolution adopted hereby with the Minutes of the
Shareholders.
EFFECTIVE: January 1, 1987
NOVO LEASING, LTD.,
a Swiss corporation
By:/s/ Beat Elsasser
Beat Elsasser,
Chief Financial Officer
By:/s/ Dr. Alex Barrot
Dr. Alex Barrot,
Director
-2-
<PAGE>
ARTICLES OF INCORPORATION
OF
LAES, INC.
I
The name of this corporation is LAES, INC.
II
The purpose of this corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust company
business, or the practice of a profession permitted to be incorporated by the
California Corporations Code.
III
The name and address in the State of California of this
corporation's initial agent for service of process is: JAN HISZPANSKI, 11035
Sutter Ave., Pacoima, California 91331.
IV
This corporation is authorized to issue only one class of
shares of stock; and the total number of shares which this corporation is
authorized to issue is one million (1,000,000).
<PAGE>
V
The liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
VI
The corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the Corporations Code) for breach of duty
to the corporation and its stockholders through bylaws provisions or through
agreements with the agents, or both, in excess of the indemnification otherwise
permitted by Section 317 of the Corporations Code, subject to the limits on such
excess indemnification set forth in Section 204 of the Corporations Code.
/s/ Buddy Epstein
BUDDY EPSTEIN
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<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
ALLAN D. PACKLER and JOSEPH SWEET certify that:
1. They are the president and the secretary,
respectively of LAES, INC., a California corporation.
2. Article I of the Articles of Incorporation of this
corporation is amended to read as follows:
"The name of this corporation is Scanning
Electron Analysis Laboratories, Inc."
3. The foregoing amendment of articles of incorporation
has been duly approved by the board of directors.
4. The foregoing amendment of articles of incorporation has
been duly approved by the required vote of shareholders in accordance with
Section 902 of the Corporations Code. The total number of outstanding shares of
the corporation is one (1). The number of shares voting in favor of the
amendment equaled or exceeded the vote required. The percentage vote required
was more than 50%.
We further declare under penalty of perjury under the laws of
the State of California that the matters set forth in this certificate are true
and correct of our own knowledge.
Executed at Los Angeles, California on the 1st day of August,
1988.
/s/ Allan D. Packer
ALLAN D. PACKLER, President
/s/ Joseph Sweet
JOSEPH SWEET, Secretary
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<PAGE>
BYLAWS OF
LAES, INC.
(A California Corporation)
ARTICLE I
SHAREHOLDERS' MEETINGS
Section 1. TIME. An annual meeting for the election of directors and for the
transaction of any other proper business shall be held on the first (1st) day of
July of each year or if such day falls on a weekend or a holiday, then on the
next succeeding business day. Any special meetings shall be held on the date and
at the time as the Board of Directors shall from time to time fix.
Section 2. PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of California, as the Directors may, from
time to time, fix. Whenever the Directors shall fail to fix such place, the
meetings shall be held at the principal executive office of the corporation.
Section 3. CALL. Annual meetings may be called by the Board of Directors, by the
Chairman of the Board, if any, Vice Chairman of the Board, if any, the
President, the Secretary, or by any officer instructed by the Board of Directors
to call the meeting. Special meetings may be called in like manner and by the
holders of shares entitled to cast not less than ten percent (10%) of the votes
at the meeting being called in the following manner. Upon request in writing to
the Chairman of the Board, the President, any Vice President or the Secretary by
any person(s), firm(s) and/or entity(ies) (other than the Board) entitled to
call a special meeting of shareholders, the officer to whom such request is
delivered shall as soon as reasonably possible cause notice to be given to the
shareholders entitled to vote that a meeting will be held at a time requested by
the person(s), firm(s) and/or entity(ies) calling the meeting, which time shall
not be less than thirty-five (35) nor more than sixty (60) days after the
receipt of the request unless the request indicates that a longer or shorter
period is necessary. If the notice is not given within twenty (20) days after
receipt of the request, the persons entitled to call the meeting may give the
notice.
Section 4. NOTICE. Written notice stating the place, day and hour of each
meeting, and, in the case of a special meeting, the general nature of the
business to be transacted or, in the case of an annual meeting, those matters
which the Board of Directors, at the time of mailing of the notice, intends to
present for action by the shareholders, shall be given not less than ten (10)
days (or not less than any such other minimum period of days as may be
prescribed by the General Corporation Law of the State of
<PAGE>
California - the "General Corporation Law") or more than sixty (60) days (or
more than an such maximum period of days as may be prescribed by the General
Corporation Law) before the date of the meeting, by mail, personally, or by
other means of written communication, charges prepaid by or at the direction of
the Board of Directors, the President, the Secretary or the officer or persons
calling the meeting, addressed to each shareholder calling the meeting,
addressed to each shareholder at the address of such shareholder appearing on
the books of the corporation or given by the shareholder to the corporation for
the purpose of notice, or, if no such address appears or is given, at the place
where the principal executive office of the corporation is located or by
publication at least once in a newspaper of general circulation in the county in
which the said principal executive office is located. Such notice shall be
deemed to have been given at the time when delivered personally or when
deposited in the United States mail with first class postage thereon prepaid, or
sent by other means of written communication addressed to the shareholder at his
address as it appears on the stock transfer books of the corporation. The notice
of any meeting at which directors are to be elected shall include the names of
nominees intended at the time of the notice to be presented by management for
election. At an annual meeting of shareholders, any matter relating to the
affairs of the corporation, whether or not stated in the notice of the meeting,
may be brought up for action except matters which the General Corporation Law
requires to be stated in the notice of the meeting. The notice of any annual or
special meeting shall also include, or be accompanied by, any additional
information, or documents prescribed by the General Corporation Law. When a
meeting is adjourned to another time or place, notice of the adjourned meeting
need not be given if the time and place thereof are announced at the meeting at
which the adjournment is taken; provided that, if after the adjournment a new
record date is fixed for the adjourned meeting, or if more than forty-five (45)
days pass from the date of the original meeting, a notice of the adjourned
meeting shall be given to each shareholder. At the adjourned meeting, the
corporation may transact any business which might have been transacted at the
original meeting.
Section 5. CONSENT. The transaction of any meeting, however called and noticed,
and wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum is present and if, either before or after
the meeting, each of the shareholders or his proxy signs a written waiver of
notice or a consent to the holding of the meeting or an approval of the minutes
thereof. All such waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting. Attendance of a
person at a meeting constitutes a waiver of notice of such meeting, except when
the person objects, at the beginning of the meeting in writing, to the
transaction of any business because the meeting is not lawfully called or
convened and except that attendance at a meeting shall not constitute a
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<PAGE>
waiver of any right to object to the consideration of matters required by the
General Corporation Law to be included in the notice but not so included, if
such objection is expressly made at the meeting in writing. Except as otherwise
provided in subdivision (f) of Section 601 of the General Corporation Law,
neither the business to be transacted at nor the purpose of any regular or
special meeting need be specified in any written waiver of notice.
Section 6. CONDUCT OF MEETING. Meetings of the shareholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting -- the Chairman of the Board, if any, the Vice Chairman of the Board,
if any, the President, a Vice President, or, if none of the foregoing is in
office and present and acting, by a chairman to be chosen by the shareholders.
The Secretary of the corporation, or in his or her absence, an Assistant
Secretary, shall act as secretary of every meeting, but, if neither the
Secretary nor an Assistant Secretary is present, the chairman of the meeting
shall appoint a secretary of the meeting.
Section 7. PROXY REPRESENTATION. Every shareholder may authorize another person
or persons to act as his, her or its proxy at a meeting or by written consent.
No proxy shall be valid after the expiration of eleven (11) months from the date
of its execution unless otherwise provided in the proxy. Every proxy shall be
revocable at the pleasure of the person executing it prior to the vote or
written consent pursuant thereto, except as otherwise provided by the General
Corporation Law. As used herein, a "proxy" shall" be deemed to mean a written
authorization, signed by a shareholder or a shareholder's attorney in fact,
giving another person or persons other than the shareholder the power to vote or
consent in writing with respect to the shares of such shareholder; and "signed"
as used herein shall be deemed to mean the placing of such shareholder's name on
the proxy by the shareholder or the shareholder's attorney in fact, whether by
manual signature, typewriting, telegraphic transmission or otherwise. Where
applicable, the form of any proxy shall comply with the provisions of Section
604 of the General Corporation Law.
Section 8. INSPECTORS - APPOINTMENT. In advance of any meeting, the Board of
Directors may appoint inspectors of election to act at the meeting and any
adjournment thereof. If inspectors of election are not so appointed, or, if any
persons so appointed fail to appear or refuse to act, the chairman of any
meeting of shareholders may, and on the request of any shareholder or a
shareholder's proxy shall, appoint inspectors of election (or persons to replace
those who so fail or refuse) at the meeting. The number of inspectors shall be
either one (1) or three (3). If appointed at a meeting on the request of one or
more shareholders or proxies, the majority of shares represented shall determine
whether one or three inspectors are to be appointed. The inspectors of election
shall determine the number of shares
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<PAGE>
outstanding and the voting power of each and determine the shares represented at
the meeting; determine the existence of a quorum and the authenticity, validity,
and effect of proxies; receive votes, ballots, if any, or consents; hear and
determine all challenges and questions in any way arising in connection with the
right to vote; count and tabulate all votes or consents; determine when the
polls shall close; determine the result; and do such acts as may be proper to
conduct the election or vote with fairness to all shareholders. If there are
three (3) inspectors of election, the decision, act, or certificate of a
majority shall be effective in all respects as the decision, act, or certificate
of all.
Section 9. SUBSIDIARY CORPORATIONS. Shares of this corporation owned by a
subsidiary shall not be entitled to vote on any matter. A subsidiary for these
purposes is defined as a corporation, the shares of which possessing more than
twenty-five percent (25%) of the total combined voting power of all classes of
shares entitled to vote, are owned by this corporation, directly or indirectly,
including, but not limited to, through one or more subsidiaries of this
corporation.
Section 10. QUORUM; VOTE; WRITTEN CONSENT. The holders of a majority of the
voting shares shall constitute a quorum at a meeting of shareholders for the
transaction of any business. The shareholders present at a duly called or held
meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum, if any action taken, other than adjournment, is approved by at
least a majority of the shares required to constitute a quorum. In the absence
of a quorum, any meeting of shareholders may be adjourned from time to time by
the vote of a majority of the shares represented thereat, but no other business
may be transacted except as hereinbefore provided.
In the election of directors, a plurality of the votes cast
shall elect. No shareholder shall be entitled to exercise the right of
cumulative voting at a meeting for the election of directors unless the
candidate's name or the candidates' names have been placed in nomination prior
to the voting and the shareholder has given notice at the meeting prior to the
voting of the shareholder's intention to cumulate the shareholder's votes. If
any one shareholder has given such notice, all shareholders may cumulate their
votes for such candidates in nomination.
Except as otherwise provided by the General Corporation Law,
the Articles of Incorporation or these Bylaws, any action required or permitted
to be taken at a meeting at which a quorum is present shall be authorized by the
affirmative vote of a majority of the shares represented at the meeting.
Except in the election of directors by written consent in
lieu of a meeting, and except as may otherwise be provided by the
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<PAGE>
General Corporation Law, the Articles of Incorporation or these Bylaws, any
action which may be taken at any annual or special meeting may be taken without
a meeting and without prior notice, if a consent in writing, setting forth the
action so taken, shall be signed by holders of shares having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Directors may not be elected by written consent except by unanimous
written consent of all shares entitled to vote for the election of directors.
Notice of shareholder approval, pursuant to Sections 310, 317, 1201 or 2007,
without a meeting by less than unanimous written consent shall be given at least
ten (10) days before the consummation of the action authorized by such approval,
and prompt notice shall be given of the taking of any other corporate action
approved by shareholders without a meeting by less than unanimous written
consent to those shareholders entitled to vote who have not consented in
writing.
Section 11. BALLOT. Elections of directors at a meeting need not
be by ballot unless a shareholder demands election by ballot at the
election and before the voting begins. In all other matters,
voting need not be by ballot.
ARTICLE II
BOARD OF DIRECTORS
Section 1. FUNCTIONS. The business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction of
its Board of Directors. The Board of Directors may delegate the management of
the day-to-day operation of the business of the corporation to a management
company or other person, firm or entity provided that the business and affairs
of the corporation shall be managed and all corporate powers shall be managed
and all corporate powers shall be exercised under the ultimate direction of the
Board of Directors. The Board of Directors shall have authority to fix the
compensation of directors for services in any lawful capacity.
Each director shall exercise such powers and otherwise perform
such duties in good faith, in the manner such director believes to be in the
best interests of the corporation, and with such care, including reasonable
inquiry, as an ordinarily prudent person in a like position would use under
similar circumstances.
Without prejudice to such general powers, but subject to the
same limitations, it is hereby expressly declared that the Board of Directors
shall have the following powers in addition to the other powers enumerated in
these Bylaws:
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<PAGE>
(a) To select and remove all the other officers,
agents, and employees of the corporation, prescribe the powers and duties for
them as may not be inconsistent with law, the Articles of Incorporation or these
Bylaws, fix their compensation, and require from them security for faithful
service.
(b) To conduct, manage and control the affairs
and business of the corporation and to make such rules and regulations therefor
not inconsistent with law, the Articles of Incorporation or these Bylaws, as
they may deem best.
(c) To adopt, make, and use a corporate seal and
to prescribe the forms of certificates of stock, and to alter the form of such
seal and of such certificates from time to time as, in their judgment, they may
deem best.
(d) To authorize the issuance of shares of stock
of the corporation from time to time, upon such terms and for such
considerations as may be lawful.
(e) To borrow money and incur indebtedness for
the purposes of the corporation, and to cause to be executed and delivered
therefor, in the corporate name, promissory notes, bonds, debentures, deeds of
trust, mortgages, pledges, hypothecations, or other evidences of debt and
securities therefor.
(f) To fill all vacancies in the Board of
Directors not filled by the shareholders.
Section 2. QUALIFICATIONS AND NUMBER. A director need not be a shareholder of
the corporation, resident or citizen of the United States, or a resident of the
State of California. The authorized number of directors constituting the Board
of Directors until further changed shall be three (3). Thereafter, the
authorized number of directors constituting the Board of Directors shall be at
least three (3), provided that, whenever the corporation shall have only two (2)
shareholders, the number of directors may be at least two (2), and, whenever the
corporation shall have only one (1) shareholder, the number of directors may be
at least one (1). Subject to the foregoing provisions, the number of directors
may be changed from time to time by an amendment of these Bylaws adopted by the
shareholders. Any such amendment reducing the fixed number or the minimum number
of directors to fewer than five (5) cannot be adopted if the votes cast against
its adoption at a meeting, or the shares not consenting in writing in the case
of action by written consent, are equal to more than sixteen and two-thirds
percent (16 2/3%) of the outstanding shares entitled to vote. No decrease in the
authorized number of directors shall have the effect of shortening the term of
any incumbent director.
Section 3. ELECTION AND TERM. The initial Board of Directors shall consist of
the persons elected at the meeting of the
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<PAGE>
incorporator(s), all of whom shall hold office until the first annual meeting of
shareholders and until their successors have been elected and qualified, or
until their earlier resignation or removal from office. Thereafter, directors
who are elected to replace any or all of the members of the initial Board of
Directors or who are elected at an annual meeting of shareholders, and directors
who are elected in the interim to fill vacancies, shall hold office until the
next annual meeting of shareholders and until their successors have been elected
and qualified, or until their earlier resignation, removal from office, or
death. In the interim between annual meetings of shareholders or of special
meetings of shareholders called for the election of directors, any vacancies in
the Board of Directors, including vacancies resulting from an increase in the
authorized number of directors which have not been filled by the shareholders,
including any other vacancies which the General Corporation Law authorizes
directors to fill, and including vacancies resulting from the removal of
directors which are not filled at the meeting of shareholders at which any such
removal has been effected, if the Articles of Incorporation or a Bylaw adopted
by the shareholders so provides, may be filled by the vote of a majority of the
directors then in office or of the sole remaining director, although less than a
quorum exists. Any director may resign effective upon giving written notice to
the Chairman of the Board, if any, the President, the Secretary or the Board of
Directors, unless the notice specifies a later time for the effectiveness of
such resignation. If the resignation is effective at a future time, a successor
may be elected to the office when the resignation becomes effective.
The shareholders may elect a director at any time to fill any
vacancy which the directors are entitled to fill, but which they have not
filled. Any such election by written consent shall require the consent of a
majority of the shares.
Section 4. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The
corporation may indemnify any director, officer, agent or employee as to those
liabilities and on those terms and conditions as are specified in Section 317 of
the General Corporation Law. In any event, the corporation shall have the right
to purchase and maintain insurance on behalf of any such persons whether or not
the corporation would have the power to indemnify such person against the
liability insured against.
Section 5. MEETINGS.
TIME. Meetings shall be held at such time as the Board of
Directors shall fix, except that the first meeting of a newly elected Board
shall be held as soon after its election as the directors may conveniently
assemble.
PLACE. Meetings may be held at any place, within or
without the State of California, which has been designated in any
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<PAGE>
notice of the meeting, or, if not stated in said notice, or, if there is no
notice given, at the place designated by resolution of the Board of Directors.
CALL. Meetings may be called by the Chairman of the Board, if
any, by the President, by any Vice President or Secretary, or by any two (2)
directors, or if there are only two directors, the meeting may be called by any
one (1) director.
NOTICE AND WAIVER THEREOF. No notice shall be required for
regular meetings for which the time and place have been fixed by the Board of
Directors. Special meetings shall be held upon at least four (4) days' notice by
mail or upon at least forty-eight (48) hours' notice delivered personally or by
telephone or telegraph. Notice of a meeting need not be given to any director
who signs a waiver of notice, whether before or after the meeting, or who
attends the meeting without protesting, prior thereto or at its commencement in
writing, the lack of notice to such director. A notice or waiver of notice need
not specify the purpose of any regular or special meeting of the Board of
Directors.
Section 6. SOLE DIRECTOR PROVIDED BY ARTICLES OF INCORPORATION. In the event
only one (1) director is required by the Bylaws or Articles of Incorporation,
then any reference herein to notices, waivers, consents, meetings or other
actions by a majority or quorum of the directors shall be deemed to refer to
such notice, waiver, etc., by such sole director, who shall have all the rights
and duties and shall be entitled to exercise all of the powers and shall assume
all the responsibilities otherwise herein described as given to a Board of
Directors.
Section 7. QUORUM AND ACTION. A majority of the authorized number of directors
shall constitute a quorum except when a vacancy or vacancies prevents such
majority, whereupon a majority of the directors in office shall constitute a
quorum provided such majority shall constitute at least either one-third (1/3)
of the authorized number of directors or at least two (2) directors, whichever
is larger, or unless the authorized number of directors is only one (1). A
majority of the directors present, whether or not a quorum is present, may
adjourn any meeting to another time and place. If the meeting is adjourned for
more than twenty-four (24) hours, notice of any adjournment to another time or
place shall be given prior to the time of the adjourned meeting to the
directors, if any, who were not present at the time of the adjournment. Except
as the Articles of Incorporation, these Bylaws and the General Corporation Law
may otherwise provide, the act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
the act of the Board of Directors. Members of the Board of Directors may
participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members participating in such meeting
can hear one another, and
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participation by such use shall be deemed to constitute presence in person at
any such meeting.
A meeting at which a quorum is initially present may continue
to transact business notwithstanding the withdrawal of directors, provided that
any action which may be taken is approved by at least a majority of the required
quorum for such meeting.
Section 8. CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, the Vice Chairman of the Board, if any and if present and
acting, shall preside at all meetings. Otherwise, the President, if present and
acting, or any director chosen by the Board of Directors, shall preside.
Section 9. REMOVAL OF DIRECTORS. The entire Board of Directors or any individual
director may be removed from office without cause by approval of the holders of
at least a majority of the shares provided, that unless the entire Board of
Directors is removed, an individual director shall not be removed when the votes
cast against such removal, or not consenting in writing to such removal, would
be sufficient to elect such director if voted cumulatively at an election of
directors at which the same total number of votes were cast (or, if such action
is taken by written consent in lieu of a meeting, all shares entitled to vote
were voted) and the entire number of directors authorized at the time of the
director's most recent election were then being elected. If any or all directors
are so removed, new directors may be elected at the same meeting or by such
written consent. The Board of Directors may declare vacant the office of any
director who has been declared of unsound mind by an order of court or convicted
of a felony.
Section 10. COMMITTEES. The Board of Directors, by resolution adopted by a
majority of the authorized number of directors, may designate one (1) or more
committees, each consisting of two (2) or more directors to serve at the
pleasure of the Board of Directors. The Board of Directors may designate one (1)
or more directors as alternate members of any such committee, who may replace
any absent member at any meeting of such committee. Any such committee, to the
extent provided in the resolution of the Board of Directors, shall have all the
authority of the Board of Directors except such authority as may not be
delegated by the provisions of the General Corporation Law.
Section 11. INFORMAL ACTION. The transactions of any meeting of the Board of
Directors, however called and noticed or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice, if a quorum is
present and if, either before or after the meeting, each of the directors not
present signs a written waiver of notice, a consent to holding the meeting, or
an approval of the minutes thereof. All such waivers, consents, or approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting.
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Section 12. WRITTEN ACTION. Any action required or permitted to be taken may be
taken without a meeting if all of the members of the Board of Directors shall
individually or collectively consent in writing to such action. Any such consent
or consents shall be filed with the minutes of the proceedings of the Board of
Directors. Such action by written consent shall have the same force and effect
as a unanimous vote of such directors.
ARTICLE III
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be a Chairman of
the Board or a President or both, a Secretary and a Chief Financial Officer. The
corporation may also have, at the discretion of the Board of Directors, one or
more Vice Presidents, one or more Assistant Secretaries and such other officers
as may be appointed in accordance with the provisions of Section 3 of this
Article. One person may hold two or more offices.
Section 2. ELECTION. The officers of the corporation, except such officers as
may be appointed in accordance with the provisions of Section 3 or Section 5 of
this Article shall be chosen annually by the Board of Directors, and each shall
hold his office until he shall resign or shall be removed or otherwise
disqualified to serve, or his successor shall be elected and qualified.
Section 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint such
other officers as the business of the corporation may require, each of whom
shall hold office for such period, have such authority and perform such duties
as are provided in the Bylaws or as the Board of Directors may from time to time
determine.
Section 4. REMOVAL AND RESIGNATION. Any officer may be removed, either with or
without cause, by a majority of the directors at the time in office, at any
regular or special meeting of the Board of Directors, or, except in case of an
officer chosen by the Board of Directors, by any officer upon whom such power of
removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to
the Board of Directors, or to the President, or to the Secretary of the
corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 5. VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be
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filled in the manner prescribed in the Bylaws for regular appointments to such
office.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall be
such an officer, shall, if present, preside at all meetings of the Board of
Directors, and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by the
Bylaws.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be
given by the Board of Directors to the Chairman of the Board, if there be such
an officer, the President shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. He shall preside at all meetings of the shareholders and, in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board of Directors. He shall be ex officio a member of all the standing
committees, including the Executive Committee, if any, and shall have the
general powers and duties of management usually vested in the office of
President of a corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or the Bylaws.
Section 8. VICE PRESIDENT. In the absence or disability of the President, the
Vice Presidents, in order of their rank as fixed by the Board of Directors, or
if not ranked, the Vice President designated by the Board of Directors, shall
perform all the duties of the President, and when so acting shall have all the
powers of, and be subject to, all the restrictions upon, the President. The Vice
Presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the Board of Directors
or the Bylaws.
Section 9. SECRETARY. The Secretary shall keep, or cause to be kept, a book of
minutes at the principal office or such other place as the Board of Directors
may order, of all meetings of Directors and Shareholders, with the time and
place of holding, whether regular or special, and if special, how authorized,
the notice thereof given, the names of those present at Directors' meetings, the
number of shares present or represented at Shareholders' meetings and the
proceedings thereof.
The Secretary shall keep, or cause to be kept, at the
principal office or at the office of the corporation's transfer agent, a share
register, or duplicate share register, showing the names of the shareholders and
their addresses; the number and classes of shares held by each; the number and
date of certificates issued for the same; and the number and date of
cancellation of every certificate surrendered for cancellation.
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The Secretary shall give, or cause to be given, notice of all
the meetings of the shareholders and of the Board of Directors required by the
Bylaws to be given, and he shall keep the seal of the corporation in safe
custody, and shall have such other powers and perform such other duties as may
be prescribed by the Board of Directors or by the Bylaws.
Section 10. CHIEF FINANCIAL OFFICER. This officer shall keep and maintain, or
cause to be kept and maintained in accordance with generally accepted accounting
principles, adequate and correct accounts of the properties and business
transactions of the corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, earnings (or surplus) and
shares. The books of account shall at all reasonable times be open to inspection
by any director.
This officer shall deposit all monies and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the Board of Directors. He shall disburse the funds of the
corporation as may be ordered by the Board of Directors, shall render to the
President and directors, whenever they request it, an account of all his
transactions and of the financial condition of the corporation, and shall have
such other powers and perform such other duties as may be prescribed by the
Board of Directors or the Bylaws.
ARTICLE IV
CERTIFICATES AND TRANSFERS OF SHARES
Section 1. CERTIFICATES FOR SHARES. Each certificate for shares of the
corporation shall set forth therein the name of the record holder of the shares
represented thereby, the number of shares and the class or series of shares
owned by said holder, the par value, if any, of the shares represented thereby,
and such other statements, as applicable, prescribed by Sections 416 - 419,
inclusive, and other relevant sections of the General Corporation Law and such
other statements as applicable, which may be prescribed by the Corporation
Securities Law of the state of California and any other applicable provisions of
the law. Each such certificate issued shall be signed in the name of the
corporation by the Chairman of the Board, if any, or the Vice Chairman of the
Board, if any, the President or a Vice President, if any, and by the Chief
Financial Officer or an Assistant Treasurer or the Secretary or an Assistant
Secretary. Any or all of the signatures on a certificate for shares may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate for shares shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by
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the corporation with the same effect as if such person were an officer, transfer
agent or registrar at the date of issue.
In the event that the corporation shall issue the whole or any
part of its shares as partly paid and subject to call for the remainder of the
consideration to be paid therefor, any such certificate for shares shall set
forth thereon the statements prescribed by Section 409 of the General
Corporation Law.
Section 2. LOST OR DESTROYED CERTIFICATES FOR SHARES. The corporation may issue
a new certificate for shares, or for any other security, in the place of any
other certificate theretofore issued by it which is alleged to have been lost,
stolen or destroyed. As a condition to such issuance, the corporation may
require any such owner of the allegedly lost, stolen or destroyed certificate or
any such owner's legal representative to give the corporation a bond, or other
adequate security, sufficient to indemnify it against any claim that may be made
against it, including any expense or liability, on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate.
Section 3. SHARE TRANSFERS. Upon compliance with any provisions of the General
Corporation Law and/or the Corporate Securities Law of 1968 which may restrict
the transferability of shares, transfers of shares of the corporation shall be
made on the record of shareholders of the corporation only by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary of the corporation or with a transfer
agent or a registrar, if any, and on surrender of the certificate or
certificates for such shares properly endorsed and the payment of all taxes, if
any, due thereon.
Section 4. RECORD DATE FOR SHAREHOLDERS. In order that the corporation may
determine the shareholders entitled to notice of and to vote at any meeting, or
to receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any other lawful action, the
Board of Directors may fix, in advance, a record date, which shall not be more
than sixty (60) days or fewer than ten (10) days prior to the date of such
meeting or more than sixty (60) days prior to any other action.
If the Board of Directors shall not have fixed a record date
as aforesaid, the record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day next preceding the day on
which the meeting is held; the record date for determining shareholders entitled
to give consent to corporate action in writing without a
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meeting, when no prior action by the Board of Directors has been taken, shall be
the day on which the first written consent is given; and the record date for
determining shareholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto, or the sixtieth (60th) day prior to the day of such other action,
whichever is later.
A determination of shareholders of record entitled to notice
of or to vote at a meeting of shareholders shall apply to any adjournment of the
meeting unless the Board of Directors fixes a new record date for the adjourned
meeting, but the Board of Directors shall fix a new record date if the meeting
is adjourned for more than forty-five (45) days from the date set for the
original meeting.
Except as may be otherwise provided by the General Corporation
Law, shareholders on the record date shall be entitled to notice, to vote, to
receive any dividend, distribution or allotment of rights, or to exercise any
rights, as the case may be, notwithstanding any transfer of any shares on the
books of the corporation after the record date.
Section 5. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares of other
corporations standing in the name of this corporation may be voted or
represented and all incidents thereto may be exercised on behalf of the
corporation by the Chairman of the Board, the President or any Vice President or
any other person authorized by resolution of the Board of Directors.
Section 6. MEANING OF CERTAIN TERMS. As used in these Bylaws in respect of the
right to notice of a meeting of shareholders or a waiver thereof or to
participate or vote thereat or to assent or consent or dissent in writing in
lieu of a meeting, as the case may be, the terms "share" or "shares" or
"shareholder" or "shareholders" refers to an outstanding share or shares and to
a holder or holders of record of outstanding shares when the corporation is
authorized to issue only one class of shares, and said reference is also
intended to include any outstanding share or shares and any holder or holders of
record of outstanding shares of any class upon which or upon whom the Articles
of Incorporation confer such rights where there are two or more classes or
series of shares or upon which or upon whom the General Corporation Law confers
such rights notwithstanding that the Articles of Incorporation may provide for
more than one class or series of shares, one or more of which are limited or
denied such rights thereunder.
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ARTICLE V
EFFECT OF SHAREHOLDERS' AGREEMENT-CLOSE CORPORATION
Any Shareholders' Agreement authorized by Section 300(b) shall
only be effective to modify the terms of these Bylaws if this corporation elects
to become a close corporation with appropriate filing of or amendment to its
Articles of Incorporation as required by Section 202 and shall terminate when
this corporation ceases to be a close corporation. Such an agreement cannot
waive or alter Sections 158 (defining close corporations), 202 (requirement of
Articles of Incorporation), 500 and 501 (relative to distributions), 1111
(merger), 1201(e) (reorganization) or Chapters 15 (Records and Reports), 16
(Rights of Inspection), 18 (Involuntary Dissolution) or 22 (Crimes and
Penalties). Any other provisions of the General Corporation Law or these Bylaws
may be altered or waived thereby, but to the extent they are not so altered or
waived, these Bylaws shall be applicable.
ARTICLE VI
CORPORATE CONTRACTS AND INSTRUMENT-HOW EXECUTED
The Board of Directors, except as the Bylaws otherwise
provide, may authorize any officer or officers, agent or agents, to enter into
any contract or execute any instrument in the name of and on behalf of the
corporation. Such authorization may be general or confined to specific
instances. Unless so authorized by the Board of Directors, no officer, agent or
employee shall have any power or authority to bind the corporation by any
contract or agreement, or to pledge its credit, or to render it liable for any
purposes or any amount, except as provided in Section 313 of the General
Corporation Law.
ARTICLE VII
CONTROL OVER BYLAWS
After the initial Bylaws of this corporation shall have been
adopted by the incorporator(s) of the corporation, the Bylaws may be amended or
repealed or new Bylaws may be adopted by the shareholders entitled to exercise a
majority of the voting power or by the Board of Directors; provided, however,
that the Board of Directors shall have no control over any Bylaw which fixes or
changes the authorized number of directors of the corporation; provided,
further, that any control over the Bylaws herein vested in the Board of
Directors shall be subject to the authority of the aforesaid shareholders to
amend or repeal the Bylaws or to adopt new Bylaws; and provided further that any
Bylaw amendment or new
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Bylaw which changes the fixed number or minimum number of directors to fewer
than five (5) cannot be adopted if the votes cast against its adoption at a
meeting, or the shares not consenting in the case of action by written consent,
are equal to more than sixteen and two-thirds percent (16 2/3%) of the
outstanding shares entitled to vote.
ARTICLE VIII
BOOKS AND RECORDS - STATUTORY AGENT
Section 1. RECORDS; STORAGE AND INSPECTION. The corporation shall keep at its
principal executive office in the State of California, or, if its principal
executive office is not in the State of California, at its principal business
office in the State of California, the original or a copy of the Bylaws as
amended to date, which shall be open to inspection by the shareholders at all
reasonable times during office hours. If the principal executive office of the
corporation is outside the State of California, and, if the corporation has no
principal business office in the State of California, it shall upon request of
any shareholder furnish a copy of the Bylaws as amended to date.
The corporation shall keep adequate and correct books and
records of account and shall keep minutes of the proceedings of its
shareholders, Board of Directors and committees, if any, of the Board of
Directors. The corporation shall keep at its principal executive office, or at
the office of its transfer agent or registrar, a record of its shareholders,
giving the names and addresses of all shareholders and the number and class of
shares held by each. Such minutes shall be in written form. Such other books and
records shall be kept either in written form or in any other form capable of
being converted into written form.
Section 2. RIGHTS OF INSPECTION. Every director shall have the absolute right at
any reasonable time to inspect and copy, at his sole cost and expense, all
books, records, and documents of every kind and to inspect the physical
properties of the corporation and also of its subsidiary corporations, domestic
or foreign. Such inspection by a director may be made in person or by agent or
attorney and includes the right to copy and obtain extracts.
Section 3. INSPECTION OF CORPORATE RECORDS.
A shareholder or shareholders holding at least five percent
(5%) in the aggregate of the outstanding voting shares of the corporation or who
holds or hold at least one percent (1%) of such voting shares and has or have
filed a Schedule 14B with the United States Securities and Exchange Commission
relating to the election of directors of the corporation shall have an absolute
right to do either or both of the following:
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(a) Inspect and copy at his or their sole cost
and expense the record of shareholders' names and addresses and shareholdings
during usual business hours upon five (5) business days' prior written demand
upon the corporation; or
(b) Obtain from the transfer agent, if any, for
the corporation, upon five (5) business days' prior written demand and upon the
tender of its usual charges for such a list (the amount of which charges shall
be stated to the shareholder by the transfer agent upon request), a list of the
shareholders' names and addresses who are entitled to vote for the election of
directors and their shareholdings, as of the most recent record date for which
it has been compiled or as of a date specified by the shareholder subsequent to
the date of demand.
The record of shareholders shall also be open to inspection
and copying by any shareholder or holder of a voting trust certificate at any
time during usual business hours upon written demand on the corporation, for a
purpose reasonably related to such holder's interest as a shareholder or holder
of a voting trust certificate.
The accounting books and records and minutes of proceedings of
the shareholders and the Board of Directors and committees of the Board of
Directors shall be open to inspection upon written demand on the corporation of
any shareholder or holder of a voting trust certificate at any reasonable time
during usual business hours, for a purpose reasonably related to such holder's
interest as a shareholder or as a holder of such voting trust certificate.
Any inspection and copying authorized by this Section may be
made in person or by agent or attorney.
Section 4. RECORD OF PAYMENTS. All checks, drafts or other orders for payment of
money, notes or other evidences of indebtedness, issued in the name of or
payable to the corporation, shall be signed or endorsed by such person or
persons and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
Section 5. ANNUAL REPORT. Whenever the corporation shall have fewer than one
hundred shareholders, the Board of Directors shall not be required to cause to
be sent to the shareholders of the corporation the annual report prescribed by
Section 1501 of the General Corporation Law unless it shall determine that a
useful purpose would be served by causing the same to be sent or unless the
Department of Corporations, pursuant to the provisions of the Corporate
Securities Law of 1968, shall direct the sending of the same.
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Section 6. AGENT FOR SERVICE. The name and address of the agent for service of
process within the State of California is Jan Hiszpanski, 11035 Sutter Ave.,
Pacoima, California 91331.
ARTICLE IX
OFFICES
Section 1. PRINCIPAL EXECUTIVE OFFICE. The principal executive office of the
corporation is hereby fixed and located at 5301 Beethoven St., #131, Los
Angeles, California 90066.
The Board of Directors is hereby granted full power and
authority to change said principal executive office from one location to
another. Any such change shall be noted on the Bylaws opposite this Section or
this Section may be amended to state the new location.
Section 2. OTHER OFFICES. Branch or subordinate offices may at any time be
established by the Board of Directors at any place or places.
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RESOLUTIONS OF THE SHAREHOLDERS OF
SCANNING ELECTRON ANALYSIS LABORATORIES, INC.
In accordance with the provisions of the California General
Corporation Law and the provisions of the Bylaws of this corporation, the sole
shareholder of this corporation is authorized to take action by its written
consent without a meeting.
The undersigned, the sole shareholder of this corporation,
hereby adopts by written consent the following resolutions:
WHEREAS, Allan Packler has tendered his resignation as a
member of the Board of Directors effective January 1, 1990; and
WHEREAS, Mr. Packler's resignation has created a
vacancy on the Board of Directors; and
WHEREAS, the corporation desires not to elect a replacement to
fill the vacancy on the Board of Directors, but instead to amend the
Bylaws and reduce the authorized number of Directors from four (4) to
three (3).
NOW, THEREFORE, BE IT RESOLVED: That Allan Packler's
resignation is hereby accepted effective January 1, 1990.
RESOLVED FURTHER: That the second sentence of
Section 2 of Article II of the Bylaws of this corporation is hereby
amended to read as follows:
"The authorized number of directors constituting the Board of
Directors until further changed shall be three (3)".
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The Secretary of this corporation is hereby directed to file
this written consent and the resolutions adopted hereby with the Minutes of the
proceedings of the Shareholders.
EFFECTIVE: January 1, 1990
KLEINERT INDUSTRIES, INC,
By:/s/ Bradley C. Call
Bradley C. Call,
President
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ARTICLES OF INCORPORATION
OF
KEY TESTING LAB
I
The name of this corporation is KEY TESTING LAB.
II
The purpose of this corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust company
business, or the practice of a profession permitted to be incorporated by the
California Corporations Code.
III
The name and address in the State of California of this
corporation's initial agent for service of process is: JAN HISPANSKI, 11035
Sutter Avenue, Pacoima, California 91331.
IV
This corporation is authorized to issue only one (1) class of
shares of stock; and the total number of shares which this corporation is
authorized to issue is ten million (10,000,000).
DATED:June 13, 1985
/s/ Buddy Epstein
BUDDY EPSTEIN
<PAGE>
I hereby declare that I am the person who executed the
foregoing Articles of Incorporation, which execution is my act and deed.
/s/ Buddy Epstein
BUDDY EPSTEIN
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CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
John Barritua and Ray Ivory certify that:
1. They are the president and the secretary, respectively, of
KEY TESTING LAB, a California corporation.
2. Article I of the Articles of Incorporation of this
corporation is amended to read as follows:
"The name of this corporation is General Inspection
Laboratories, Inc."
3. The foregoing amendment of articles of incorporation has
been duly approved by the board of directors.
4. The foregoing amendment of articles of incorporation has
been duly approved by the required vote of shareholders in accordance with
Section 902 of the Corporations Code. The total number of outstanding shares of
the corporation is 447,000(_______). The number of shares voting in favor of the
amendment equaled or exceeded the vote required. The percentage vote required
was more than fifty percent (50%).
/s/ John Barritua
President
/s/ Ray E. Ivory
Secretary
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The undersigned declare under penalty of perjury that the
matters set forth in the foregoing Certificate are true of their own knowledge.
Executed at Los Angeles, California, on the 28th day of June,
1985.
/s/ John Barritua
/s/ Ray E. Ivory
<PAGE>
BYLAWS OF
KEY TESTING LAB
(A California Corporation)
ARTICLE I
SHAREHOLDERS' MEETINGS
Section 1. TIME. An annual meeting for the election of directors and for the
transaction of any other proper business shall be held on the first (1st) day of
June of each year or if such day falls on a weekend or a holiday, then on the
next succeeding business day. Any special meetings shall be held on the date and
at the time as the Board of Directors shall from time to time fix.
Section 2. PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of California, as the Directors may, from
time to time, fix. Whenever the Directors shall fail to fix such place, the
meetings shall be held at the principal executive office of the corporation.
Section 3. CALL. Annual meetings may be called by the Board of Directors, by the
Chairman of the Board, if any, Vice Chairman of the Board, if any, the
President, the Secretary, or by any officer instructed by the Board of Directors
to call the meeting. Special meetings may be called in like manner and by the
holders of shares entitled to cast not less than ten percent (10%) of the votes
at the meeting being called in the following manner. Upon request in writing to
the Chairman of the Board, the President, any Vice President or the Secretary by
any person(s), firm(s) and/or entity(ies) (other than the Board) entitled to
call a special meeting of shareholders, the officer to whom such request is
delivered shall as soon as reasonably possible cause notice to be given to the
shareholders entitled to vote that a meeting will be held at a time requested by
the person(s), firm(s) and/or entity(ies) calling the meeting, which time shall
not be less than thirty-five (35) nor more than sixty (60) days after the
receipt of the request unless the request indicates that a longer or shorter
period is necessary. If the notice is not given within twenty (20) days after
receipt of the request, the persons entitled to call the meeting may give the
notice.
Section 4. NOTICE. Written notice stating the place, day and hour of each
meeting, and, in the case of a special meeting, the general nature of the
business to be transacted or, in the case of an annual meeting, those matters
which the Board of Directors, at the time of mailing of the notice, intends to
present for action by the shareholders, shall be given not less than ten (10)
days (or not less than any such other minimum period of days as may be
prescribed by the General Corporation Law of the State of California -- the
"General Corporation Law") or more than sixty (60) days (or more than any such
maximum period of days as may be prescribed by the General Corporation Law)
before the date of the meeting, by mail, personally, or by other means of
written communication, charges prepaid by or at the direction of the Board of
Directors, the President, the Secretary or the officer or persons calling the
meeting, addressed to each shareholder calling the meeting, addressed to each
shareholder at the address of such shareholder appearing on the books of the
corporation or given by the shareholder to the corporation for the purpose of
notice, or, if no such address appears
<PAGE>
or is given, at the place where the principal executive office of the
corporation is located or by publication at least once in a newspaper of general
circulation in the county in which the said principal executive office is
located. Such notice shall be deemed to have been given at the time when
delivered personally or when deposited in the United States mail with first
class postage thereon prepaid, or sent by other means of written communication
addressed to the shareholder at his address as it appears on the stock transfer
books of the corporation. The notice of any meeting at which directors are to be
elected shall include the names of nominees intended at the time of the notice
to be presented by management for election. At an annual meeting of
shareholders, any matter relating to the affairs of the corporation, whether or
not stated in the notice of the meeting, may be brought up for action except
matters which the General Corporation Law requires to be stated in the notice of
the meeting. The notice of any annual or special meeting shall also include, or
be accompanied by, any additional information, or documents prescribed by the
General Corporation Law. When a meeting is adjourned to another time or place,
notice of the adjourned meeting need not be given if the time and place thereof
are announced at the meeting at which the adjournment is taken; provided that,
if after the adjournment a new record date is fixed for the adjourned meeting,
or if more than forty-five (45) days pass from the date of the original meeting,
a notice of the adjourned meeting shall be given to each shareholder. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
Section 5. CONSENT. The transaction of any meeting, however called and noticed,
and wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum is present and if, either before or after
the meeting, each of the shareholders or his proxy signs a written waiver of
notice or a consent to the holding of the meeting or an approval of the minutes
thereof. All such waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting. Attendance of a
person at a meeting constitutes a waiver of notice of such meeting, except when
the person objects, at the beginning of the meeting in writing, to the
transaction of any business because the meeting is not lawfully called or
convened and except that attendance at a meeting shall not constitute a waiver
of any right to object to the consideration of matters required by the General
Corporation Law to be included in the notice but not so included, if such
objection is expressly made at the meeting in writing. Except as otherwise
provided in subdivision (f) of Section 601 of the General Corporation Law,
neither the business to be transacted at nor the purpose of any regular or
special meeting need be specified in any written waiver of notice.
Section 6. CONDUCT OF MEETING. Meetings of the shareholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting -- the Chairman of the Board, if any, the Vice Chairman of the Board,
if any, the President, a Vice President, or, if none of the foregoing is in
office and present and acting, by a chairman to be chosen by the shareholders.
The Secretary of the corporation or, in his or her absence, an Assistant
Secretary, shall act as secretary of every meeting, but, if neither the
Secretary nor an Assistant Secretary is present, the chairman of the meeting
shall appoint a secretary of the meeting.
Section 7. PROXY REPRESENTATION. Every shareholder may authorize another person
or persons to act as his, her or its proxy at a meeting or by written consent.
No proxy shall be valid
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after the expiration of eleven (11) months from the date of its execution unless
otherwise provided in the proxy. Every proxy shall be revocable at the pleasure
of the person executing it prior to the vote or written consent pursuant
thereto, except as otherwise provided by the General Corporation Law. As used
herein, a "proxy" shall be deemed to mean a written authorization signed by a
shareholder or a shareholder's attorney in fact, giving another person or
persons other than the shareholder the power to vote or consent in writing with
respect to the shares of such shareholder; and "signed" as used herein shall be
deemed to mean the placing of such shareholder's name on the proxy by the
shareholder or the shareholder's attorney in fact, whether by manual signature,
typewriting, telegraphic transmission or otherwise. Where applicable, the form
of any proxy shall comply with the provisions of Section 604 of the General
Corporation Law.
Section 8. INSPECTORS - APPOINTMENT. In advance of any meeting, the Board of
Directors may appoint inspectors of election to act at the meeting and any
adjournment thereof. If inspectors of election are not so appointed, or, if any
persons so appointed fail to appear or refuse to act, the chairman of any
meeting of shareholders may, and on the request of any shareholder or a
shareholder's proxy shall, appoint inspectors of election (or persons to replace
those who so fail or refuse) at the meeting. The number of inspectors shall be
either one (1) or three (3). If appointed at a meeting on the request of one or
more shareholders or proxies, the majority of shares represented shall determine
whether one or three inspectors are to be appointed. The inspectors of election
shall determine the number of shares outstanding and the voting power of each
and determine the shares represented at the meeting; determine the existence of
a quorum and the authenticity, validity, and effect of proxies; receive votes,
ballots, if any, or consents; hear and determine all challenges and questions in
any way arising in connection with the right to vote; count and tabulate all
votes or consents; determine when the polls shall close; determine the result;
and do such acts as may be proper to conduct the election or vote with fairness
to all shareholders. If there are three (3) inspectors of election, the
decision, act, or certificate of a majority shall be effective in all respects
as the decision, act, or certificate of all.
Section 9. SUBSIDIARY CORPORATIONS. Shares of this corporation owned by a
subsidiary shall not be entitled to vote on any matter A subsidiary for these
purposes is defined as a corporation, the shares of which possessing more than
twenty-five percent (25%) of the total combined voting power of all classes of
shares entitled to vote, are owned by this corporation, directly or indirectly,
including, but not limited to, through one or more subsidiaries of this
corporation.
Section 10. QUORUM; VOTE; WRITTEN CONSENT. The holders of a majority of the
voting shares shall constitute a quorum at a meeting of shareholders for the
transaction of any business. The shareholders present at a duly called or held
meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum, if any action taken, other than adjournment, is approved by at
least a majority of the shares required to constitute a quorum. In the absence
of a quorum, any meeting of shareholders may be adjourned from time to time by
the vote of a majority of the shares represented thereat, but no other business
may be transacted except as hereinbefore provided.
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In the election of directors, a plurality of the votes cast
shall elect. No shareholder shall be entitled to exercise the right of
cumulative voting at a meeting for the election of directors unless the
candidate's name or the candidates' names have been placed in nomination prior
to the voting and the shareholder has given notice at the meeting prior to the
voting of the shareholder's intention to cumulate the shareholder's votes. If
any one shareholder has given such notice, all shareholders may cumulate their
votes for such candidates in nomination.
Except as otherwise provided by the General Corporation Law,
the Articles of Incorporation or these Bylaws, any action required or permitted
to be taken at a meeting at which a quorum is present shall be authorized by the
affirmative vote of a majority of the shares represented at the meeting.
Except in the election of directors by written consent in lieu
of a meeting, and except as may otherwise be provided by the General Corporation
Law, the Articles of Incorporation or these Bylaws, any action which may be
taken at any annual or special meeting may be taken without a meeting and
without prior notice, if a consent in writing, setting forth the action so
taken, shall be signed by holders of shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Directors may not be elected by written consent except by unanimous written
consent of all shares entitled to vote for the election of directors. Notice of
shareholder approval, pursuant to Sections 310, 317, 1201 or 2007, without a
meeting by less than unanimous written consent shall be given at least ten (10)
days before the consummation of the action authorized by such approval, and
prompt notice shall be given of the taking of any other corporate action
approved by shareholders without a meeting by less than unanimous written
consent to those shareholders entitled to vote who have not consented in
writing.
Section 11. BALLOT. Elections of directors at a meeting need not be by ballot
unless a shareholder demands election by ballot at the election and before the
voting begins. In all other matters, voting need not be by ballot.
ARTICLE II
BOARD OF DIRECTORS
Section 1. FUNCTIONS. The business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction of
its Board of Directors. The Board of Directors may delegate the management of
the day-to-day operation of the business of the corporation to a management
company or other person, firm or entity provided that the business and affairs
of the corporation shall be managed and all corporate powers shall be managed
and all corporate powers shall be exercised under the ultimate direction of the
Board of Directors. The Board of Directors shall have authority to fix the
compensation of directors for services in any lawful capacity.
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Each director shall exercise such powers and otherwise perform
such duties in good faith, in the manner such director believes to be in the
best interests of the corporation, and with such care, including reasonable
inquiry, as an ordinarily prudent person in a like position would use under
similar circumstances.
Without prejudice to such general powers, but subject to the
same limitations, it is hereby expressly declared that the Board of Directors
shall have the following powers in addition to the other powers enumerated in
these Bylaws:
(a) To select and remove all the other officers,
agents, and employees of the corporation, prescribe the powers and duties for
them as may not be inconsistent with law, the Articles of Incorporation or these
Bylaws, fix their compensation, and require from them security for faithful
service.
(b) To conduct, manage and control the affairs
and business of the corporation and to make such rules and regulations therefor
not inconsistent with law, the Articles of Incorporation or these Bylaws, as
they may deem best.
(c) To adopt, make, and use a corporate seal
and to prescribe the forms of certificates of stock, and to alter the form of
such seal and of such certificates from time to time as, in their judgment, they
may deem best.
(d) To authorize the issuance of shares of
stock of the corporation from time to time, upon such terms and for such
considerations as may be lawful.
(e) To borrow money and incur indebtedness for
the purposes of the corporation, and to cause to be executed and delivered
therefor, in the corporate name, promissory notes, bonds, debentures, deeds of
trust, mortgages, pledges, hypothecations, or other evidences of debt and
securities therefor.
(f) To fill all vacancies in the Board of
Directors not filled by the shareholders.
Section 2. QUALIFICATIONS AND NUMBER. A director need not be a shareholder of
the corporation, resident or citizen of the United States, or a resident of the
State of California. The authorized number of directors constituting the Board
of Directors until further changed shall be four (4). Thereafter, the authorized
number of directors constituting the Board of Directors shall be at least three
(3), provided that, whenever the corporation shall have only two (2)
shareholders, the number of directors may be at least two (2), and, whenever the
corporation shall have only one (1) shareholder, the number of directors may be
at least one (1). Subject to the foregoing provisions, the number of directors
may be changed from time to time by an amendment of these Bylaws adopted by the
shareholders. Any such amendment reducing the fixed number or the minimum number
of directors to fewer than five (5) cannot be adopted if the votes cast against
its adoption at a meeting, or the shares not consenting in writing in the case
of action by written consent, are equal
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to more than sixteen and two-thirds percent (16 2/3%) of the outstanding shares
entitled to vote. No decrease in the authorized number of directors shall have
the effect of shortening the term of any incumbent director.
Section 3. ELECTION AND TERM. The initial Board of Directors shall consist of
the persons elected at the meeting of the incorporator(s), all of whom shall
hold office until the first annual meeting of shareholders and until their
successors have been elected and qualified, or until their earlier resignation
or removal from office. Thereafter, directors who are elected to replace any or
all of the members of the initial Board of Directors or who are elected at an
annual meeting of shareholders, and directors who are elected in the interim to
fill vacancies, shall hold office until the next annual meeting of shareholders
and until their successors have been elected and qualified, or until their
earlier resignation, removal from office, or death. In the interim between
annual meetings of shareholders or of special meetings of shareholders called
for the election of directors, any vacancies in the Board of Directors,
including vacancies resulting from an increase in the authorized number of
directors which have not been filled by the shareholders, including any other
vacancies which the General Corporation Law authorizes directors to fill, and
including vacancies resulting from the removal of directors which are not filled
at the meeting of shareholders at which any such removal has been effected, if
the Articles of Incorporation or a Bylaw adopted by the shareholders so
provides, may be filled by the vote of a majority of the directors then in
office or of the sole remaining director, although less than a quorum exists.
Any director may resign effective upon giving written notice to the Chairman of
the Board, if any, the President, the Secretary or the Board of Directors,
unless the notice specifies a later time for the effectiveness of such
resignation. If the resignation is effective at a future time, a successor may
be elected to the office when the resignation becomes effective.
The shareholders may elect a director at any time to fill any
vacancy which the directors are entitled to fill, but which they have not
filled. Any such election by written consent shall require the consent of a
majority of the shares.
Section 4. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The
corporation may indemnify any director, officer, agent or employee as to those
liabilities and on those terms and conditions as are specified in Section 317 of
the General Corporation Law. In any event, the corporation shall have the right
to purchase and maintain insurance on behalf of any such persons whether or not
the corporation would have the power to indemnify such person against the
liability insured against.
Section 5. MEETINGS.
TIME. Meetings shall be held at such time as the Board of Directors
shall fix, except that the first meeting of a newly elected Board shall be held
as soon after its election as the directors may conveniently assemble.
PLACE. Meetings may be held at any place, within or without the
State of California, which has been designated in any notice of the meeting, or,
if not stated in said notice, or, if there is no notice given, at the place
designated by resolution of the Board of Directors.
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CALL. Meetings may be called by the Chairman of the Board, if any,
by the President, by any Vice President or Secretary, or by any two (2)
directors.
NOTICE AND WAIVER THEREOF. No notice shall be required for regular
meetings for which the time and place have been fixed by the Board of Directors.
Special meetings shall be held upon at least four (4) days' notice by mail or
upon at least forty-eight (48) hours' notice delivered personally or by
telephone or telegraph. Notice of a meeting need not be given to any director
who signs a waiver of notice, whether before or after the meeting, or who
attends the meeting without protesting, prior thereto or at its commencement in
writing, the lack of notice to such director. A notice or waiver of notice need
not specify the purpose of any regular or special meeting of the Board of
Directors.
Section 6. SOLE DIRECTOR PROVIDED BY ARTICLES OF INCORPORATION. In the event
only one (1) director is required by the Bylaws or Articles of Incorporation,
then any reference herein to notices, waivers, consents, meetings or other
actions by a majority or quorum of the directors shall be deemed to refer to
such notice, waiver, etc., by such sole director, who shall have all the rights
and duties and shall be entitled to exercise all of the powers and shall assume
all the responsibilities otherwise herein described as given to a Board of
Directors.
Section 7. QUORUM AND ACTION. A majority of the authorized number of directors
shall constitute a quorum except when a vacancy or vacancies prevents such
majority, whereupon a majority of the directors in office shall constitute a
quorum, provided such majority shall constitute at least either one-third (1/3)
of the authorized number of directors or at least two (2) directors, whichever
is larger, or unless the authorized number of directors is only one (1). A
majority of the directors present, whether or not a quorum is present, may
adjourn any meeting to another time and place. If the meeting is adjourned for
more than twenty-four (24) hours, notice of any adjournment to another time or
place shall be given prior to the time of the adjourned meeting to the
directors, if any, who were not present at the time of the adjournment. Except
as the Articles of Incorporation, these Bylaws and the General Corporation Law
may otherwise provide, the act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
the act of the Board of Directors. Members of the Board of Directors may
participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members participating in such meeting
can hear one another, and participation by such use shall be deemed to
constitute presence in person at any such meeting.
A meeting at which a quorum is initially present may continue
to transact business notwithstanding the withdrawal of directors, provided that
any action which may be taken is approved by at least a majority of the required
quorum for such meeting.
Section 8. CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, the Vice Chairman of the Board, if any and if present and
acting, shall preside at all meetings. Otherwise, the President, if present and
acting, or any director chosen by the Board of Directors, shall preside.
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Section 9. REMOVAL OF DIRECTORS. The entire Board of Directors or any individual
director may be removed from office without cause by approval of the holders of
at least a majority of the shares provided, that unless the entire Board of
Directors is removed, an individual director shall not be removed when the votes
cast against such removal, or not consenting in writing to such removal, would
be sufficient to elect such director if voted cumulatively at an election of
directors at which the same total number of votes were cast (or, if such action
is taken by written consent in lieu of a meeting, all shares entitled to vote
were voted) and the entire number of directors authorized at the time of the
director's most recent election were then being elected. If any or all directors
are so removed, new directors may be elected at the same meeting or by such
written consent. The Board of Directors may declare vacant the office of any
director who has been declared of unsound mind by an order of court or convicted
of a felony.
Section 10. COMMITTEES. The Board of Directors, by resolution adopted by a
majority of the authorized number of directors, may designate one (1) or more
committees, each consisting of two (2) or more directors to serve at the
pleasure of the Board of Directors. The Board of Directors may designate one (1)
or more directors as alternate members of any such committee, who may replace
any absent member at any meeting of such committee. Any such committee, to the
extent provided in the resolution of the Board of Directors, shall have all the
authority of the Board of Directors except such authority as may not be
delegated by the provisions of the General Corporation Law.
Section 11. INFORMAL ACTION. The transactions of any meeting of the Board of
Directors, however called and noticed or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice, if a quorum is
present and if, either before or after the meeting, each of the directors not
present signs a written waiver of notice, a consent to holding the meeting, or
an approval of the minutes thereof. All such waivers, consents, or approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting.
Section 12. WRITTEN ACTION. Any action required or permitted to be taken may be
taken without a meeting if all of the members of the Board of Directors shall
individually or collectively consent in writing to such action. Any such consent
or consents shall be filed with the minutes of the proceedings of the Board of
Directors. Such action by written consent shall have the same force and effect
as a unanimous vote of such directors.
ARTICLE III
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be a Chairman of the
Board or a President or both, a Secretary and a Chief Financial officer. The
corporation may also have, at the discretion of the Board of Directors, one or
more Vice Presidents, one or more Assistant Secretaries and such other officers
as may be appointed in accordance with the provisions of Section 3 of this
Article. One person may hold two or more offices.
Section 2. ELECTION. The officers of the corporation, except such officers as
may be appointed in accordance with the provisions of Section 3 or Section 5 of
this Article, shall be chosen
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annually by the Board of Directors, and each shall hold his office until he
shall resign or shall be removed or otherwise disqualified to serve, or his
successor shall be elected and qualified.
Section 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint such
other officers as the business of the corporation may require, each of whom
shall hold office for such period, have such authority and perform such duties
as are provided in the Bylaws or as the Board of Directors may from time to time
determine.
Section 4. REMOVAL AND RESIGNATION. Any officer may be removed, either with or
without cause, by a majority of the directors at the time in office, at any
regular or special meeting of the Board of Directors, or, except in case of an
officer chosen by the Board of Directors, by any officer upon whom such power of
removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to
the Board of Directors, or to the President, or to the Secretary of the
corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 5. VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled in the manner
prescribed in the Bylaws for regular appointments to such office.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall be
such an officer, shall, if present, preside at all meetings of the Board of
Directors, and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by the
Bylaws.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be
given by the Board of Directors to the Chairman of the Board, if there be such
an officer, the President shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. He shall preside at all meetings of the shareholders and, in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board of Directors. He shall be ex officio a member of all the standing
committees, including the Executive Committee, if any, and shall have the
general powers and duties of management usually vested in the office of
President of a corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or the Bylaws.
Section 8. VICE PRESIDENT. In the absence or disability of the President, the
Vice Presidents, in order of their rank as fixed by the Board of Directors, or
if not ranked, the Vice President designated by the Board of Directors, shall
perform all the duties of the President, and when so acting shall have all the
powers of, and be subject to, all the restrictions upon, the President. The Vice
Presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the Board of Directors
or the Bylaws.
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Section 9. SECRETARY. The Secretary shall keep, or cause to be kept, a book of
minutes at the principal office or such other place as the Board of Directors
may order, of all meetings of Directors and Shareholders, with the time and
place of holding, whether regular or special, and if special, how authorized,
the notice thereof given, the names of those present at Directors' meetings, the
number of shares present or represented at Shareholders' meetings and the
proceedings thereof.
The Secretary shall keep, or cause to be kept, at the
principal office or at the office of the corporation's transfer agent, a share
register, or duplicate share register, showing the names of the shareholders and
their addresses; the number and classes of shares held by each; the number and
date of certificates issued for the same; and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all
the meetings of the shareholders and of the Board of Directors required by the
Bylaws to be given, and he shall keep the seal of the corporation in safe
custody, and shall have such other powers and perform such other duties as may
be prescribed by the Board of Directors or by the Bylaws.
Section 10. CHIEF FINANCIAL OFFICER. This officer shall keep and maintain, or
cause to be kept and maintained in accordance with generally accepted accounting
principles, adequate and correct accounts of the properties and business
transactions of the corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, earnings (or surplus) and
shares. The books of account shall at all reasonable times be open to inspection
by any director.
This officer shall deposit all monies and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the Board of Directors. He shall disburse the funds of the
corporation as may be ordered by the Board of Directors, shall render to the
President and directors, whenever they request it, an account of all his
transactions and of the financial condition of the corporation, and shall have
such other powers and perform such other duties as may be prescribed by the
Board of Directors or the Bylaws.
ARTICLE IV
CERTIFICATES AND TRANSFERS OF SHARES
Section 1. CERTIFICATES FOR SHARES. Each certificate for shares of the
corporation shall set forth therein the name of the record holder of the shares
represented thereby, the number of shares and the class or series of shares
owned by said holder, the par value, if any, of the shares represented thereby,
and such other statements, as applicable, prescribed by Sections 416 - 419,
inclusive, and other relevant sections of the General Corporation Law and such
other statements as applicable, which may be prescribed by the Corporation
Securities Law of the state of California and any other applicable provisions of
the law. Each certificate issued shall be signed in the name of the corporation
by the Chairman of the Board, if any, or the Vice Chairman of the Board, if any,
the President or a Vice President, if any, and by the Chief Financial officer or
an Assistant Treasurer or the Secretary or an Assistant Secretary. Any or all of
the signatures on a certificate for shares
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may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate for
shares shall have ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the corporation with the same
effect as if such person were an officer, transfer agent or registrar at the
date of issue.
In the event that the corporation shall issue the whole or any
part of its shares as partly paid and subject to call for the remainder of the
consideration to be paid therefor, any such certificate for shares shall set
forth thereon the statements prescribed by Section 409 of the General
Corporation Law.
Section 2. LOST OR DESTROYED CERTIFICATES FOR SHARES. The corporation may issue
a new certificate for shares, or for any other security, in the place of any
other certificate theretofore issued by it which is alleged to have been lost,
stolen or destroyed. As a condition to such issuance, the corporation may
require any such owner of the allegedly lost, stolen or destroyed certificate or
any such owner's legal representative to give the corporation a bond, or other
adequate security, sufficient to indemnify it against any claim that may be made
against it, including any expense or liability, on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate.
Section 3. SHARE TRANSFERS. Upon compliance with any provisions of the General
Corporation Law and/or the Corporate Securities Law of 1968 which may restrict
the transferability of shares, transfers of shares of the corporation shall be
made on the record of shareholders of the corporation only by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary of the corporation or with a transfer
agent or a registrar, if any, and on surrender of the certificate or
certificates for such shares properly endorsed and the payment of all taxes, if
any, due thereon.
Section 4. RECORD DATE FOR SHAREHOLDERS. In order that the corporation may
determine the shareholders entitled to notice of and to vote at any meeting, or
to receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any other lawful action, the
Board of Directors may fix, in advance, a record date, which shall not be more
than sixty (60) days or fewer than ten (10) days prior to the date of such
meeting or more than sixty (60) days prior to any other action.
If the Board of Directors shall not have fixed a record date
as aforesaid, the record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day next preceding the day on
which the meeting is held; the record date for determining shareholders entitled
to give consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors has been taken, shall be the day on which the
first written consent is given; and the record date for determining shareholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto, or the sixtieth
(60th) day prior to the day of such other action, whichever is later.
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A determination of shareholders of record entitled to notice
of or to vote at a meeting of shareholders shall apply to any adjournment of the
meeting unless the Board of Directors fixes a new record date for the adjourned
meeting, but the Board of Directors shall fix a new record date if the meeting
is adjourned for more than forty-five (45) days from the date set for the
original meeting.
Except as may be otherwise provided by the General Corporation
Law, shareholders on the record date shall be entitled to notice, to vote, to
receive any dividend, distribution or allotment of rights, or to exercise any
rights, as the case may be, notwithstanding any transfer of any shares on the
books of the corporation after the record date.
Section 5. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares of other
corporations standing in the name of this corporation may be voted or
represented and all incidents thereto may be exercised on behalf of the
corporation by the Chairman of the Board, the President or any Vice President or
any other person authorized by resolution of the Board of Directors.
Section 6. MEANING OF CERTAIN TERMS. As used in these Bylaws in respect of the
right to notice of a meeting of shareholders or a waiver thereof or to
participate or vote thereat or to assent or consent or dissent in writing in
lieu of a meeting, as the case may be, the terms "share" or "shares" or
"shareholder" or "shareholders" refers to an outstanding share or shares and to
a holder or holders of record of outstanding shares when the corporation is
authorized to issue only one class of shares, and said reference is also
intended to include any outstanding share or shares and any holder or holders of
record of outstanding shares of any class upon which or upon whom the Articles
of Incorporation confer such rights where there are two or more classes or
series of shares or upon which or upon whom the General Corporation Law confers
such rights notwithstanding that the Articles of Incorporation may provide for
more than one class or series of shares, one or more of which are limited or
denied such rights thereunder.
ARTICLE V
EFFECT OF SHAREHOLDERS' AGREEMENT - CLOSE CORPORATION
Any Shareholders' Agreement authorized by Section 300(b) shall
only be effective to modify the terms of these Bylaws if this corporation elects
to become a close corporation with appropriate filing of or amendment to its
Articles of Incorporation as required by Section 202 and shall terminate when
this corporation ceases to be a close corporation. Such an agreement cannot
waive or alter Sections 158 (defining close corporations), 202 (requirement of
Articles of Incorporation), 500 and 501 (relative to distributions), 1111
(merger), 1201(e) (reorganization) or Chapters 15 (Records and Reports), 16
(Rights of Inspection), 18 (Involuntary Dissolution) or 22 (Crimes and
Penalties). Any other provisions of the General Corporation Law or these Bylaws
may be altered or waived thereby, but to the extent they are not so altered or
waived, these Bylaws shall be applicable.
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<PAGE>
ARTICLE VI
CORPORATE CONTRACTS AND INSTRUMENT - HOW EXECUTED
The Board of Directors, except as the Bylaws otherwise
provide, may authorize any officer or officers, agent or agents, to enter into
any contract or execute any instrument in the name of and on behalf of the
corporation. Such authorization may be general or confined to specific
instances. Unless so authorized by the Board of Directors, no officer, agent or
employee shall have any power or authority to bind the corporation by any
contract or agreement, or to pledge its credit, or to render it liable for any
purposes or any amount, except as provided in Section 313 of the General
Corporation Law.
ARTICLE VII
CONTROL OVER BYLAWS
After the initial Bylaws of this corporation shall have been
adopted by the incorporator(s) of the corporation, the Bylaws may be amended or
repealed or new Bylaws may be adopted by the shareholders entitled to exercise a
majority of the voting power or by the Board of Directors; provided, however,
that the Board of Directors shall have no control over any Bylaw which fixes or
changes the authorized number of directors of the corporation; provided,
further, that any control over the Bylaws herein vested in the Board of
Directors shall be subject to the authority of the aforesaid shareholders to
amend or repeal the Bylaws or to adopt new Bylaws; and provided further that any
Bylaw amendment or new Bylaw which changes the fixed number or minimum number of
directors to fewer than five (5) cannot be adopted if the votes cast against its
adoption at a meeting, or the shares not consenting in the case of action by
written consent, are equal to more than sixteen and two-thirds percent (16 2/3%)
of the outstanding shares entitled to vote.
ARTICLE VIII
BOOKS AND RECORDS - STATUTORY AGENT
Section 1. RECORDS; STORAGE AND INSPECTION. The corporation shall keep
at its principal executive office in the State of California, or, if its
principal executive office is not in the State of California, at its principal
business office in the State of California, the original or a copy of the Bylaws
as amended to date, which shall be open to inspection by the shareholders at all
reasonable times during office hours. If the principal executive office of the
corporation is outside the State of California, and, if the corporation has no
principal business office in the State of California, it shall upon request of
any shareholder furnish a copy of the Bylaws as amended to date.
The corporation shall keep adequate and correct books and
records of account and shall keep minutes of the proceedings of its
shareholders, Board of Directors and committees, if any, of the Board of
Directors. The corporation shall keep at its principal executive office, or at
the office of its transfer agent or registrar, a record of its shareholders,
giving the names and addresses of all shareholders and the number and class of
shares held by each. Such minutes shall be in written form. Such other books and
records shall be kept either in written form or in any other form capable of
being converted into written form.
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<PAGE>
Section 2. RIGHTS OF INSPECTION. Every director shall have the absolute right at
any reasonable time to inspect and copy, at his sole cost and expense, all
books, records, and documents of every kind and to inspect the physical
properties of the corporation and also of its subsidiary corporations, domestic
or foreign. Such inspection by a director may be made in person or by agent or
attorney and includes the right to copy and obtain extracts.
Section 3. INSPECTION OF CORPORATE RECORDS. A shareholder or shareholders
holding at least five percent (5%) in the aggregate of the outstanding voting
shares of the corporation or who holds or hold at least one percent (1%) of such
voting shares and has or have filed a Schedule 14B with the United States
Securities and Exchange Commission relating to the election of directors of the
corporation shall have an absolute right to do either or both of the following:
(a) Inspect and copy at his or their sole cost
and expense the record of shareholders' names and addresses and shareholdings
during usual business hours upon five (5) business days' prior written demand
upon the corporation; or
(b) Obtain from the transfer agent, if any, for
the corporation, upon five (5) business days' prior written demand and upon the
tender of its usual charges for such a list (the amount of which charges shall
be stated to the shareholder by the transfer agent upon request), a list of the
shareholders' names and addresses who are entitled to vote for the election of
directors and their shareholdings, as of the most recent record date for which
it has been compiled or as of a date specified by the shareholder subsequent to
the date of demand.
The record of shareholders shall also be open to inspection
and copying by any shareholder or holder of a voting trust certificate at any
time during usual business hours upon written demand on the corporation, for a
purpose reasonably related to such holder's interest as a shareholder or holder
of a voting trust certificate.
The accounting books and records and minutes of proceedings of
the shareholders and the Board of Directors and committees of the Board of
Directors shall be open to inspection upon written demand on the corporation of
any shareholder or holder of a voting trust certificate at any reasonable time
during usual business hours, for a purpose reasonably related to such holder's
interest as a shareholder or as a holder of such voting trust certificate.
Any inspection and copying authorized by this Section may be
made in person or by agent or attorney.
Section 4. RECORD OF PAYMENTS. All checks, drafts or other orders for payment of
money, notes or other evidences of indebtedness, issued in the name of or
payable to the corporation, shall be signed or endorsed by such person or
persons and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
Section 5. ANNUAL REPORT. Whenever the corporation shall have fewer than
one hundred shareholders, the Board of Directors shall not be required to cause
to be sent to the shareholders of
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<PAGE>
the corporation the annual report prescribed by Section 1501 of the General
Corporation Law unless it shall determine that a useful purpose would be served
by causing the same to be sent or unless the Department of Corporations,
pursuant to the provisions of the Corporate Securities Law of 1968, shall direct
the sending of the same.
Section 6. AGENT FOR SERVICE. The name and address of the agent for service of
process within the State of California is: JOHN BARRIATUA, 8427 Atlantic Avenue,
Cudahy, California 90201.
ARTICLE IX
OFFICES
Section 1. PRINCIPAL EXECUTIVE OFFICE. The principal executive office of the
corporation is hereby fixed and located at 8427 Atlantic Avenue, Cudahy,
California 90201.
The Board of Directors is hereby granted full power and
authority to change said principal executive office from one location to
another. Any such change shall be noted on the Bylaws opposite this Section or
this Section may be amended to state the new location.
Section 2. OTHER OFFICES. Branch or subordinate offices may at any time be
established by the Board of Directors at any place or places.
-15-
<PAGE>
GENERAL INSPECTION LABORATORIES, INC.
ACTION BY WRITTEN CONSENT IN LIEU OF A MEETING
In lieu of a meeting of the stockholder of General Inspection
Laboratories, Inc. (the "Corporation"), a California corporation, the
stockholder of the Corporation acting without a meeting and in accordance with
Section 603(a) of the California Corporate Code hereby agrees to the following
resolutions:
Amendment of Bylaws
WHEREAS, it has been determined to be in the best interests of the
Corporation to increase the authorized number of Directors from two (2) to three
(3);
NOW, THEREFORE, BE IT RESOLVED, that the second sentence of Section 2
of Article I of the Bylaws of the Corporation be, and it hereby is, amended to
read as follows:
"The authorized number of directors constituting the Board of Directors
until further changed shall be three (3)."
Election of Directors
BE IT RESOLVED, that the Board of Directors of the Corporation shall
consist of three directors, who shall serve until the next annual
meeting of shareholders and/or until their successors are elected and
qualify; and
BE IT RESOLVED, FURTHER, that Richard L. Kramer, William L. Remley and
Bradley C. Call are hereby elected as the Directors to serve aforesaid.
The stockholder, by signing this consent, waives notice of the time,
place and purpose of a Meeting and agree to the transaction of business of a
Meeting by written consent in lieu of such meeting.
IN WITNESS WHEREOF, the stockholder has, by its duly authorized
representative acting for and on its behalf, executed this Action as of the 1st
day of July, 1997.
KLEINERT INDUSTRIES, INC.
By:/s/ Bradley C. Call
-------------------------------
Bradley C. Call, President
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<PAGE>
Execution Copy
STELLEX INDUSTRIES, INC.
$100,000,000
9.50% Senior Subordinated Notes due 2007
PURCHASE AGREEMENT
October 23, 1997
SOCIETE GENERALE SECURITIES CORPORATION
BT ALEX. BROWN INCORPORATED
JEFFERIES & COMPANY, INC.
c/o Societe Generale Securities Corporation
1221 Avenue of the Americas
New York, New York 10020
Dear Sirs:
Stellex Industries, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell $100,000,000 principal amount of its
9.50% Senior Subordinated Notes due 2007 (the "Securities"). The Securities are
to be issued pursuant to an Indenture dated as of the Closing Date (as defined
below) (the "Indenture") to be entered into between the Company, each subsidiary
of the Company existing on the Closing Date (collectively, the "Guarantors") and
Marine Midland Bank, as trustee (the "Trustee"). This is to confirm the
agreement concerning the purchase of the Securities from the Company by Societe
Generale Securities Corporation ("SGSC"), BT Alex. Brown Incorporated and
Jefferies & Company, Inc. (the "Initial Purchasers"). Payment of principal and
interest on the Securities will be unconditionally guaranteed, jointly and
severally, on a senior subordinated basis (the "Guarantees") by the Guarantors.
For all purposes of this Agreement, the terms "subsidiary" and
"Guarantor", when used with reference to the Company, shall refer collectively
to each of the corporations listed on Annex B hereto assuming the W-J
Acquisition (as defined in the Offering Memorandum) has been consummated;
provided that none of Stellex Microwave Systems, Inc. or any of its subsidiaries
to be acquired in the W-J Acquisition shall be a signatory to this Agreement
until the Closing Date, on which date each of Stellex Microwave Systems, Inc.
and its subsidiaries shall become a party to this Agreement; provided further
that (i) all representations and warranties pertaining to Stellex Microwave
Systems, Inc. and its subsidiaries contained in Section 1 made as of the date
hereof shall be deemed to have been made to the best knowledge of the Company
and (ii) all such representations and warranties made on the Closing Date shall
not be subject to such knowledge qualification except as expressly provided in
such representations and warranties.
<PAGE>
2
The Securities will be offered and sold to the Initial
Purchasers without being registered under the Securities Act of 1933, as amended
(the "Securities Act"), in reliance upon an exemption therefrom. The Company has
prepared a preliminary offering memorandum dated October 8, 1997 (the
"Preliminary Offering Memorandum") and will prepare an offering memorandum dated
the date hereof (the "Offering Memorandum") setting forth information concerning
the Company and the Securities. Copies of the Preliminary Offering Memorandum
have been, and copies of the Offering Memorandum will be, delivered by the
Company to the Initial Purchasers pursuant to the terms of this Agreement. Any
references herein to the Preliminary Offering Memorandum and the Offering
Memorandum shall be deemed to include all amendments and supplements thereto,
unless otherwise noted. The Company hereby confirms that it has authorized the
use of the Preliminary Offering Memorandum and the Offering Memorandum in
connection with the offering and resale of the Securities by the Initial
Purchasers in accordance with Section 2.
Holders of the Securities (including the Initial Purchasers
and their direct and indirect transferees) will be entitled to the benefits of
an Exchange and Registration Rights Agreement, substantially in the form
attached hereto as Annex A (the "Registration Rights Agreement"), pursuant to
which the Company and the Guarantors will agree to file with the Securities and
Exchange Commission (the "Commission") (i) a registration statement under the
Securities Act (the "Exchange Offer Registration Statement") registering an
issue of subordinated notes of the Company (the "Exchange Securities") which are
identical in all material respects to the Securities (except that the Exchange
Securities will not contain terms with respect to transfer restrictions) and
(ii) under certain circumstances, a shelf registration statement pursuant to
Rule 415 under the Securities Act (the "Shelf Registration Statement").
1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY AND THE
GUARANTORS. The Company and the Guarantors represent and warrant to and agree,
jointly and severally, with the several Initial Purchasers that:
(a) Accurate Information. Each of the Preliminary Offering
Memorandum and the Offering Memorandum, as of its respective date, did
not, and on the Closing Date the Offering Memorandum will not, contain
any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; provided that neither the Company nor any
Guarantor makes any representation or warranty as to information
contained in or omitted from the Preliminary Offering Memorandum or the
Offering Memorandum in reliance upon and in conformity with written
information relating to the Initial Purchasers furnished to the Company
and the Guarantors by or on behalf of any Initial Purchaser
specifically for use therein (the "Initial Purchasers' Information").
(b) Compliance with Securities Act. The Offering Memorandum,
as of its date, contains all of the information that, if requested by
a prospective purchaser of the
<PAGE>
3
Securities, would be required to be provided to such prospective
purchaser pursuant to Rule 144A(d)(4) under the Securities Act.
(c) No Registration Required. Assuming the accuracy of the
representations and warranties of the Initial Purchasers contained in
Section 2 and their compliance with the agreements set forth therein,
it is not necessary, in connection with the issuance and sale of the
Securities to the Initial Purchasers, to register the Securities under
the Securities Act or to qualify the Indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act").
(d) Corporate Existence; Compliance with Law. The Company and
each of its subsidiaries (as defined in Section 14 and subject to the
second paragraph of this Agreement) have been duly incorporated and are
validly existing as corporations in good standing under the laws of
their respective jurisdictions of incorporation, are duly qualified to
do business and are in good standing as foreign corporations in each
jurisdiction in which their respective ownership or lease of property
or the conduct of their respective businesses requires such
qualification, and have all power and authority necessary to own or
hold their respective properties and to conduct the businesses in which
they are engaged, except where the failure to so qualify or have such
power or authority would not reasonably be expected to have, singularly
or in the aggregate, a material adverse effect on the condition
(financial or otherwise), results of operations, business or prospects
of the Company and its subsidiaries taken as a whole (a "Material
Adverse Effect").
(e) Corporate Power; Authorization. Each of the Company and
the Guarantors has full right, power and authority to execute and
deliver (to the extent a party thereto) this Agreement, the
Registration Rights Agreement, the Indenture, the Securities, the New
Credit Facility (as defined in the Offering Memorandum) and the Stock
Purchase Agreement, dated as of August 29, 1997, by and among TSMD
Acquisition Corp., Watkins-Johnson Company and Stellex Microwave, Inc.
(formerly W-J TSMD Inc.) (collectively, the "Transaction Documents")
and to perform its respective obligations hereunder and thereunder; and
all corporate action required to be taken for the due and proper
authorization, execution and delivery of each of the Transaction
Documents and the consummation of the transactions contemplated by this
Agreement and the Indenture have been duly and validly taken.
(f) Enforceable Obligations. The Indenture, when duly executed
by the proper officers of the Company and each Guarantor and delivered
by the Company and each Guarantor, assuming due authorization,
execution and delivery thereof by the Trustee, will constitute a valid
and binding agreement of the Company and each Guarantor enforceable
against the Company and each Guarantor in accordance with its terms,
except that enforcement may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or
at law) and an implied covenant of good faith and fair dealing and
except that rights to indemnification and contribution may be limited
by
<PAGE>
4
applicable law or public policy considerations; the Registration Rights
Agreement, when duly executed by the proper officers of the Company and
each Guarantor and delivered by the Company and each Guarantor,
assuming due authorization, execution and delivery thereof by the
Initial Purchasers, will constitute a valid and binding agreement of
the Company and each Guarantor, respectively, enforceable against them
in accordance with its terms, except that enforcement may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors'
rights generally, general equitable principles (whether considered in a
proceeding in equity or at law) and an implied covenant of good faith
and fair dealing and except that rights to indemnification and
contribution may be limited by applicable law or public policy
considerations; the Securities, when duly executed, authenticated,
issued and delivered as provided in the Indenture and upon payment and
delivery in accordance with this Agreement, will be duly and validly
issued and outstanding and will constitute valid and binding
obligations of the Company entitled to the benefits of the Indenture
and enforceable in accordance with their terms, except that enforcement
may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles
(whether considered in a proceeding in equity or at law) and an implied
covenant of good faith and fair dealing and except that rights to
indemnification and contribution may be limited by applicable law or
public policy considerations; the Guarantees, when duly executed by the
proper officers of each of the Guarantors, will constitute a valid and
binding agreement of each Guarantor enforceable against each Guarantor
in accordance with its terms, except that enforcement may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors'
rights generally, general equitable principles (whether considered in a
proceeding in equity or at law) and an implied covenant of good faith
and fair dealing, except that rights to indemnification and
contribution may be limited by applicable law or public policy
considerations; and the Indenture, the Registration Rights Agreement,
the New Credit Facility and the Securities, when executed and
delivered, will conform in all material respects to the descriptions
thereof contained in the Offering Memorandum.
(g) Capitalization of the Company. The Company has an
authorized capitalization as set forth in the Offering Memorandum, and
all of the issued shares of capital stock of the Company have been duly
and validly authorized and issued, are fully paid and non-assessable
and conform to the description thereof contained in the Offering
Memorandum.
(h) Capitalization of Subsidiaries. All the outstanding shares
of capital stock of each subsidiary of the Company have been duly
authorized and validly issued, are fully paid and nonassessable and,
except to the extent set forth in the Offering Memorandum, are owned by
the Company directly or indirectly through one or more wholly-owned
subsidiaries, free and clear of any claim, lien, encumbrance, security
interest, restriction upon voting or transfer or any other claim of any
third party
<PAGE>
5
(except for restrictions imposed by the Securities Act and the
securities or "Blue Sky" laws of certain jurisdictions).
(i) No Legal Bar. The execution, delivery and performance of
each of the Transaction Documents by the Company and each Guarantor and
the consummation of the transactions contemplated hereby and thereby
will not conflict with or result in a breach or violation of (I) any of
the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound or to
which any of the property or assets of the Company or any of its
subsidiaries is subject (except under any such agreement that is
expected to be terminated on the Closing Date as set forth in the
Offering Memorandum), (II) the provisions of the charter or by-laws of
the Company or any of its subsidiaries or (III) any statute or any
order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries or any
of their properties or assets, except, in the case of clauses (I), (II)
and (III), for such conflicts, breaches and violations which would not
reasonably be expected to have a Material Adverse Effect.
(j) No Further Requirements. Except for such consents,
approvals, authorizations, registrations or qualifications (i) which
shall have been obtained or made prior to the Closing Date, (ii) as may
be required to be obtained under the Securities Exchange Act of 1934
(the "Exchange Act") and applicable state securities laws or the laws
of any foreign jurisdiction in connection with the purchase and
distribution of the Securities by the Initial Purchasers, (iii) which
are described in the Offering Memorandum, (iv) as may be required by
the National Association of Securities Dealers, Inc., (v) in the case
of the Registration Rights Agreement and the transactions contemplated
thereby, that are required under the Securities Act and the Trust
Indenture Act and (vi) the failure of which to obtain would not
reasonably be expected to have a Material Adverse Effect, no consent,
approval, authorization or order of, or filing or registration with,
any such court or governmental agency or body is required for the
execution, delivery and performance of each of the Transaction
Documents by the Company or the Guarantors and the consummation of the
transactions contemplated hereby and thereby.
(k) Financial Statements. Deloitte & Touche LLP are
independent certified public accountants with respect to the Company
and its subsidiaries within the meaning of Rule 101 of the Code of
Professional Conduct of the American Institute of Certified Public
Accountants ("AICPA") and its interpretations and rulings thereunder.
Coopers & Lybrand LLP are independent certified public accountants with
respect to Kleinert (as defined in the Offering Memorandum) within the
meaning of Rule 101 of the Code of Professional Conduct of the AICPA
and its interpretations and rulings thereunder. The historical
financial statements of Kleinert (including the related notes)
contained in the Offering Memorandum comply as to form in all material
respects with the requirements applicable to a registration statement
on Form S-1 under the Securities Act (except that certain supporting
schedules are omitted); the historical
<PAGE>
6
financial statements of TSMD (as defined in the Offering Memorandum)
(including the related notes) contained in the Offering Memorandum
comply as to form in all material respects with such requirements,
except that they include only two years of audited income statements;
such financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied
throughout the periods covered thereby, except as otherwise indicated
therein, and fairly present in all material respects the financial
position of the entities purported to be covered thereby at the
respective dates indicated and the results of their operations and
their cash flows for the respective periods indicated; and the
financial information contained in the Offering Memorandum under the
headings "Summary--Summary Historical Financial Data",
"Capitalization", "Selected Historical Financial Data" and
"Management's Discussion and Analysis of Results of Operations and
Financial Condition" are derived from the accounting records of the
Company and its subsidiaries or their respective predecessors and
fairly present in all material respects the information purported to be
shown thereby. The pro forma financial information contained in the
Offering Memorandum gives effect to assumptions made on a reasonable
basis, have been prepared in accordance with the applicable
requirements of the Securities Act and fairly presents in all material
respects the pro forma financial information included in the Offering
Memorandum at the respective dates and for the respective periods
indicated. The other historical financial and statistical information
and data included in the Offering Memorandum are, in all material
respects, fairly presented.
(l) No Material Adverse Change. Neither the Company nor any of
its subsidiaries has sustained, since the date of the latest audited
financial statements included in the Offering Memorandum, any loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise
than (I) as set forth or contemplated in the Offering Memorandum and
(II) any such loss or interference that would not be reasonably
expected to have a Material Adverse Effect; and, since such date, there
has not been any material adverse change, or any development involving
a prospective material adverse change, in or affecting the business,
general affairs, management, financial position, stockholders' equity
or results of operations of the Company and its subsidiaries taken as a
whole, otherwise than as set forth or contemplated in the Offering
Memorandum.
(m) No Material Litigation. Except as set forth in the
Offering Memorandum, there is no legal or governmental proceeding
pending to which the Company or any of its subsidiaries is a party or
of which any property or assets of the Company or any of its
subsidiaries is the subject which, singularly or in the aggregate,
would reasonably be expected to have a Material Adverse Effect; and to
the best of the Company's and the Guarantors' knowledge, no such
proceedings are threatened by governmental authorities or threatened by
others.
(n) No Defaults. Neither the Company nor any of its
subsidiaries (i) is in violation of its charter or by-laws, (ii) is in
default in any respect, and no event has occurred which, with notice or
lapse of time or both, would constitute such a default,
<PAGE>
7
in the due performance or observance of any term, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which it is a party or by which it is
bound or to which any of its property or assets is subject or (iii) is
in violation in any respect of any law, ordinance, governmental rule,
regulation or court decree to which it or its property or assets may be
subject, except, in the case of clauses (i), (ii) and (iii) any
violations or defaults which, singularly or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.
(o) Possession of Licenses and Permits. Except as described in
the Offering Memorandum, the Company and each of its subsidiaries
possess all material licenses, certificates, authorizations and permits
issued by, and have made all declarations and filings with, the
appropriate state, federal or foreign regulatory agencies or bodies
which are necessary or desirable for the ownership of their respective
properties or the conduct of their respective businesses as described
in the Offering Memorandum, except where any failures to possess or
make the same, singularly or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect, and the Company has not
received notification of any revocation or modification of any such
material license, authorization or permit and has no reason to believe
that any such material license, certificate, authorization or permit
will not be renewed.
(p) No Lending Relationships. Except as disclosed in the
Offering Memorandum, the Company (i) does not have any material lending
or other relationship with any bank or lending affiliate of any Initial
Purchaser and (ii) does not intend to use any of the proceeds from the
sale of the Securities hereunder to repay any outstanding debt owed to
any affiliate of any Initial Purchasers.
(q) Investment Company Act. Neither the Company nor any of its
subsidiaries is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended (the "Investment Company
Act"), and the rules and regulations of the Commission thereunder.
(r) No Stabilization. Neither the Company, nor to the
Company's or the Guarantors' best knowledge, any of its affiliates, has
taken or may take, directly or indirectly, any action designed to cause
or result in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price
of the Securities to facilitate the sale or resale of the Securities.
(s) Possession of Intellectual Property. The Company and each
of its subsidiaries own or possess adequate rights to use all material
patents, patent applications, trademarks, service marks, trade names,
trademark registrations, service mark registrations, copyrights,
licenses and know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) (collectively, the "Intellectual Property") necessary for
the conduct of their respective businesses, except where the absence of
which would not reasonably be expected to have a Material Adverse
Effect. Except as set forth in the Offering
<PAGE>
8
Memorandum, neither the Company nor any of its subsidiaries has been
charged with infringement of any Intellectual Property, which
infringement would reasonably be expected to have a Material Adverse
Effect.
(t) Title to Property. The Company and each of its
subsidiaries have good title to, or have valid rights to lease or
otherwise use, all items of real or personal property, the absence of
which would reasonably be expected to have a Material Adverse Effect,
in each case free and clear of all liens, encumbrances, claims and
defects except Permitted Liens (as defined in the Offering Memorandum
under "Description of Notes" and such other exceptions as would not
reasonably be expected to have a Material Adverse Effect).
(u) No Labor Dispute. No labor disturbance by the employees
of the Company or any of its subsidiaries exists or, to the best of
the Company's knowledge, is imminent which might be expected to have a
Material Adverse Effect.
(v) Employee Benefit Plans. No "prohibited transaction" (as
defined in Section 406 of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"), or Section 4975 of the Internal
Revenue Code of 1986, as amended from time to time (the "Code")) or
"accumulated funding deficiency" (as defined in Section 302 of ERISA)
or any of the events set forth in Section 4043(b) of ERISA (other than
events with respect to which the 30-day notice requirement under
Section 4043 of ERISA has been waived) has occurred with respect to any
employee benefit plan which could have a Material Adverse Effect; each
employee benefit plan is in compliance in all material respects with
applicable law, including ERISA and the Code; the Company has not
incurred and does not expect to incur liability under Title IV of ERISA
with respect to the termination of, or withdrawal from, any "pension
plan"; and each "pension plan" (as defined in ERISA) for which the
Company would have any liability that is intended to be qualified under
Section 401(a) of the Code is so qualified in all material respects and
nothing has occurred, whether by action or by failure to act, which
could cause the loss of such qualification.
(w) No Material Environmental Liabilities. Except as set forth
in the Offering Memorandum, there has been no storage, generation,
transportation, handling, treatment, disposal, discharge, emission, or
other release of any kind of toxic or other wastes or other hazardous
substances by, due to, or caused by the Company or any of its
subsidiaries (or, to the best of the Company's knowledge, any other
entity for whose acts or omissions the Company or any of its
subsidiaries is or may be liable) upon any of the property now or (to
the best knowledge of the Company) previously owned or leased by the
Company or any of its subsidiaries, or upon any other property, in
violation of any statute or any ordinance, rule, regulation, order,
judgment, decree or permit or which would, under any statute or any
ordinance, rule (including rule of common law), regulation, order,
judgment, decree or permit, give rise to any liability, except for any
violation or liability which would not reasonably be expected to have,
singularly or in the aggregate with all such violations and
liabilities,
<PAGE>
9
a Material Adverse Effect. Except as set forth in the Offering
Memorandum, there has been no disposal, discharge, emission or other
release of any kind onto such property or into the environment
surrounding such property of any toxic or other wastes or other
hazardous substances with respect to which the Company or any of its
subsidiaries have knowledge, except for any such disposal, discharge,
emission, or other release of any kind which would not reasonably be
expected to have, singularly or in the aggregate with all such
discharges and other releases, a Material Adverse Effect.
(x) Taxes. The Company and its subsidiaries each (i) have
filed all necessary federal, state and foreign income and franchise tax
returns, (ii) have paid all federal, state, local and foreign taxes due
and payable for which it is liable, including, but not limited to,
withholding taxes and amounts payable under the Code, and has furnished
all information returns it is required to furnish pursuant to the Code,
(iii) have established adequate reserves for all such taxes which are
not yet due and payable and (iv) do not have any tax deficiency or
claims outstanding or assessed or, to the best of the Company's
knowledge, proposed against it, except in the case of the foregoing
clauses (i) through (iv) which would reasonably be expected to have a
Material Adverse Effect.
(y) Insurance Policies. Each of the Company and its
subsidiaries carries insurance (including self insurance) in such
amounts and covering such risks as in its reasonable determination is
adequate for the conduct of its business and the value of its
properties. To the best of the Company's knowledge, there are no facts
or circumstances under any insurance policy or surety bond maintained
by the Company or its subsidiaries which would relieve any insurer of
its obligation to satisfy in full any valid claim of the Company or any
of its subsidiaries, which claim, if unpaid, would reasonably be
expected to have a Material Adverse Effect.
(z) Transactions with Management and Others. No relationship,
direct or indirect, exists between or among the Company or the
Guarantors on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company or the Guarantors on the other
hand, which is required to be described in the Offering Memorandum and
which is not so described, other than those relationships the failure
of which to disclose would not make the Offering Memorandum misleading
in any material respect.
(aa) No outstanding Subscriptions. Except as described in the
Offering Memorandum, there are no outstanding subscriptions, rights,
warrants, calls or options to acquire, or instruments convertible into
or exchangeable for, or agreements or understandings with respect to
the sale or issuance of, any shares of capital stock of or other equity
or other ownership interest in the Company or any of its subsidiaries.
(bb) Solvency. On and immediately after the Closing Date, the
Company (after giving effect to the issuance of the Securities and to
the other transactions related thereto as described in the Offering
Memorandum) will be Solvent. As used in this paragraph, the term
"Solvent" means, with respect to a particular date, that on such
<PAGE>
10
date (i) the present fair market value (or present fair saleable value)
of the assets of the Company on a consolidated basis is not less than
the total amount required to pay the probable liabilities of the
Company on a consolidated basis on its total existing debts and
liabilities (including contingent liabilities) as they become absolute
and matured, (ii) the Company is able to pay its debts and other
liabilities, contingent obligations and commitments as they mature and
become due in the normal course of business, (iii) assuming the sale of
the Securities as contemplated by this Agreement and the Offering
Memorandum, the Company is not incurring debts or liabilities beyond
its ability to pay as such debts and liabilities mature and (iv) the
Company is not engaged in any business or transaction, and is not about
to engage in any business or transaction, for which its property would
constitute unreasonably small capital. In computing the amount of such
contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in the light of all
the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured
liability.
(cc) No Margin Securities. Neither the Company nor any of its
subsidiaries owns any "margin securities" as that term is defined in
Regulations G and U of the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"), and none of the proceeds of the
sale of the Securities will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security, 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 cause any of the Securities to be considered a "purpose credit"
within the meanings of Regulation G, T, U or X of the Federal Reserve
Board.
(dd) No Brokerage Fees. Except for this Agreement, neither the
Company nor any of its subsidiaries is a party to any contract,
agreement or understanding with any person that would give rise to a
valid claim against the Company or the Initial Purchasers for a
brokerage commission, finder's fee or like payment in connection with
the offering and sale of the Securities.
(ee) Compliance with 144A(d)(3). The Securities satisfy the
eligibility requirements of Rule 144A(d)(3) under the Securities Act.
(ff) No Offers to Buy. Neither the Company nor, to its
knowledge, any of its affiliates has, directly or through any agent,
sold, offered for sale, solicited offers to buy or otherwise negotiated
in respect of, any security (as such term is defined in the Securities
Act), which is or will be integrated with the sale of the Securities in
a manner that would require registration of the Securities under the
Securities Act.
(gg) No General Solicitation. None of the Company or, to the
Company's knowledge, any of its affiliates or any other person acting
on its or their behalf (other than the Initial Purchasers, as to which
no representation is given) has engaged, in connection with the
offering of the Securities, in any form of general solicitation or
general advertising within the meaning of Rule 502(c) under the
Securities Act.
<PAGE>
11
(hh) No Registered Securities. There are no securities of the
Company registered under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or listed on a national securities
exchange or quoted in a U.S. automated inter-dealer quotation system.
(ii) Compliance with Regulation M. The Company has not taken
and will not take, directly or indirectly, any action prohibited by
Regulation M under the Exchange Act in connection with the offering of
the Securities.
(jj) No Forward-Looking Statement. No forward-looking
statement (within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act) contained in the Preliminary Offering
Memorandum or the Offering Memorandum has been made or reaffirmed
without a reasonable basis or has been disclosed other than in good
faith.
(kk) No Commerce with Cuba. None of the Company or any of its
subsidiaries does business with the government of Cuba or with any
person or affiliate located in Cuba within the meaning of Florida
Statutes Section 517.075.
2. PURCHASE AND RESALE OF THE SECURITIES. (a) On the basis of
the representations, warranties and agreements contained herein, and subject to
the terms and conditions set forth herein, the Company agrees to issue and sell
to each of the Initial Purchasers, severally and not jointly, and each of the
Initial Purchasers, severally and not jointly, agrees to purchase from the
Company, the principal amount of Securities set forth opposite the name of such
Initial Purchaser in Schedule 1 hereto at a purchase price equal to 97% of the
principal amount thereof. The Company shall not be obligated to deliver any of
the Securities except upon payment for all the Securities to be purchased as
provided herein.
(b) The Initial Purchasers have advised the Company that they
propose to offer the Securities for resale upon the terms and subject to the
conditions set forth herein and in the Offering Memorandum as soon as
practicable after this Agreement is entered into. Each Initial Purchaser,
severally and not jointly, represents and warrants to, and agrees with, the
Company that (i) it is purchasing the Securities pursuant to a private sale
exempt from registration under the Securities Act, (ii) it has not solicited
offers for, or offered or sold, and will not solicit offers for, or offer or
sell, the Securities by means of any form of general solicitation or general
advertising within the meaning of Rule 502(c) of Regulation D under the
Securities Act ("Regulation D") or in any manner involving a public offering
within the meaning of Section 4(2) of the Securities Act, (iii) it has solicited
and will solicit offers for the Securities only from, and has offered or sold
and will offer, sell or deliver the Securities, as part of its initial offering,
only to (A) persons whom it reasonably believes to be qualified institutional
buyers ("Qualified Institutional Buyers") as defined in Rule 144A under the
Securities Act, or if any such person is buying for one or more institutional
accounts for which such person is acting as fiduciary or agent, only when such
person has represented to it that each such account is a Qualified Institutional
Buyer to whom notice has been given that such sale or delivery is being made in
reliance on Rule 144A and in each case, in transactions in accordance with Rule
144A and (B) a limited number of other accredited investors
<PAGE>
12
("Accredited Investors") as defined in Rule 501(a)(1), (2), (3) or (7) under
Regulation D that are institutional investors in private sales exempt from
registration under the Securities Act and (iv) it has not taken and will not
take, directly or indirectly, any action prohibited by Regulation M under the
Exchange Act in connection with the offering of the Securities. Each Initial
Purchaser, severally and not jointly, agrees that, prior to or simultaneously
with the confirmation of sale by such Initial Purchaser to any purchaser of any
of the Securities purchased by such Initial Purchaser from the Company pursuant
hereto, such Initial Purchaser shall furnish to that purchaser a copy of the
Offering Memorandum (and any amendment or supplement thereto that the Company
shall have furnished to such Initial Purchaser prior to the date of such
confirmation of sale). In addition to the foregoing, each Initial Purchaser
acknowledges and agrees that the Company and, for purposes of the opinions to be
delivered to the Initial Purchasers pursuant to Sections 5(d) and (e), counsel
for the Company and for the Initial Purchasers, respectively, may rely upon the
accuracy of the representations and warranties of the Initial Purchasers and
their compliance with their agreements contained in this Section 2, and each
Initial Purchaser hereby consents to such reliance.
(c) The Company acknowledges and agrees that the Initial
Purchasers may sell Securities to any affiliate of an Initial Purchaser and that
any such affiliate may sell Securities purchased by it to an Initial Purchaser.
3. DELIVERY OF AND PAYMENT FOR THE SECURITIES. Delivery of and
payment for the Securities shall be made at the offices of Simpson Thacher &
Bartlett, 425 Lexington Avenue, New York, NY, or at such other place as shall be
agreed upon by the Initial Purchasers and the Company, at 10:00 A.M., New York
City time, on October 31, 1997, or at such other date or time, not later than
seven full business days thereafter, as shall be agreed upon by the Initial
Purchasers and the Company (the time and date of such delivery and payment being
referred to herein as the "Closing Date").
The Securities to be purchased by the Initial Purchasers
hereunder and sold to Qualified Institutional Buyers shall be represented by one
global security in book-entry form which will be deposited by or on behalf of
the Company with The Depository Trust Company or its designated custodian.
Securities to be resold to Accredited Investors shall be delivered in physical,
certificated form to such Accredited Investors. On the Closing Date, the Company
shall deliver or cause to be delivered the Securities to SGSC for the account of
each Initial Purchaser against payment to or upon the order of the Company of
the purchase price by wire transfer payable in Federal (same day) funds by
causing The Depository Trust Company to credit the Securities to the account of
SGSC at The Depository Trust Company.
Time shall be of the essence, and delivery at the time and
place specified pursuant to this Agreement is a further condition of the
obligation of each Initial Purchaser hereunder. The Company shall make the
certificates representing the Securities available for inspection by SGSC, not
later than one full business day prior to the Closing Date.
4. FURTHER AGREEMENTS OF THE COMPANY AND THE GUARANTORS. The
Company and the Guarantors agree with each of the several Initial Purchasers:
<PAGE>
13
(a) to advise the Initial Purchasers promptly and, if
requested, confirm such advice in writing, of the happening of any
event which makes any statement of a material fact made in the Offering
Memorandum untrue or which requires the making of any additions to or
changes in the Offering Memorandum (as amended or supplemented from
time to time) in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; to advise
the Initial Purchasers promptly of any order preventing or suspending
the use of the Preliminary Offering Memorandum or the Offering
Memorandum, of any suspension of the qualification of the Securities
for offering or sale in any jurisdiction and of the initiation or
threatening of any proceeding for any such purpose; and to use its best
efforts to prevent the issuance of any such order preventing or
suspending the use of the Preliminary Offering Memorandum or the
Offering Memorandum or suspending any such qualification and, if any
such suspension is issued, use its best efforts to obtain the lifting
thereof at the earliest possible time;
(b) to furnish promptly to each of the Initial Purchasers and
counsel for the Initial Purchasers, without charge, as many copies of
the Preliminary Offering Memorandum and the Offering Memorandum (and
any amendments or supplements thereto) as may be reasonably requested;
(c) prior to making any amendment or supplement to the
Offering Memorandum on or prior to the Closing Date, to furnish a copy
thereof to each of the Initial Purchasers and counsel for the Initial
Purchasers and not to effect any such amendment or supplement to which
the Initial Purchasers shall reasonably object by notice to the Company
after a reasonable period to review;
(d) if, at any time prior to completion of the resale of the
Securities by the Initial Purchasers, any event shall occur or
condition exist as a result of which it is necessary, in the opinion of
counsel for the Initial Purchasers or counsel for the Company, to amend
or supplement the Offering Memorandum in order that the Offering
Memorandum will not include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the time it is
delivered to a purchaser, not misleading, or if it is necessary to
amend or supplement the Offering Memorandum to comply with applicable
law, to (i) promptly notify the Initial Purchasers (who will thereafter
not use such Offering Memorandum until it is appropriately amended or
supplemented), (ii) to prepare such amendment or supplement as may be
necessary to correct such untrue statement or omission or so that the
Offering Memorandum, as so amended or supplemented, will comply with
applicable law and (iii) to give the Initial Purchasers a reasonable
opportunity to comment thereon and to promptly deliver copies thereof
to the Initial Purchasers;
(e) for so long as the Securities are outstanding and are
"restricted securities" within the meaning of Rule 144(a)(3) under the
Securities Act and are not freely saleable under Rule 144 under the
Securities Act (or any successor provision), to furnish to holders of
the Securities and prospective purchasers of the Securities designated
by
<PAGE>
14
such holders, upon request of such holders or such prospective
purchasers, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act, unless the Company is then subject
to and in compliance with Section 13 or 15(d) of the Exchange Act (the
foregoing agreement being for the benefit of the holders from time to
time of the Securities and prospective purchasers of the Securities
designated by such holders);
(f) for so long as the Securities are outstanding, to furnish
to the Initial Purchasers copies of any annual reports, quarterly
reports and current reports filed by the Company with the Commission on
Forms 10-K, 10-Q and 8-K, or such other similar forms as may be
designated by the Commission, and such other documents, reports and
information as shall be furnished by the Company to the Trustee or to
the holders of the Securities pursuant to the Indenture or the Exchange
Act or any rule or regulation of the Commission thereunder;
(g) to cooperate with the Initial Purchasers and counsel for
the Initial Purchasers in connection with the qualification or
registration of the Securities under the securities or "Blue Sky" laws
of such jurisdictions of the United States as the Initial Purchasers
may reasonably request and to continue such qualification in effect
until the completion of the resale of the Securities by the Initial
Purchasers; provided, however, that neither the Company nor any
Guarantor shall be required in connection therewith to register or
qualify as a foreign corporation where it is not now so qualified or to
take any action that would subject it to service of process in suits or
to taxation in any jurisdiction where it is not now so subject.
(h) to use its best efforts to assist the Initial Purchasers
in arranging for the Securities to be designated Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") Market
securities in accordance with the rules and regulations adopted by the
National Association of Securities Dealers, Inc. ("NASD") relating to
trading in the PORTAL Market and for the Securities to be eligible for
clearance and settlement through The Depository Trust Company ("DTC");
(i) not to sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as such term is defined
in the Securities Act) which would reasonably be expected to be
integrated with the sale of the Securities in a manner which would
require registration of the Securities under the Securities Act;
(j) except following the effectiveness of the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case
may be, not to, and to cause its subsidiaries not to, solicit any offer
to buy or offer to sell the Securities by means of any form of general
solicitation or general advertising within the meaning of Regulation D
or in any manner involving a public offering within the meaning of
Section 4(2) of the Securities Act; and not to offer, sell, contract to
sell or otherwise dispose of, directly or indirectly, any securities
under circumstances where such offer, sale, contract or disposition
would cause the exemption afforded by Section 4(2) of the
<PAGE>
15
Securities Act to cease to be applicable to the offering and sale of
the Securities to the Initial Purchasers as contemplated by this
Agreement and the Offering Memorandum;
(k) During the period beginning from the date hereof and
continuing to, and including, the Closing Date or such earlier time as
SGSC may notify the Company, not to offer for sale, sell, contract to
sell or otherwise dispose of, directly or indirectly, or file a
registration statement for, or announce any offering of, any securities
of the Company that are substantially similar to the Securities.
(l) not to take and not permit any of its subsidiaries to
take, directly or indirectly, any action designed to, or that would
reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or initial resale of the Securities by the Initial Purchasers
in violation of Regulation M under the Exchange Act;
(m) in connection with the initial offering of the Securities,
to make its officers, employees, independent accountants and legal
counsel reasonably available on or prior to the Closing Date upon
request by the Initial Purchasers;
(n) to furnish to each of the Initial Purchasers, or their
counsel, on the date hereof a copy of the report of each of the
independent accountants' included in the Offering Memorandum signed by
the accountants rendering such report;
(o) to do and perform the things required to be done and
performed by it under this Agreement, in all material respects, that
are within its control prior to or after the Closing Date, and to use
its best efforts to satisfy all conditions precedent on its part to the
delivery of the Securities;
(p) except as set forth or contemplated in the Offering
Memorandum, to not take any action prior to the execution and delivery
of the Indenture which, if taken after such execution and delivery,
would have violated any of the covenants contained in the Indenture;
(q) from the date hereof until the Closing Date, not to issue
any press release or other public communication directly or indirectly
or hold any press conference with respect to the Company, its
condition, financial or otherwise, or earnings, business affairs or
business prospects (except for routine oral marketing public
communications in the ordinary course of business and consistent with
the past practices of the Company), without the prior written consent
of the Initial Purchasers, unless in the judgment of the Company and
its counsel, and after notification to the Initial Purchasers, such
press release or communication is required by law; and
(r) to apply the net proceeds from the sale of the Securities
as set forth in the Offering Memorandum under the heading "Use of
Proceeds", with such variances or deviations that would not make the
disclosure set forth therein misleading in any
<PAGE>
16
material respect (the parties recognizing that amounts set forth in the
Offering Memorandum under "Use of Proceeds" are estimates).
5. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS. The
respective obligations of the several Initial Purchasers' hereunder are subject
to the accuracy in all material respects, when made and on the Closing Date, of
the representations and warranties of the Company and the Guarantors contained
herein, to the accuracy in all material respects of the statements of the
Company and the Guarantors made in any certificates pursuant to the provisions
hereof, to the performance in all material respects by the Company and the
Guarantors of their obligations hereunder, and the satisfaction or waiver of the
following terms and conditions:
(a) All corporate proceedings and other legal matters incident
to the authorization, form and validity of each of the Transaction
Documents and all other legal matters relating to the Transaction
Documents and the transactions contemplated hereby shall be reasonably
satisfactory in all material respects to counsel for the Initial
Purchasers, and the Company shall have furnished to such counsel all
documents and information that they may reasonably request to enable
them to pass upon such matters.
(b) The Offering Memorandum (and any amendments or supplements
thereto) shall have been printed and copies made available to the
Initial Purchasers as promptly as practicable on or following the date
of this Agreement or at such other date and time as to which the
Initial Purchasers may agree; and no stop order suspend ing the sale of
the Securities in any jurisdiction referred to in Section 4(g) shall
have been issued and no proceeding for that purpose shall have been
commenced or shall be pending or, to the best knowledge of the Company,
threatened.
(c) None of the Initial Purchasers shall have discovered and
disclosed to the Company on or prior to the Closing Date that the
Offering Memorandum or any amendment or supplement thereto contains an
untrue statement of a fact which, in the reasonable opinion of counsel
for the Initial Purchasers, is material or omits to state any fact
which, in the opinion of such counsel, is material and is required to
be stated therein or is necessary to make the statements therein not
misleading.
(d) Each of Winston & Strawn and O'Melveny & Myers shall have
furnished to the Initial Purchasers such counsel's written opinion,
addressed to the Initial Purchasers and dated the Closing Date, in form
and substance reasonably satisfactory to the Initial Purchasers, to the
effect set forth in Annex C-1 and C-2 hereto, respectively, with any
further modifications which may be satisfactory to counsel for the
Initial Purchasers.
(e) SGSC shall have received from Simpson Thacher & Bartlett,
counsel for the Initial Purchasers, such opinion or opinions, dated the
Closing Date, with respect to such matters as the Initial Purchasers
may reasonably require, and the Company
<PAGE>
17
shall have furnished to such counsel such documents as they request for
enabling them to pass upon such matters.
(f) At the time of the execution of this Agreement, SGSC shall
have received from each of Coopers & Lybrand LLP and Deloitte & Touche
LLP, respectively, a letter, addressed to the Initial Purchasers and
dated such date, in form and substance satisfactory to SGSC (i)
confirming that, in the case of Coopers & Lybrand LLP, that they are
independent certified public accountants with respect to Kleinert
within the meaning of the Securities Act and the applicable published
rules and regulations thereunder and, in the case of Deloitte & Touche
LLP, that they are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the
Securities Act and the applicable published rules and regulations
thereunder and (ii) stating the conclusions and findings of such firm
with respect to the financial statements and certain financial
information contained in the Offering Memorandum.
References to the Offering Memorandum in this paragraph (f)
and in paragraph (g) below include any supplement thereto at the date
of the letter.
(g) On the Closing Date, SGSC shall have received a letter
(the "bring-down letter") from each of Coopers & Lybrand LLP and
Deloitte & Touche LLP, addressed to the Initial Purchasers and dated
the Closing Date (i) confirming, as of the date of the bring-down
letter (or, with respect to matters involving changes or developments
since the respective dates as of which specified financial information
is given in the Offering Memorandum, as of a date not more than three
business days prior to the date of the bring-down letter), the
conclusions and findings of such firm with respect to the financial
information and other matters covered by its letter delivered to SGSC
concurrently with the execution of this Agreement pursuant to Section
5(f) above (the "initial letters").
(h) The Company shall have furnished to the Initial Purchasers
a certificate, dated the Closing Date, of its Chairman of the Board,
its President or a Vice President and its chief financial officer
stating that (A) such officers have carefully examined the Offering
Memorandum, (B) in their opinion, the Offering Memorandum, as of its
date, did not include any untrue statement of a material fact and did
not omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and since the
date of the Offering Memorandum, no event has occurred which should
have been set forth in a supplement or amendment to the Offering
Memorandum and (C) to the best of their knowledge after reasonable
investigation, as of the Closing Date, the representations and
warranties of the Company and the Guarantors in this Agreement are true
and correct in all material respects, each of the Company and the
Guarantors has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at or
prior to the Closing Date in all material respects, and subsequent to
the date of the most recent financial statements in the Offering
Memorandum, there has been no material adverse change in the financial
position or results of operation of the Company and its subsidiaries
taken
<PAGE>
18
as a whole, or any change, or any development including a prospective
change, in or affecting the condition (financial or otherwise), results
of operations, business or prospects of the Company and its
subsidiaries taken as a whole, except as set forth in the Offering
Memorandum.
(i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Offering Memorandum any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Offering Memorandum or (ii) since such date there
shall not have been any change, or any development involving a
prospective change, in or affecting the business, general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries taken as a whole,
otherwise than as set forth in the Offering Memorandum, the effect of
which, in any such case described in clause (i) or (ii), is, in the
judgment of SGSC, so material and adverse as to make it impracticable
or inadvisable to proceed with the sale or delivery of the Securities
on the terms and in the manner contemplated in the Offering Memorandum
exclusive of any supplement.
(j) The Initial Purchasers shall have received a counterpart
of the Registration Rights Agreement which shall have been executed and
delivered by a duly authorized officer of each of the Company and the
Guarantors.
(k) The Indenture shall have been duly executed and delivered
by the Company, the Guarantors and the Trustee, and the Securities
shall have been duly executed and delivered by the Company and duly
authenticated by the Trustee.
(l) The Securities shall have been approved by the NASD for
trading in the PORTAL Market.
(m) There shall not have occurred any invalidation of Rule
144A under the Securities Act by any court of competent jurisdiction or
any withdrawal of any rule or regulation under the Securities Act or
the Exchange Act by the Commission or any amendment thereof by the
Commission which in the reasonable judgment of the Initial Purchasers
upon the advice of outside counsel would materially impair the ability
of the Initial Purchasers to purchase, hold or effect resales of the
Securities as contemplated hereby.
(n) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency or body which would, as of the Closing Date,
prohibit the issuance or sale of the Securities; and no injunction,
restraining order or order of any other nature by any federal or state
court of competent jurisdiction shall have been issued as of the
Closing Date which would prohibit the issuance or sale of the
Securities.
<PAGE>
19
(o) Subsequent to the execution and delivery of this Agreement
(i) no downgrading shall have occurred in the rating accorded the
Securities or any of the Company's other debt securities by any
"nationally recognized statistical rating organization," as that term
is defined by the Commission for purposes of Rule 436(g)(2) of the
Rules and Regulations and (ii) no such organization shall have publicly
announced that it has under surveillance or review its rating of the
Securities or any of the Company's other debt securities with a view to
possible downgrading.
(p) Subsequent to the execution and delivery of this Agreement
there shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange or the American
Stock Exchange or in the over-the-counter market, or trading in any
securities of the Company on any exchange or in the over-the-counter
market, shall have been suspended or minimum prices shall have been
established on any such exchange or such market by the Commission, by
such exchange or by any other regulatory body or governmental authority
having jurisdiction, (ii) a banking moratorium shall have been declared
by Federal or state authorities, (iii) the United States shall have
become engaged in hostilities, there shall have been an escalation in
hostilities involving the United States or there shall have been a
declaration of a national emergency or war by the United States or (iv)
there shall have occurred such a material adverse change in general
economic, political or financial conditions (or the effect of
international conditions on the financial markets in the United States
shall be such) as to make it, in the judgment of a majority in interest
of the several Initial Purchasers, impracticable or inadvisable to
proceed with the sale or delivery of the Securities on the terms and in
the manner contemplated in the Offering Memorandum.
(q) The acquisition by the Company of the tactical subsystems
and microwave devices business of Watkins-Johnson Company, through
Stellex Microwave Systems, Inc., as described in the Offering
Memorandum shall have been consummated as of the Closing Date; and the
Company shall have entered into the New Credit Facility as described in
the Offering Memorandum as of the Closing Date.
All opinions, letters, evidence and certificates required by
this Section 5 to be delivered by the Company or the Guarantors shall be deemed
to be in compliance with the provisions hereof only if they are in form and
substance reasonably satisfactory to counsel for the Initial Purchasers.
6. TERMINATION. The obligations of the Initial Purchasers
hereunder may be terminated by SGSC, by notice given to and received by the
Company prior to delivery of and payment for the Securities if, prior to that
time, any of the events described in Sections 5(i), 5(o) and 5(p) shall have
occurred or the acquisition by the Company of Stellex Microwave Systems, Inc.
described in the Offering Memorandum shall not have been completed on or prior
to the Closing Date.
7. DEFAULTING INITIAL PURCHASERS. (a) Obligations of
Non-Defaulting Initial Purchasers. If, on the Closing Date, any Initial
Purchaser or Initial Purchasers default
<PAGE>
20
in the performance of its or their obligations under this Agreement, SGSC may
make arrangements for the purchase of such Securities by other persons
satisfactory to the Company and SGSC, including any of the Initial Purchasers,
but if no such arrangements are made by the Closing Date, then each remaining
non-defaulting Initial Purchasers shall be severally obligated to purchase the
Securities which the defaulting Initial Purchaser or Initial Purchasers agreed
but failed to purchase on the Closing Date in the respective proportions which
the principal amount of Securities set forth opposite the name of each remaining
non-defaulting Initial Purchaser in Schedule 1 hereto bears to the aggregate
principal amount of Securities set forth opposite the names of all the remaining
non-defaulting Initial Purchasers in Schedule 1 hereto; provided, however, that
the remaining non-defaulting Initial Purchasers shall not be obligated to
purchase any of the Securities on the Closing Date if the aggregate principal
amount of Securities which the defaulting Initial Purchaser or Initial
Purchasers agreed but failed to purchase on such date exceeds one-eleventh of
the aggregate principal amount of the Securities to be purchased on the Closing
Date, and any remaining non-defaulting Initial Purchasers shall not be obligated
to purchase in total more than 110% of the principal amount of the Securities
which it agreed to purchase on the Closing Date pursuant to the terms of Section
2. If the foregoing maximums are exceeded and the remaining Initial Purchasers
or other underwriters satisfactory to Initial Purchasers and the Company do not
elect to purchase the Securities which the defaulting Initial Purchaser or
Initial Purchasers agreed but failed to purchase, this Agreement shall terminate
without liability on the part of any non-defaulting Initial Purchasers or the
Company, except that the Company will continue to be liable for the payment of
expenses to the extent set forth in Section 11 except that the provisions of
Sections 9 shall not terminate and shall remain in effect. As used in this
Agreement, the term "Initial Purchasers" includes, for all purposes of this
Agreement unless the context otherwise requires, any party not listed in
Schedule 1 hereto who, pursuant to this Section 7, purchases Securities which a
defaulting Initial Purchasers agreed but failed to purchase.
(b) Liability of Defaulting Initial Purchaser; Closing Date.
Nothing contained herein shall relieve a defaulting Initial Purchaser of any
liability it may have for damages caused by its default. If other Initial
Purchasers are obligated or agree to purchase the Securities of a defaulting
Initial Purchaser, either SGSC or the Company may postpone the Closing Date for
up to seven full business days in order to effect any changes that in the
opinion of counsel for the Company or counsel for the Initial Purchasers may be
necessary in the Preliminary Offering Memorandum, the Offering Memorandum or in
any other document or arrangement, and the Company agrees to file promptly any
amendment or supplement to the Preliminary Offering Memorandum, the Offering
Memorandum that effects any such changes.
8. REIMBURSEMENT OF INITIAL PURCHASERS' EXPENSES. If (a) this
Agreement shall have been terminated pursuant to Section 6 because of the
occurrence of an event described in Section 5(i), 5(o) or, as to the Company's
securities only, 5(p)(i), (b) the Company shall fail to tender the Securities
for delivery to the Initial Purchasers for any reason permitted under this
Agreement or (c) the Initial Purchasers shall decline to purchase the Securities
because a condition to the obligations of the Initial Purchasers (other than the
condition specified in 5(e)), is not satisfied in any material respect, the
Company shall reimburse the Initial Purchasers for the fees and expenses of
their counsel and for such other
<PAGE>
21
out-of-pocket expenses as shall have been reasonably incurred by them in
connection with this Agreement and the proposed purchase and resale of the
Securities, and promptly after demand therefor, the Company shall pay the full
amount thereof to SGSC. If this Agreement is terminated pursuant to Section 7 by
reason of the default of one or more Initial Purchasers, the Company shall not
be obligated to reimburse any defaulting Initial Purchaser on account of those
expenses.
9. INDEMNIFICATION OF INITIAL PURCHASERS AND THE COMPANY.
(a) Indemnification of Initial Purchasers. The Company and each Guarantor,
jointly and severally, shall indemnify and hold harmless each Initial Purchaser,
their respective directors, officers, representatives and agents, and each
person, if any, who controls any Initial Purchaser, within the meaning of
Section 15 of the Securities Act (collectively referred to for the purposes of
this Section 9 as the Initial Purchasers) against any loss, claim, damage or
liability, joint or several, or any action in respect thereof, to which that
Initial Purchaser may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of or is
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Preliminary Offering Memorandum or the Offering Memorandum
or in any amendment or supplement thereto or (ii) the omission or alleged
omission to state in the Preliminary Offering Memorandum or the Offering
Memorandum or in any amendment or supplement thereto a material fact required to
be stated therein or necessary to make the statements therein not misleading,
and shall reimburse each Initial Purchaser for any legal or other expenses
reasonably incurred by that Initial Purchaser in connection with investigating
or preparing to defend or defending against or appearing as a third party
witness in connection with any such loss, claim, damage, liability or action as
such expenses are incurred; provided, however, that the foregoing
indemnification agreement with respect to the Preliminary Offering Memorandum
shall not inure to the benefit of any Initial Purchaser from whom the person
asserting any such loss, claim, damage or liability purchased Securities, if (i)
a copy of the Offering Memorandum (as then amended or supplemented) was required
by law to be delivered to such person at or prior to the written confirmation of
the sale of Securities to such person, (ii) a copy of the Offering Memorandum
(as then amended or supplemented) was not sent or given to such person by or on
behalf of such Initial Purchasers and (iii) the Offering Memorandum (as so
amended or supplemented) would have cured the defect giving rise to such loss,
claim, damage or liability; and further provided, however, that the Company and
the Guarantors shall not be liable in any such case to the extent that any such
loss, claim, damage, liability or action arises out of or is based upon (i) an
untrue statement or alleged untrue statement in or omission or alleged omission
from the Preliminary Offering Memorandum or the Offering Memorandum or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company and the Guarantors through SGSC by or on
behalf of any Initial Purchaser specifically for use therein, which information
the parties hereto agree is limited to the Initial Purchasers' Information.
(b) Indemnification of Company, Directors and Officers. Each
Initial Purchaser, severally and not jointly, shall indemnify and hold harmless
the Company and each Guarantor, their respective directors, officers,
representatives and agents, and each person, if any, who controls the Company or
Guarantor within the meaning of Section 15 of the Securities Act (collectively
referred to for the purposes of this Section 9 as the Company),
<PAGE>
22
against any loss, claim, damage or liability, joint or several, or any action in
respect thereof, to which they or any of them may become subject, under the
Securities Act or otherwise, insofar as such loss, claim, damage, liability or
action arises out of or is based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in the Preliminary Offering Memorandum or
the Offering Memorandum or in any amendment or supplement thereto or (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, but
in each case only to the extent that the untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company through SGSC by or
on behalf of that Initial Purchaser specifically for use therein, and shall
reimburse the Company or such Guarantor for any legal or other expenses
reasonably incurred by the Company or such Guarantor in connection with
investigating or preparing to defend or defending against or appearing as third
party witness in connection with any such loss, claim, damage, liability or
action as such expenses are incurred; provided that the parties hereto hereby
agree that such written information provided by SGSC consists solely of the
Initial Purchasers' Information.
(c) Actions; Notification. Promptly after receipt by an
indemnified party under this Section 9 of notice of any claim or the
commencement of any action, the indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party under this Section 9,
notify the indemnifying party in writing of the claim or the commencement of
that action; provided, however, that the failure to notify the indemnifying
party shall not relieve it from any liability which it may have under this
Section 9 except to the extent it has been materially prejudiced by such
failure; and provided further, that the failure to notify the indemnifying party
shall not relieve it from any liability which it may have to an indemnified
party otherwise than under this Section 9. If any such claim or action shall be
brought against an indemnified party, and it shall notify the indemnifying party
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. After notice from the indemnifying party
to the indemnified party of its election to assume the defense of such claim or
action, the indemnifying party shall not be liable to the indemnified party
under this Section 9 for any legal or other expenses subsequently incurred by
the indemnified party in connection with the defense thereof; provided, however,
that any indemnified party shall have the right to employ separate counsel in
any such action and to participate in the defense thereof but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the employment thereof has been specifically authorized by the
indemnifying party in writing, (ii) such indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party and in the reasonable judgment of such counsel it is
advisable for such indemnified party to employ separate counsel or (ii) the
indemnifying party has failed to assume the defense of such action and employ
counsel reasonably satisfactory to the indemnified party, in which case, if such
indemnified party notifies the indemnifying party in writing that it elects to
employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
on behalf of such indemnified party, it being understood, however, that the
<PAGE>
23
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for all indemnified parties, which firm shall be designated in writing by
SGSC, if the indemnified parties under this Section 9 consist of any Initial
Purchaser or any of their respective officers, employees or controlling persons,
or by the Company, if the indemnified parties under this Section 9 consist of
the Company or any of the Company's directors, officers, employees or
controlling persons. Each indemnified party, as a condition of the indemnity
agreements contained in Sections 9(a) and 9(b), shall use all reasonable efforts
to cooperate with the indemnifying party in the defense of any such action or
claim. Subject to the provisions of Section 9(d) below, no indemnifying party
shall be liable for any settlement of any such action effected without its
written consent (which consent shall not be unreasonably withheld), but if
settled with its written consent or if there be a final judgment for the
plaintiff in any such action, the indemnifying party agrees to indemnify and
hold harmless any indemnified party from and against any loss or liability by
reason of such settlement or judgment.
(d) Settlement without Consent if Failure to Reimburse. If at
any time an indemnified party shall have requested that an indemnifying party
reimburse the indemnified party for fees and expenses of counsel payable in
accordance with this Section 9, such indemnifying party agrees that it shall be
liable for any settlement of the nature contemplated by this Section 9 effected
without its written consent if (i) such settlement is entered into more than 45
days after receipt by such indemnifying party of the request for reimbursement,
(ii) such indemnifying party shall have received notice of the terms of such
settlement at least 30 days prior to such settlement being entered into and
(iii) such indemnifying party shall not have reimbursed such indemnified party
in accordance with such request prior to the date of such settlement.
(e) Contribution. If the indemnification provided for in this
Section 9 is unavailable or insufficient to hold harmless an indemnified party
under Section 9(a) or (b), then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable by
such indemnified party as a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate to
reflect the relative benefits received by the Company and the Guarantors on the
one hand and the Initial Purchasers on the other from the offering of the
Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company and the Guarantors on the one hand and the Initial
Purchasers on the other with respect to the statements or omissions which
resulted in such loss, claim, damage or liability, or action in respect thereof,
as well as any other relevant equitable considerations. The relative benefits
received by the Company and the Guarantors on the one hand and the Initial
Purchasers on the other with respect to such offering shall be deemed to be in
the same proportion as the total net proceeds from the offering of the
Securities purchased under this Agreement (before deducting expenses) received
by the Company and the Guarantors bear to the total underwriting discounts and
commissions received by the Initial Purchasers with respect to the Securities
purchased under this
<PAGE>
24
Agreement, in each case as set forth in the table on the cover page of the
Offering Memorandum. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company and the Guarantors on the one hand or the
Initial Purchasers on the other, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission; provided that the parties hereto agree that the
written information furnished to the Company by the Initial Purchasers for use
in the Preliminary Offering Memorandum, or the Offering Memorandum consists
solely of the Initial Purchasers' Information. The Company and the Initial
Purchasers agree that it would not be just and equitable if contributions
pursuant to this Section 9(e) were to be determined by pro rata allocation (even
if the Initial Purchasers were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this Section 9(e) shall be deemed to include, for
purposes of this Section 9(e), any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 9(e), no Initial
Purchaser shall be required to contribute any amount in excess of the amount by
which the total price at which the Securities underwritten by it and distributed
to the public were offered to the public less the amount of any damages which
such Initial Purchasers has otherwise paid or become liable to pay by reason of
any untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
The Initial Purchasers' obligations to contribute as provided
in this Section 9(e) are several in proportion to their respective underwriting
obligations and not joint.
The obligations of the Company, the Guarantors and the Initial
Purchasers in this Section 9 are in addition to any other liability which the
Company, the Guarantors or the Initial Purchasers, as the case may be, may
otherwise have.
10. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement
shall inure to the benefit of and be binding upon the Initial Purchasers, the
Company, the Guarantors and their respective successors. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any
person, firm or corporation, other than the Initial Purchasers, the Company, the
Guarantors and their respective successors and the controlling persons and
officers and directors referred to in Section 9 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
11. EXPENSES. The Company and the Guarantors agree with the
Initial Purchasers to pay (a) the costs incident to the authorization, issuance,
sale, preparation and delivery of the Securities and any taxes payable in that
connection; (b) the costs incident to the preparation, printing and distribution
of the Preliminary Offering Memorandum the
<PAGE>
25
Offering Memorandum any amendments and exhibits thereto the costs of printing,
reproducing and distributing the applicable Transaction Documents by mail, telex
or other means of communications; (c) all expenses and listing fees incurred in
connection with the application for quotation of the Securities on the PORTAL
Market and the approval of the Securities for book-entry transfer by The
Depository Trust Company; (d) any applicable listing or other fees; (e) the
reasonable fees and expenses of qualifying the Securities under the securities
laws of the several jurisdictions as provided in Section 4(g) and of preparing,
printing and distributing Blue Sky Memoranda and Legal Investment Surveys
(including related reasonable fees and expenses of counsel to the Initial
Purchasers); (f) any fees charged by securities rating services for rating the
Securities; (g) all fees and expenses of the Trustee and any agent thereof; and
(h) all other costs and expenses incident to the performance of the obligations
of the Company under this Agreement (including, without limitation, the fees and
expenses of counsel to the Company and the fees and expenses of Coopers &
Lybrand LLP and Deloitte & Touche LLP); provided that, except as otherwise
provided in this Section 11 and in Section 8, the Initial Purchasers shall pay
their own costs and expenses, including the fees and expenses of their counsel,
any transfer taxes on the Securities which they may sell and the expenses of
advertising any offering of the Securities made by the Initial Purchasers.
12. SURVIVAL. The respective indemnities, rights of
contribution, representations, warranties and agreements of the Company, the
Guarantors and the Initial Purchasers contained in this Agreement or made by or
on behalf on them, respectively, pursuant to this Agreement, shall survive the
delivery of and payment for the Securities and shall remain in full force and
effect, regardless of any termination or cancellation of this Agreement or any
investigation made by or on behalf of any of them or any person controlling any
of them.
13. NOTICES, ETC. All statements, requests, notices and
agreements hereunder shall be in writing, and:
(a) if to the Initial Purchasers, shall be delivered or
sent by mail, telex or facsimile transmission to Societe Generale
Securities Corporation, 1221 Avenue of the Americas, New York, New
York 10020, Attention: High Yield Capital Markets,
Telephone: (212) 278-5423, Telecopy: (212) 278-5460;
(b) if to the Company or the Guarantors, shall be
delivered or sent by mail, telex or facsimile transmission to the
address of the Company set forth in the Offering Memorandum,
Attention: Michael D. Schenker, Telephone: (212) 391-1392, Telecopy:
(212) 382-1559; with a copy to Winston & Strawn, 200 Park Avenue, New
York, New York 10166, Attention: Robert W. Ericson.
provided, however, that any notice to an Initial Purchaser pursuant to Section
9(c) shall be delivered or sent by mail, telex or facsimile transmission to such
Initial Purchaser at its address set forth in its acceptance telex to SGSC,
which address will be supplied to any other party hereto by SGSC upon request.
Any such statements, requests, notices or agreements shall take effect at the
time of receipt thereof. The Company and the Guarantors shall be entitled to act
<PAGE>
26
and rely upon any request, consent, notice or agreement given or made on behalf
of the Initial Purchasers by SGSC.
14. DEFINITIONS OF CERTAIN TERMS. For purposes of this
Agreement, (a) "business day" means any day on which the New York Stock
Exchange, Inc. is open for trading and (b) "subsidiary" has the meaning (subject
to the second paragraph of this Agreement) set forth in Rule 405 of the Rules
and Regulations and includes, for the purposes of this Agreement, Stellex
Microwave Systems, Inc. (formerly the tactical subsystems and microwave devices
businesses of Watkins-Johnson Company) and its direct and indirect subsidiaries.
15. INITIAL PURCHASERS' INFORMATION. The parties hereto
acknowledge and agree that, for all purposes of this Agreement, the Initial
Purchasers' Information consists solely of the following information in the
Offering Memorandum: (i) the last paragraph on the front cover page concerning
the terms of the offering by the Initial Purchasers; (ii) the legend on the
inside front cover page concerning over-allotment and trading activities by the
Initial Purchasers; and (iii) the statements concerning the Initial Purchasers
contained in the third, fourth and fifth paragraphs under the heading "Plan of
Distribution."
16. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
17. JOINT AND SEVERAL LIABILITY. Each Guarantor, by its
execution and delivery of a counterpart to this Agreement, agrees that it shall
be joint and severally liable for all obligations and liabilities of the
Company.
18. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but all
such counterparts shall together constitute one and the same instrument.
19. HEADINGS. The headings herein are inserted for
convenience of reference only and are not intended to be part of, or to affect
the meaning or interpretation of, this Agreement.
<PAGE>
27
If the foregoing is in accordance with your understanding of
the agreement between the Company, the Guarantors and the several Initial
Purchasers, kindly indicate your acceptance in the space provided for that
purpose below.
Very truly yours,
STELLEX INDUSTRIES, INC.
By /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: Vice Chairman
KII HOLDING CORP.
By /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: Vice Chairman
KII ACQUISITION CORP.
By /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: Vice Chairman
STELLEX AEROSPACE
By /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: Vice Chairman
BANDY MACHINING INTERNATIONAL
By /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: Vice Chairman
<PAGE>
28
PARAGON PRECISION PRODUCTS
By /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: Vice Chairman
SCANNING ELECTRON ANALYSIS LABORATORIES,
INC.
By /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: Vice Chairman
GENERAL INSPECTION LABORATORIES, INC.
By /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: Vice Chairman
TSMD ACQUISITION CORP.
By /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: President
<PAGE>
29
Accepted:
SOCIETE GENERALE SECURITIES CORPORATION
By /s/ Bradford C. Yates
------------------------------------
Name: Bradford C. Yates
Title: Managing Director
BT ALEX. BROWN INCORPORATED
By /s/ Chris Kinslow
-------------------------------------
Name: Chris Kinslow
Title: VP
JEFFERIES & COMPANY, INC.
By /s/ Andrew Whittaker
-------------------------------------
Name: Andrew Whittaker
Title: Executive Vice President
<PAGE>
30
As of October 31, 1997
STELLEX MICROWAVE SYSTEMS, INC.
By /s/ William L. Remley
-------------------------------------
Name: William L. Remley
Title: Vice Chairman
<PAGE>
SCHEDULE 1
Principal
Amount
Initial Purchasers of Securities
------------------ -------------
Societe Generale Securities Corporation................... $50,000,000
BT Alex. Brown Incorporated............................... 30,000,000
Jefferies & Company, Inc. ................................ 20,000,000
-----------
Total..................................................... $ 100,000,000
=============
<PAGE>
Annex A
[Form of Exchange and Registration Rights Agreement]
<PAGE>
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
October 31, 1997
SOCIETE GENERALE SECURITIES CORPORATION
BT ALEX. BROWN INCORPORATED
JEFFERIES & COMPANY, INC.
c/o Societe Generale Securities Corporation
1221 Avenue of the Americas
New York, New York 10020
Dear Sirs:
STELLEX INDUSTRIES, INC., a Delaware corporation (the "Company"),
proposes to issue and sell to you (the "Initial Purchasers"), upon the terms set
forth in a purchase agreement dated October 23, 1997 (the "Purchase Agreement"),
$100,000,000 principal amount of its 9 1/2% Senior Subordinated Notes due 2007
(the "Securities"). Payment of principal and interest on the Securities will be
unconditionally guaranteed, jointly and severally, on a senior subordinated
basis by the Guarantors. Capitalized terms used but not specifically defined
herein have the respective meanings ascribed thereto in the Purchase Agreement.
As an inducement to the Initial Purchasers to enter into the Purchase Agreement
and in satisfaction of a condition to your obligations thereunder, the Company
agrees with you, for the benefit of the holders (including the Initial
Purchasers) of the Securities (collectively, the "Holders"), as follows:
1. Registered Exchange Offer. The Company shall prepare and, not later
than 45 days following the Issue Date (as hereinafter defined), the Company and
the Guarantors (i) shall file with the Commission a registration statement (the
"Exchange Offer Registration Statement") on an appropriate form under the
Securities Act with respect to a proposed offer (the "Registered Exchange
Offer") to the Holders to issue and deliver to such Holders, in exchange for the
Securities, a like aggregate principal amount of senior subordinated notes of
the Company (the "Exchange Securities") substantially identical to the
Securities, except for the transfer restrictions relating to the Securities,
(ii) shall use their reasonable best efforts to cause the Exchange Offer
Registration Statement to become effective under the Securities Act no later
than 120 days after the Issue Date and to be consummated no later than 165 days
after the Issue Date and (iii) shall keep the Registered Exchange Offer open for
a period of not less than 20 business days (or longer, if required by applicable
law) (such period being called the "Exchange Offer Registration Period"). The
Exchange Securities will be issued under the Indenture or an indenture (the
"Exchange Securities Indenture") between the Company, the Guarantors and the
Trustee or such other bank or trust company reasonably satisfactory to you, as
trustee (the "Exchange Securities Trustee"), such indenture to be substantially
identical to the Indenture except for the transfer restrictions relating to the
Securities (as described above).
<PAGE>
2
Upon the effectiveness of the Exchange Offer Registration Statement,
the Company shall promptly commence the Registered Exchange Offer, it being the
objective of such Registered Exchange Offer to enable each Holder electing to
exchange Securities for Exchange Securities (assuming that such Holder (a) is
not (i) an affiliate of the Company within the meaning of the Securities Act or
(ii) an Exchanging Dealer (as defined below) not complying with the requirements
of the next sentence, (b) acquires the Exchange Securities in the ordinary
course of such Holder's business and (c) has no arrangements or understandings
with any person to participate in the distribution of the Exchange Securities)
to trade such Exchange Securities from and after their receipt without any
limitations or restrictions under the Securities Act and without material
restrictions under the securities laws of the several states of the United
States. The Company, the Initial Purchasers and each Exchanging Dealer (as
defined below) acknowledge that, pursuant to current interpretations by the
Commission's staff of Section 5 of the Securities Act, each Holder which is a
broker-dealer electing to exchange Securities, acquired for its own account as a
result of market making activities or other trading activities, for Exchange
Securities (an "Exchanging Dealer"), is required to deliver a prospectus
containing the information set forth in Annex A hereto on the cover, in Annex B
hereto in the "Exchange Offer Procedures" section and the "Purpose of the
Exchange Offer" section, and in Annex C hereto in the "Plan of Distribution"
section of such prospectus in connection with a sale of any such Exchange
Securities received by such Exchanging Dealer pursuant to the Registered
Exchange Offer.
In connection with the Registered Exchange Offer, the Company shall:
(a) mail to each Holder a copy of the prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(b) keep the Registered Exchange offer open for not less than 20
business days (or longer if required by applicable law);
(c) utilize the services of an Exchange Agent for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City of New
York;
(d) permit Holders to withdraw tendered Securities at any time prior to
the close of business, New York time, on the last business day on which the
Registered Exchange Offer shall remain open; and
(e) otherwise comply in all respects with all laws applicable to the
Registered Exchange Offer.
Promptly after the close of the Registered Exchange Offer, the Company
shall:
(a) accept for exchange all Securities tendered and not validly
withdrawn pursuant to the Registered Exchange Offer;
<PAGE>
3
(b) deliver to the Trustee for cancellation all Securities so accepted
for exchange; and
(c) cause the Trustee or the Exchange Securities Trustee, as the case
may be, promptly to authenticate and deliver to each Holder of Securities,
Exchange Securities equal in principal amount to the Securities of such
Holder so accepted for exchange.
The Company and the Guarantors shall use their reasonable best efforts
to keep the Exchange Offer Registration Statement effective and to amend and
supplement the prospectus contained therein in order to permit such prospectus
to be used by all persons subject to the prospectus delivery requirements of the
Securities Act for such period of time as such persons must comply with such
requirements in order to resell the Exchange Securities; provided that (i) in
the case where such prospectus and any amendment or supplement thereto must be
delivered by an Exchanging Dealer, such period shall be the lesser of 90 days
and the date on which all Exchanging Dealers have sold all Exchange Securities
held by them and (ii) the Company shall make such prospectus and any amendment
or supplement thereto available to any broker-dealer for use in connection with
any resale of any Exchange Securities for a period of not less than 90 days
after the consummation of the Registered Exchange Offer.
The Indenture or the Exchange Securities Indenture, as the case may be,
shall provide that the Securities and the Exchange Securities shall vote and
consent together on all matters as one class and that none of the Securities or
the Exchange Securities will have the right to vote or consent as a separate
class on any matter.
Interest on each Exchange Security issued pursuant to the Registered
Exchange Offer will accrue from the last interest payment date on which interest
was paid on the Securities surrendered in exchange therefor or, if no interest
has been paid on the Securities, from the date of original issue of the
Securities.
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Company and the Guarantors that at the time of the
consummation of the Registered Exchange Offer (i) any Exchange Securities
received by such Holder will be acquired in the ordinary course of business,
(ii) such Holder is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a distribution
of the Securities or the Exchange Securities within the meaning of the
Securities Act, (iii) such Holder is not an affiliate of the Company within the
meaning of the Securities Act, or if it is an affiliate, it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable and (iv) such Holder is not acting on behalf of any person who
could not make the foregoing representations. Such Holder shall also make such
other representations as may be required to comply with applicable law or
Commission policy with respect to the Registered Exchange Offer.
<PAGE>
4
Notwithstanding any other provisions hereof, the Company will ensure
that (i) any Exchange Offer Registration Statement and any amendment thereto and
any prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations
thereunder, (ii) any Exchange Offer Registration Statement and any amendment
thereto does not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any prospectus
forming part of any Exchange Offer Registration Statement, and any supplement to
such prospectus, does not include, as of the consummation of the Registered
Exchange Offer, an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
2. Shelf Registration. If (i) because of any change in law or
applicable interpretations thereof by the Commission the Company is not
permitted to effect the Registered Exchange Offer as contemplated by Section 1
hereof, or (ii) any Holder (A) notifies the Company on or prior to the
consummation of the Registered Exchange Offer that is not eligible to
participate in the Registered Exchange Offer, (B) participates in the Registered
Exchange Offer and does not receive freely transferable Exchange Securities in
exchange for tendered Securities or (C) is a broker-dealer that holds Securities
acquired directly from the Company or one of its affiliates, then the following
provisions shall apply:
(a) (x) The Company and the Guarantors shall use their reasonable best
efforts to cause to be filed with the Commission a Shelf Registration Statement
pursuant to Rule 415 under the Securities Act, which may be an amendment to the
Exchange Offer Registration Statement (a "Shelf Registration Statement," and
together with any Exchange Offer Registration Statement a "Registration
Statement"), on or prior to the earliest to occur of (1) the 30th day after the
Company determines that it is not permitted to effect the Registered Exchange
Offer or (2) the 30th day after the date on which the Company receives notice
from a Holder of Transfer Restricted Securities as contemplated by clause (ii)
above (such earliest date being the "Shelf Filing Deadline") which Shelf
Registration Statement shall provide for resales of Transfer Restricted
Securities; and
(y) The Company and the Guarantors shall use their reasonable best
efforts to cause such Shelf Registration Statement to be declared effective by
the Commission on or prior to the 60th day after the Shelf Filing Deadline.
Notwithstanding the foregoing, the Company shall not be required to file a Shelf
Registration Statement with respect to Securities or Exchange Securities of any
Holder (other than Securities of the Initial Purchasers) on account of such
Holder not being able to make the representations contained in Section 1 in
connection with the Registered Exchange Offer.
(b) The Company and the Guarantors shall use their reasonable best
efforts to keep the Shelf Registration Statement continuously effective in order
to permit the prospectus forming part thereof to be usable by Holders for a
period of two years from the Issue Date or such shorter period that will
terminate when all the Securities and Exchange Securities covered by the Shelf
Registration Statement have been sold pursuant to the Shelf
<PAGE>
5
Registration Statement (in any such case, such period being called the "Shelf
Registration Period"). The Company and the Guarantors shall not be deemed to
have breached its obligations pursuant to the preceding sentence if it shall be
required to amend the Shelf Registration Statement or the effectiveness of the
Shelf Registration Statement shall be suspended, or the prospectus contained in
the Shelf Registration Statement shall not be usable, as a result of a corporate
transaction involving the Company that is not adequately reflected in the Shelf
Registration Statement; provided that the failure to keep the Shelf Registration
Statement effective and usable for such reasons shall last no longer than 45
days in any 12-month period (whereafter Liquidated Damages pursuant to Section 3
shall accrue). Any such period during which the Company and the Guarantors fail
to keep the Shelf Registration Statement effective and usable is referred to as
a "Suspension Period." A Suspension Period shall commence on and include the
date that the Company gives notice that the Shelf Registration Statement is no
longer effective or the prospectus included therein is no longer usable and
shall end on the earlier to occur of (i) the date when each seller of Transfer
Restricted Securities covered by such Shelf Registration Statement either
receives copies of the supplemented or amended prospectus or is advised in
writing by the Company that the use of the prospectus may be resumed and (ii)
the expiration of the 30 days in any 12-month period during which one or more
Suspension Periods has been in effect; provided that the period during which the
Shelf Registration Statement is required to be kept continuously effective shall
be increased by the total number of days of all such Suspension Periods.
(c) Notwithstanding any other provisions hereof, the Company and the
Guarantors will ensure that (i) any Shelf Registration Statement and any
amendment thereto and any prospectus forming part thereof and any supplement
thereto complies in all material respects with the Securities Act and the rules
and regulations thereunder, (ii) any Shelf Registration Statement and any
amendment thereto (in either case, other than with respect to information
included therein in reliance upon or in conformity with written information
furnished to the Company by or on behalf of any Holder specifically for use
therein (the "Holders' Information")) does not, when it becomes effective,
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (iii) any prospectus forming part of any Shelf Registration
Statement, and any supplement to such prospectus (in either case, other than
with respect to Holders' Information), does not include an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
3. Liquidated Damages. (a) The parties hereto agree that the Holders of
Securities will suffer damages if the Company and the Guarantors fail to fulfill
their obligations under Section 1 or Section 2, as applicable, and that it would
not be feasible to ascertain the extent of such damages. Accordingly, if (i) the
applicable Registration Statement is not filed with the Commission on or prior
to the date specified for such filing in this Agreement, (ii) the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case may be,
is not declared effective on or prior to the date specified for such
effectiveness in this Agreement, (iii) the Registered Exchange Offer is not
consummated
<PAGE>
6
on or prior to 165 days after the Issue Date, or (iv) the Shelf Registration
Statement is filed and declared effective on or prior to the date specified for
such effectiveness in this Agreement but shall thereafter cease to be effective
(at any time that the Company is obligated to maintain the effectiveness
thereof) without being succeeded within 45 days by an amendment to the
Registration Statement or an additional Shelf Registration Statement filed and
declared effective (each such event referred to in clauses (i) through (iv), a
"Registration Default"), the Company will generally be obligated to pay
liquidated damages ("Liquidated Damages") to each Holder of Transfer Restricted
Securities (as defined below), with respect to the first 90-day period
immediately following the occurrence of such Registration Default, in an amount
equal to $0.05 per week per $1,000 principal amount of the Securities
constituting Transfer Restricted Securities held by such Holder for each week or
portion thereof that the Registration Default continues. The amount of the
Liquidated Damages will increase by an additional $.05 per week per $1,000
principal amount of Securities constituting Transfer Restricted Securities with
respect to each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of Liquidated Damages of $.20 per week per
$1,000 principal amount of Transfer Restricted Securities. Following the cure of
all Registration Defaults, the accrual of Liquidated Damages will cease.
"Transfer Restricted Securities" means each Security until the earliest to occur
of (i) the date on which such Security has been exchanged for a freely
transferrable Exchange Security in the Registered Exchange Offer, (ii) the date
on which such Security has been effectively registered under the Securities Act
and disposed of in accordance with the Shelf Registration Statement or (iii) the
date on which such Security is distributed to the public pursuant to Rule 144
under the Securities Act (or any successor provision) or is salable pursuant to
Rule 144(k) (or any successor provision) under the Securities Act.
Notwithstanding anything to the contrary in this Section 3(a), the Company shall
not be required to pay Liquidated Damages to the Holder of Transfer Restricted
Securities if such Holder: (a) failed to comply with its obligations to make the
representations in the second to last paragraph of Section 1; or (b) failed to
provide the information required to be provided by it, if any, pursuant to
Section 4(m).
(b) The Company shall notify the Trustee and the Paying Agent under the
Indenture promptly upon the happening of each and every Registration Default.
The Company shall pay the Liquidated Damages due on the Transfer Restricted
Securities by depositing with the Paying Agent (which may not be the Company for
these purposes), in trust, for the benefit of the Holders thereof, prior to
10:00 a.m., New York City time on the next interest payment date specified by
the Indenture and the Securities, sums sufficient to pay the Liquidated Damages
then due. The Liquidated Damages due shall be payable on each interest payment
date specified by the Indenture to the record holder entitled to receive the
interest payment to be made on such date. Each obligation to pay Liquidated
Damages shall be deemed to accrue from and including the applicable Registration
Default.
(c) The parties hereto agree that the Liquidated Damages provided for
in this Section 3 constitute a reasonable estimate of and are intended to
constitute the sole damages that will be suffered by Holders of Transfer
Restricted Securities by reason of the failure of (i) the Shelf Registration
Statement or the Exchange Offer Registration Statement,
<PAGE>
7
as the case may be, to be filed, (ii) the Exchange Offer Registration Statement
to be declared effective and the Registered Exchange Offer to be consummated,
(iii) the Shelf Registration Statement to be declared effective or (iv) the
Shelf Registration Statement to again become effective, in each case to the
extent required by this Agreement.
4. Registration Procedures. In connection with any Registration
Statement, the following provisions shall apply:
(a) The Company shall (i) use its reasonable best efforts to furnish to
Societe Generale Securities Corporation ("SGSC") and its counsel, prior to the
filing thereof with the Commission, a copy of the Registration Statement and
each amendment thereof and each supplement, if any, to the prospectus included
therein and shall use reasonable best efforts to consult with SGSC regarding
such comments as SGSC or its counsel reasonably may propose; and (ii) include
the information (or information substantially to the same effect) set forth in
Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer
Procedures" section and the "Purpose of the Exchange Offer" section and in Annex
C hereto in the "Plan of Distribution" section of the prospectus forming a part
of the Exchange Offer Registration Statement, and include the information (or
information substantially to the same effect) set forth in Annex D hereto in the
Letter of Transmittal delivered pursuant to the Registered Exchange Offer (in
each case, to the extent such information is required by applicable law or the
Commission's rules and/or interpretations);
(b) The Company shall advise you, each Exchanging Dealer and the
Holders (if applicable) and, if requested by such person, confirm such advice in
writing (which advice pursuant to clauses (iii)-(iv) hereof shall be accompanied
by an instruction to suspend the use of the prospectus until the requisite
changes have been made):
(i) when any Registration Statement and any amendment thereto has been
filed with the Commission and when such Registration Statement or any
post-effective amendment thereto has become effective;
(ii) prior to the effectiveness of any Registration Statement, of the
receipt of any comment letter or request for information from the
Commission;
(iii) following the effectiveness of any Registration Statement, of any
request by the Commission for amendments or supplements to such Registration
Statement or the prospectus included therein or for additional information;
(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of any Registration Statement or the initiation of any
proceeding for that purpose;
(v) following the effectiveness of any Registration Statement, of the
receipt by the Company of any notification with respect to the suspension of
the qualification
<PAGE>
8
of the Securities or the Exchange Securities for sale in any jurisdiction or
the initiation or threatening of any proceeding for such purpose; and
(vi) of the happening of any event that requires the making of any
changes in any Registration Statement or the prospectus so that, as of such
date, the statements therein are not misleading in any material respect and
do not omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in any material
respect.
The Company will make every reasonable effort to obtain the withdrawal
at the earliest possible time of any order suspending the effectiveness of any
Registration Statement.
(c) The Company will furnish to each Holder of Transfer Restricted
Securities specifically named in any Shelf Registration Statement, without
charge, at least one copy of such Shelf Registration Statement and any
post-effective amendment thereto, including financial statements and schedules,
and, if the Holder so requests in writing, all exhibits (including those
incorporated by reference).
(d) The Company will, during the Shelf Registration Period, promptly
deliver to each Holder of Transfer Restricted Securities specifically named in
any Shelf Registration Statement, without charge, as many copies of the
prospectus (including each preliminary prospectus) included in such Shelf
Registration Statement and any amendment or supplement thereto as such Holder
may reasonably request; and the Company consents to the use of the prospectus or
any amendment or supplement thereto by each of the selling Holders of Transfer
Restricted Securities in connection with the offering and sale of the Transfer
Restricted Securities covered by the prospectus or any amendment or supplement
thereto.
(e) The Company will furnish to each Exchanging Dealer and each Initial
Purchaser and to any other Holder who so requests, without charge, at least one
copy of the Exchange Offer Registration Statement and any post-effective
amendment thereto, including financial statements and schedules, and, if the
Exchanging Dealer, Initial Purchaser or any such Holder so requests in writing,
all exhibits (including those incorporated by reference).
(f) The Company will, during the Exchange Offer Registration Period,
promptly deliver to each Exchanging Dealer or the Initial Purchasers, as
applicable, without charge, as many copies of the prospectus included within the
coverage of Exchange Offer Registration Statement and any amendment or
supplement thereto as such Exchanging Dealer or the Initial Purchasers, as
applicable, may reasonably request for delivery by such Exchanging Dealer in
connection with a sale of Exchange Securities received by it pursuant to the
Registered Exchange Offer; and the Company consents to the use of the prospectus
or any amendment or supplement thereto by any such Exchanging Dealer as
aforesaid.
(g) To the extent required by applicable law, prior to any public
offering of Securities or Exchange Securities pursuant to any Registration
Statement, the Company will
<PAGE>
9
use its reasonable best efforts to register or qualify or cooperate with the
Holders of Securities included therein and its counsel in connection with the
registration or qualification of such securities for offer and sale under the
state securities or blue sky laws of such United States jurisdictions as any
such Holder reasonably requests in writing and do any and all other acts or
things necessary or advisable to enable the offer and sale in such jurisdictions
of the Securities or Exchange Securities covered by such Registration Statement;
provided, however, that neither the Company nor any Guarantor shall be required
to qualify as a foreign corporation where it is not now so qualified or to take
any action that would subject it to service of process in suits or to taxation
in any jurisdiction where it is not now so subject.
(h) The Company will cooperate with the Holders of Securities or
Exchange Securities to facilitate the timely preparation and delivery of
certificates representing Securities or Exchange Securities to be sold pursuant
to any Registration Statement free of any restrictive legends and in such
denominations and registered in such names as Holders may request in writing
prior to sales of Securities or Exchange Securities pursuant to such
Registration Statement.
(i) If any event contemplated by paragraphs (b)(iii) through (v) above
occurs during the period in which the Company is required to maintain an
effective Registration Statement, the Company will use its reasonable best
efforts to promptly prepare a post-effective amendment to the Registration
Statement or a supplement to the related prospectus or file any other required
document so that, as thereafter delivered to purchasers of the Securities or
purchasers of Exchange Securities from a Holder, the prospectus will not include
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(j) Not later than the effective date of the applicable Registration
Statement, the Company will provide a CUSIP number for the Exchange Securities
and provide the applicable trustee with certificates for the Securities or
Exchange Securities, as the case may be, in a form eligible for deposit with The
Depository Trust Company; and upon consummation of the Registered Exchange
Offer, the Company shall deliver to the Trustee, on behalf of the Holders of the
Exchange Securities, a legal opinion to the effect that the Exchange Securities,
when issued, will constitute valid and legally binding obligations of the
Company, entitled to the benefits of the Indenture, and enforceable against the
Company in accordance with their terms (subject to customary qualifications for
opinions of this type).
(k) The Company and the Guarantors will comply with all applicable
rules and regulations of the Commission and will make generally available to the
Company's security holders as soon as practicable after the effective date of
the applicable Registration Statement an earnings statement satisfying the
provisions of Section 11(a) of the Securities Act; provided that in no event
shall such earnings statement be delivered later than 45 days after the end of a
12-month period (or 90 days, if such period is a fiscal year) beginning with
<PAGE>
10
the first month of the Company's first fiscal quarter commencing after the
effective date of the applicable Registration Statement, which statements shall
cover such 12-month period.
(l) The Company will cause the Indenture or the Exchange Securities
Indenture, as the case may be, to be qualified under the Trust Indenture Act as
required by applicable law in a timely manner.
(m) The Company may require each Holder of Transfer Restricted
Securities to be sold pursuant to any Shelf Registration Statement to furnish to
the Company such information regarding the Holder and the distribution of such
Transfer Restricted Securities as the Company may from time to time reasonably
require for inclusion in such Registration Statement, and the Company may
exclude from such registration the Transfer Restricted Securities of any Holder
that unreasonably fails to furnish such information within a reasonable time
after receiving such request.
(n) In the case of a Shelf Registration Statement, each Holder of
Transfer Restricted Securities to be registered pursuant thereto agrees by
acquisition of such Transfer Restricted Securities that, upon receipt of any
notice from the Company pursuant to Section 4(b)(iii) through (v) hereof, such
Holder will discontinue disposition of such Transfer Restricted Securities until
such Holder's receipt of copies of the supplemental or amended prospectus
contemplated by Section 4(i) hereof, or until advised in writing (the "Advice")
by the Company that the use of the applicable prospectus may be resumed. If the
Company shall give any notice under Section 4(b)(iii) through (v) during the
period that the Company is required to maintain an effective Registration
Statement (the "Effectiveness Period"), such Effectiveness Period shall be
extended by the number of days during such period from and including the date of
the giving of such notice to and including the date when each seller of Transfer
Restricted Securities covered by such Registration Statement shall have received
(x) the copies of the supplemental or amended prospectus contemplated by Section
4(i) (if an amended or supplemental prospectus is required) or (y) the Advice
(if no amended or supplemental prospectus is required).
(o) In the case of a Shelf Registration Statement, the Company shall
enter into such customary agreements (including, if requested, an underwriting
agreement in customary form) and take all such other action, if any, as Holders
of a majority in aggregate principal amount of the Securities and Exchange
Securities being sold or the managing underwriters (if any) shall reasonably
request in order to facilitate any disposition of Securities or Exchange
Securities pursuant to such Shelf Registration Statement; provided, however,
that the Company shall not be obligated to enter into an underwriting agreement
or to facilitate such disposition in an underwritten offering pursuant to any
Shelf Registration Statement unless Holders of a majority in aggregate principal
amount of such Transfer Restricted Securities elect to dispose of such Transfer
Restated Securities in such an underwritten offering.
(p) In the case of a Shelf Registration Statement, the Company shall
(i) make reasonably available for inspection by a representative of, and Special
Counsel (as
<PAGE>
11
defined below) acting for, Holders of a majority in aggregate principal amount
of the Securities and Exchange Securities being sold and any managing
underwriter participating in any disposition of Securities or Exchange
Securities pursuant to such Shelf Registration Statement, all relevant financial
and other records, pertinent corporate documents and properties of the Company
and its subsidiaries and (ii) use its reasonable best efforts to have its
officers, directors, employees, accountants and counsel supply all relevant
information reasonably requested by such representative, Special Counsel or any
such managing underwriter (an "Inspector") in connection with such Shelf
Registration Statement; provided, however, that the Company need not make
available or supply any information pursuant to this paragraph (p) to the extent
such information may not be disclosed pursuant to any confidentiality agreement
to which the Company or any of its Subsidiaries is a party or such disclosure
would jeopardize any applicable attorney-client, work product or other
privilege.
(q) In the case of a Shelf Registration Statement, the Company shall,
if requested by Holders of a majority in aggregate principal amount of the
Securities and Exchange Securities being sold, their Special Counsel or the
managing underwriters (if any) in connection with such Shelf Registration
Statement, use its reasonable best efforts to cause (i) its counsel to deliver
an opinion relating to the Shelf Registration Statement and the Securities or
Exchange Securities, as applicable, in customary form, (ii) its officers to
execute and deliver all customary documents and certificates reasonably
requested by Holders of a majority in aggregate principal amount of the
Securities and Exchange Securities being sold, their Special Counsel or the
managing underwriters (if any) and (iii) its independent public accountants to
provide a comfort letter in customary form, subject to receipt of appropriate
documentation as contemplated, and only if permitted, by Statement of Auditing
Standards No. 72.
5. Registration Expenses. The Company and the Guarantors will bear all
expenses incurred in connection with the performance of their obligations under
Sections 1, 2, 3 and 4 hereof and the Company and the Guarantors will reimburse
the Initial Purchasers and the Holders for the reasonable fees and disbursements
(up to an aggregate amount of $50,000) of one firm of attorneys chosen by the
Holders of a majority in aggregate principal amount of the Securities and the
Exchange Securities to be sold pursuant to a Shelf Registration Statement (the
"Special Counsel") acting for the Initial Purchasers or Holders in connection
therewith. The Company and the Guarantors shall not have any obligation to pay
any underwriting fees, discounts or commissions attributable to the sale of any
Securities or Exchange Securities pursuant to this Agreement.
6. Indemnification. (a) Indemnification of Holders. The Company and
each Guarantor, jointly and severally, shall indemnify and hold harmless each
Holder (including, without limitation, any such Initial Purchaser or Exchanging
Dealer), their respective directors, officers, representatives and agents and
each person, if any, who controls such Holder within the meaning of Section 15
of the Securities Act (collectively referred to for the purposes of this Section
6 as a Holder) against any loss, claim, damage or liability, joint or several,
or any action in respect thereof (including, without limitation, any loss,
claim, damage, liability or action relating to purchases and sales of Securities
or
<PAGE>
12
Exchange Securities), to which that Holder may become subject, under the
Securities Act or otherwise, insofar as such loss, claim, damage, liability or
action arises out of or is based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in any such Registration Statement or any
preliminary or final prospectus forming part thereof or in any amendment or
supplement thereto or (ii) the omission or alleged omission to state in any such
Registration Statement or any preliminary or final prospectus forming part
thereof or in any amendment or supplement thereto a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
shall reimburse each Holder for any legal or other expenses reasonably incurred
by that Holder in connection with investigating or preparing to defend or
defending against or appearing as a third party witness in connection with any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the foregoing indemnification agreement with respect to
any preliminary prospectus shall not inure to the benefit of any Holder from
whom the person asserting any such loss, claim, damage or liability purchased
Securities or Exchange Securities, if (i) a copy of the preliminary prospectus
(as then amended or supplemented) was delivered to such person at or prior to
the written confirmation of the sale of Securities or Exchange Securities to
such person, (ii) a copy of the final prospectus (as then amended or
supplemented) was not sent or given to such person by or on behalf of such
Holder and (iii) the final prospectus (as so amended or supplemented) would have
cured the defect giving rise to such loss, claim, damage or liability; and
further provided, however, that the Company and the Guarantors shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement in or omission or alleged omission from any preliminary
prospectus or Registration Statement or any such amendment or supplement in
reliance upon and in conformity with any Holders' Information.
(b) Indemnification of Company, Guarantors, Directors and Officers.
Each Holder, severally and not jointly, agrees to indemnify and hold harmless
the Company and each Guarantor, their respective directors, officers,
representatives and agents, and each person, if any, who controls them or any of
them within the meaning of Section 15 of the Securities Act (collectively
referred to for the purposes of this Section 6 as the Company), against any
loss, claim, damage or liability, joint or several, or any action in respect
thereof, to which they or any of them may become subject, under the Securities
Act or otherwise, insofar as such loss, claim, damage, liability or action
arises out of or is based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in a preliminary or final prospectus or
such Registration Statement or in any amendment or supplement thereto or (ii)
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, but
in each case only to the extent that the untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with any Holders' Information furnished to the Company by or on
behalf of that Holder specifically for use therein, and shall reimburse the
indemnified party for any legal or other expenses reasonably incurred by the
indemnified party in connection with investigating or preparing to defend or
defending against or appearing as third party witness in connection with any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that no such Holder
<PAGE>
13
shall be liable for any indemnity claims hereunder in excess of the amount of
net proceeds received by such Holder from the sale of Securities or Exchange
Securities pursuant to such Shelf Registration Statement.
(c) Actions; Notification. Promptly after receipt by an indemnified
party under this Section 6 of notice of any claim or the commencement of any
action, the indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under this Section 6, notify the indemnifying
party in writing of the claim or the commencement of that action; provided,
however, that the failure to notify the indemnifying party shall not relieve it
from any liability which it may have under this Section 6 except to the extent
it has been materially prejudiced by such failure; and, provided, further, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have to an indemnified party otherwise than under this
Section 6. If any such claim or action shall be brought against an indemnified
party, and it shall notify the indemnifying party thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it
wishes, jointly with any other similarly notified indemnifying party, to assume
the defense thereof with counsel reasonably satisfactory to the indemnified
party. After notice from the indemnifying party to the indemnified party of its
election to assume the defense of such claim or action, the indemnifying party
shall not be liable to the indemnified party under this Section 6 for any legal
or other expenses subsequently incurred by the indemnified party in connection
with the defense thereof; provided, however, that any indemnified party shall
have the right to employ separate counsel in any such action and to participate
in the defense thereof but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the employment thereof has been
specifically authorized by the indemnifying party in writing, (ii) such
indemnified party shall have been advised by such counsel that there may be one
or more legal defenses available to it which are different from or additional to
those available to the indemnifying party and in the reasonable judgment of such
counsel it is advisable for such indemnified party to employ separate counsel or
(ii) the indemnifying party has failed to assume the defense of such action and
employ counsel reasonably satisfactory to the indemnified party, in which case,
if such indemnified party notifies the indemnifying party in writing that it
elects to employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
on behalf of such indemnified party, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for all such indemnified parties, which firm shall be designated in writing
by the Holders of a majority in aggregate principal amount of the Securities or
Exchange Securities, as the case may be, if the indemnified parties under this
Section 6 consist of any Holder or any of their respective officers, employees
or controlling persons, or by the Company, if the indemnified parties under this
Section 6 consist of the Company or a Guarantor or any of their respective
directors, officers, employees or controlling persons. Each indemnified party,
as a condition of the indemnity agreements contained in Sections 6(a) and 6(b),
shall use all reasonable efforts to cooperate with the indemnifying party in the
defense of any such action or claim. Subject to the provisions of
<PAGE>
14
Section 6(d) below, no indemnifying party shall be liable for any settlement of
any such action effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with its written consent or if there be a
final judgment for the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against any
loss or liability by reason of such settlement or judgment.
(d) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested that an indemnifying party reimburse
the indemnified party for fees and expenses of counsel payable in accordance
with this Section 6, such indemnifying party agrees that it shall be liable for
any settlement of the nature contemplated by this Section 6 effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the request for reimbursement, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
(e) Contribution. If the indemnification provided for in this Section 6
is unavailable or insufficient to hold harmless an indemnified party under
Section 6(a) or (b), then each indemnifying party shall, in lieu of indemnifying
such indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate to
reflect the relative benefits received by the Company and the Guarantors on the
one hand and a Holder with respect to the sale by such Holder of Securities or
Exchange Securities on the other or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Guarantors on the one
hand and such Holder on the other with respect to the statements or omissions
which resulted in such loss, claim, damage or liability, or action in respect
thereof, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Guarantors on the one hand and a Holder
on the other with respect to such offering shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Securities or
Exchange Securities (before deducting expenses) received by the Company and the
Guarantors as set forth on the cover of the Offering Memorandum bear to the
total proceeds received by such Holder with respect to its sale of Securities or
Exchange Securities. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company and the Guarantors on the one hand or to any
Holders' Information supplied by such Holder on the other, the intent of the
parties and their relative knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company and the
Holders agree that it would not be just and equitable if contributions pursuant
to this Section 6(e) were to be determined by pro rata allocation (even if the
Holders were treated as one entity for such purpose) or by any other method of
allocation which does not take into
<PAGE>
15
account the equitable considerations referred to herein. The amount paid or
payable by an indemnified party as a result of the loss, claim, damage or
liability, or action in respect thereof, referred to above in this Section 6(e)
shall be deemed to include, for purposes of this Section 6(e), any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 6(e), no Holder shall be required to contribute any
amount in excess of the amount by which the total price at which the Securities
or Exchange Securities sold by such Holder to any purchaser exceeds the amount
of any damages which such Holder has otherwise paid or become liable to pay by
reason of any untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
Any Holder's obligations to contribute as provided in this Section 6(e)
are several and not joint.
The obligations of the Company, the Guarantors and the Holders in this
Section 6 are in addition to any other liability which the Company, the
Guarantors or the Holders as the case may be, may otherwise have.
7. Rule 144A. Unless the Company is then subject to Section 13 or 15(d)
of the Exchange Act, the Company hereby agrees with each Holder, for so long as
any Transfer Restricted Securities remain outstanding, to make available, upon
request, to any Holder or beneficial owner of Transfer Restricted Securities in
connection with any sale thereof and any prospective purchaser of such Transfer
Restricted Securities from such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A. Notwithstanding the
foregoing, nothing in this Section 7 shall be deemed to require the Company to
register any of its securities pursuant to the Exchange Act.
8. Underwritten Registrations. If any of the Transfer Restricted
Securities covered by any Shelf Registration Statement are to be sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the Holders of
a majority in aggregate principal amount of such Transfer Restricted Securities
included in such offering, subject to the consent of the Company (which shall
not be unreasonably withheld or delayed), and such Holders shall be responsible
for all underwriting commissions and discounts in connection therewith.
9. Miscellaneous. (a) Amendments and Waivers. The provisions of this
Agreement may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given, unless the Company
has obtained the written consent of Holders of a majority in aggregate principal
amount of the Securities and the Exchange Securities, taken as a single class.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of the
Holders of Securities or Exchange Securities whose Securities
<PAGE>
16
or Exchange Securities are being sold or exchanged pursuant to a Registration
Statement and that does not directly or indirectly affect the rights of other
Holders may be given by Holders of a majority in aggregate principal amount of
the Securities or Exchange Securities being sold or exchanged by such Holders
pursuant to such Registration Statement.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telecopier, or air courier guaranteeing overnight delivery:
(1) if to a Holder, at the most current address given by such Holder to
the Company in accordance with the provisions of this Section 9(b), which
address initially is, with respect to each Holder, the address of such
Holder maintained by the Registrar under the Indenture, with a copy in like
manner to Societe Generale Securities Corporation;
(2) if to you, initially at your address set forth in the Purchase
Agreement; and
(3) if to the Company or the Guarantors, initially at the address of
the Company set forth in the Purchase Agreement, or with a copy to Winston &
Strawn, 200 Park Avenue, New York, New York 10016, Attention: Robert W.
Ericson.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; one business day after
being delivered to a next-day air courier; five business days after being
deposited in the mail; and when receipt is acknowledged by the recipient's
telecopier machine, if telecopied.
(c) Successors and Assigns. This Agreement shall be binding upon the
successors and assigns of each of the parties; provided, however, that this
Agreement shall not inure to the benefit of or be binding upon a successor or
assign of a Holder unless and to the extent such successor or assign acquired
Transfer Restricted Securities from such Holder.
(d) Counterparts. This Agreement may be executed in any number of
counterparts (which may be delivered in original form or by telecopies) and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
(e) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(f) Governing Law; Submission to Jurisdiction.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
17
(g) No Inconsistent Agreements. The Company has not and shall not, on
or after the date of this Agreement, enter into any agreement that is
inconsistent with the rights granted to the holders of Transfer Restricted
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The Company has not previously entered into any agreement which remains in
effect granting any registration rights with respect to any of its debt
securities to any person, which agreement would allow any person other than the
Holders of Transfer Restricted Securities to require the Company to register any
such debt securities pursuant to a Registration Statement. Without limiting the
generality of the foregoing, without the written consent of the holders of a
majority in aggregate principal amount of the then outstanding Transfer
Restricted Securities, the Company shall not grant to any person the right to
request the Company to register any debt securities of the Company under the
Securities Act pursuant to a Registration Statement unless the rights so granted
are not in conflict or inconsistent with the provisions of the Agreement.
(h) No Piggyback on Registrations. Neither the Company, nor any of its
security holders (other than the holders of Transfer Restricted Securities in
such capacity) shall have the right to include any securities of the Company in
any Shelf Registration or Registered Exchange Offer other than Transfer
Restricted Securities.
(i) Severability. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction.
(j) Remedies. In the event of a breach by the Company or any Guarantor,
or by any holder of Transfer Restricted Securities, of any of their obligations
under this Agreement, each holder of Transfer Restricted Securities or the
Company and the Guarantors, as the case may be, in addition to being entitled to
exercise all rights granted by law, including recovery of damages (other than
the recovery of damages for a breach by the Company of its obligations under
Sections 1 or 2 hereof for which Liquidated Damages have been paid pursuant to
Section 3 hereof), will be entitled to specific performance of its rights under
this Agreement. Except as provided in Section 3, the Company, the Guarantors and
each holder of Transfer Restricted Securities agree that monetary damages would
not be adequate compensation for any loss incurred by reason of a breach by it
of any of the provisions of this Agreement and hereby further agree that, in the
event of any action for specific performance in respect of such breach, it shall
waive the defense that a remedy at law would be adequate.
<PAGE>
18
Please confirm that the foregoing correctly sets forth the agreement
among the Company and you.
Very truly yours,
STELLEX INDUSTRIES, INC.
By: /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: Vice Chairman
KII HOLDING CORP.
By: /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: Vice Chairman
KII ACQUISITION CORP.
By: /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: Vice Chairman
STELLEX AEROSPACE
By: /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: Vice Chairman
BANDY MACHINING INTERNATIONAL
By: /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: Vice Chairman
<PAGE>
19
PARAGON PRECISION PRODUCTS
By: /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: Vice Chairman
SCANNING ELECTION ANALYSIS
LABORATORIES, INC.
By: /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: Vice Chairman
GENERAL INSPECTION LABORATORIES, INC.
By: /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: Vice Chairman
TSMD ACQUISITION CORP.
By: /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: President
STELLEX MICROWAVE SYSTEMS, INC.
By: /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: Vice Chairman
<PAGE>
20
Accepted in New York, New York
SOCIETE GENERALE SECURITIES CORPORATION
By: /s/ Bradford C. Yates
-----------------------------------
Name: Bradford C. Yates
Title: Managing Director
BT ALEX. BROWN INCORPORATED
By: /s/ Chris Kinslow
-----------------------------------
Name: Chris Kinslow
Title: Vice President
JEFFERIES & COMPANY, INC.
By: /s/ Andrew Whittaker
-----------------------------------
Name: Andrew Whittaker
Title: Executive Vice President
<PAGE>
ANNEX A
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Registered Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Securities.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Securities received in exchange for
Securities where such Securities were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 90 days after the Expiration Date (as defined herein), it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Securities for its own
account in exchange for Securities, where such Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Securities. See "Plan of Distribution."
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Registered Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Securities.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Securities
received in exchange for Securities where such Securities were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that, for a period of 90 days after the Expiration Date, it will make
this Prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale. In addition, until _______________,
199_, all dealers effecting transactions in the Exchange Securities may be
required to deliver a prospectus.1/
The Company will not receive any proceeds from any sale of Exchange
Securities by broker-dealers. Exchange Securities received by broker-dealers for
their own account pursuant to the Registered Exchange Offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange
Securities or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer or the
purchasers of any such Exchange Securities. Any broker-dealer that resells
Exchange Securities that were received by it for its own account pursuant to the
Registered Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Securities may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
Exchange Securities and any commission or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that, by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Registered Exchange Offer other than commissions or concessions
of any broker-dealers and will indemnify the Holders of the Securities
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
- --------
1/ In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover page of the Exchange Offer prospectus.
<PAGE>
ANNEX D
|_| CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name: _______________________________________
Address: _______________________________________
_______________________________________
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Securities. If the undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Securities that were acquired as
a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
<PAGE>
Annex B
List of Subsidiaries
Name Jurisdiction of Incorporation
KII Holding Corp. Delaware
KII Acquisition Corp. Delaware
Stellex Aerospace California
Bandy Machining International California
Paragon Precision Products California
Scanning Electron Analysis Laboratories, Inc. California
TSMD Acquisition Corp. Delaware
Stellex Microwave Systems, Inc. California
<PAGE>
Annex C-1
Form of legal opinion of Winston & Strawn
<PAGE>
[Winston & Strawn Letterhead]
October 31, 1997
Societe Generale Securities Corporation
BT Alex. Brown Incorporated
Jefferies & Company, Inc.
c/o Societe Generale Securities Corporation
1221 Avenue of the Americas
New York, NY 10020
Ladies and Gentlemen:
We have acted as special counsel to Stellex Industries, Inc., a
Delaware corporation (the "Company"), TSMD Acquisition Corp, a Delaware
corporation ("TSMD Acquisition"), Stellex Microwave Systems, Inc., a California
corporation ("Stellex Microwave"), KII Holding Corp., a Delaware corporation
("KII Holding"), KII Acquisition Corp., a Delaware corporation ("KII
Acquisition"), Stellex Aerospace, a California corporation ("Stellex
Aerospace"), Bandy Machining International, a California corporation ("Bandy"),
Paragon Precision Products, a California corporation ("Paragon"), Scanning
Electron Analysis Laboratories, Inc., a California corporation ("SEAL"), and
General Inspection Laboratories, Inc., a California corporation ("GIL"), in
connection with the issuance and sale by the Company, pursuant to the Purchase
Agreement, dated October 23, 1997 (the "Purchase Agreement"), among the Company,
the Guarantors (as defined below) and Societe Generale Securities Corporation,
BT Alex. Brown Incorporated and Jefferies & Company, Inc. (collectively, the
"Initial Purchasers"), of $100 million aggregate principal amount of the
Company's 9 1/2% Senior Subordinated Notes due 2007 (the "Notes"), which will be
issued under an Indenture, dated as of October 31, 1997 (the "Indenture"), among
the Company, the Guarantors and Marine Midland Bank, as trustee. TSMD
Acquisition, Stellex Microwave, KII Holding, KII Acquisition, Stellex Aerospace,
Bandy, Paragon, SEAL and GIL are collectively hereinafter referred to as the
"Guarantors." TSMD Acquisition, KII Holding and KII Acquisition are sometimes
collectively hereinafter referred to as the "Delaware Guarantors." Stellex
Microwave, Stellex Aerospace, Bandy, Paragon, SEAL and GIL are sometimes
collectively hereinafter referred to as the "Non-Delaware Guarantors."
<PAGE>
Societe Generale Securities Corporation
BT Alex. Brown Incorporated
Jefferies & Company, Inc.
Page 2
This opinion letter is furnished to you pursuant to Section 5(d) of the
Purchase Agreement. Except as otherwise specified, capitalized terms used herein
and not otherwise defined shall have the meanings ascribed to such terms in the
Purchase Agreement.
In rendering the opinions set forth herein, we have examined:
(i) the Certificate of Incorporation and Bylaws of the Company, TSMD
Acquisition, KII Holding and KII Acquisition;
(ii) resolutions of the Board of Directors of the Company and each of
the Guarantors with respect to the transactions referred to
herein;
(iii) the Preliminary Offering Memorandum and Offering Memorandum;
(iv) the Indenture;
(v) the Notes;
(vi) the Purchase Agreement; and
(vii) the Registration Rights Agreement
(the documents identified in clauses (iv) through (vii) are collectively
hereinafter referred to as the "Transaction Documents") and such other
agreements, instruments and documents, and such questions of law as we have
deemed necessary or appropriate to enable us to render the opinions expressed
below. Additionally, we have examined originals or copies, certified to our
satisfaction, of such certificates of public officials and officers and
representatives of the Company and the Guarantors, and we have made such
inquiries of officers and representatives of the Company and the Guarantors, as
we have deemed relevant or necessary in connection with the opinions set forth
herein.
In rendering the opinions expressed below, we have, with your consent,
assumed that the signatures of persons signing all documents in connection with
which this opinion is rendered are genuine, all documents submitted to us as
originals or duplicate originals are authentic and all documents submitted to us
as copies, whether certified or not, conform to authentic original documents.
Additionally, we have, with your consent, assumed and relied upon the following:
(a) the accuracy and completeness of all certificates and other
statements, documents, records, financial statements and papers reviewed by us,
and the accuracy and completeness of
<PAGE>
Societe Generale Securities Corporation
BT Alex. Brown Incorporated
Jefferies & Company, Inc.
Page 3
all representations, warranties, schedules and exhibits contained in the
Transaction Documents, with respect to the factual matters set forth therein;
(b) all parties to the documents reviewed by us (other than the Company
and the Delaware Guarantors) are duly organized, validly existing and in good
standing under the laws of all jurisdictions where they are conducting their
businesses or otherwise required to be so qualified, and have full power and
authority to execute, deliver and perform under such documents and all such
documents have been duly authorized, executed and delivered by such parties;
(c) the Notes have been delivered and paid for by the Initial
Purchasers in accordance with the terms of the Purchase Agreement, and each
Transaction Document constitutes the legal, valid and binding obligation of each
party thereto (other than the Company and the Guarantors,) enforceable against
such party in accordance with its terms; and
(d) all transactions that occur in connection with the consummation of
the Purchase Agreement, including, without limitation (i) the closing of the New
Credit Facility and (ii) the other transactions described under "Use of
Proceeds" in the Offering Memorandum, shall be deemed to have taken place
simultaneously and no delivery or payment shall be considered to have been made
until all transactions taking place on the Closing Date shall have been
completed.
Whenever our opinion with respect to the existence or absence of facts
is indicated to be based on our knowledge or awareness, we are referring to the
actual present knowledge of the particular attorneys presently members of or
employed by Winston & Strawn who have given substantive attention to matters
involving the Company and the Guarantors. Except as expressly set forth herein,
we have not undertaken any independent investigation, examination or inquiry to
determine the existence or absence of any facts (and have not caused the review
of any court file or indices) and no inference as to our knowledge concerning
any facts should be drawn as a result of the limited representation undertaken
by us.
Based upon the foregoing and subject to the qualifications and
assumptions stated herein, we are of the opinion that:
1. Each of the Company and the Guarantors (A) (other than the
Non-Delaware Guarantors, as to whom we express no opinion) is duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite corporate power and authority to own its
properties and conduct its business as described in the Offering Memorandum and
(B) is duly qualified to do business as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership or leasing of
its properties or
<PAGE>
Societe Generale Securities Corporation
BT Alex. Brown Incorporated
Jefferies & Company, Inc.
Page 4
the conduct of its business requires such qualification, except where the
failure to be so qualified would not, individually or in the aggregate, have a
Material Adverse Effect.
2. Based solely on our review of the Company's and each of the
Guarantors' corporate minutes and stock transfer records, the Company has the
authorized, issued and outstanding capitalization set forth in the Offering
Memorandum; all of the issued and outstanding shares of capital stock of the
Company and the Delaware Guarantors have been duly authorized and validly issued
and are fully paid and non-assessable; to our knowledge, none of the issued and
outstanding shares of capital stock of the Company were issued in violation of
any preemptive or similar rights; and all of the outstanding shares of capital
stock of the Delaware Guarantors are owned of record by the Company or another
Guarantor, except as set forth in the Offering Memorandum.
3. The Company has all requisite corporate power and authority to
execute and deliver, and to perform its obligations under, each of the Indenture
and the Notes. Each of the Delaware Guarantors has all requisite corporate power
and authority to execute and deliver, and to perform its obligations under, each
of the Indenture and its Guarantee.
4. The Indenture conforms in all material respects to the requirements
of the Trust Indenture Act and the applicable rules and regulations promulgated
thereunder.
5. The Indenture has been duly and validly authorized, executed and
delivered by the Company and each of the Delaware Guarantors and (assuming the
due authorization, execution and delivery by the Trustee and the Non-Delaware
Guarantors) will constitute the valid and legally binding agreement of the
Company and each of the Guarantors, enforceable against the Company and each of
the Guarantors in accordance with its terms.
6. The Notes are in the form contemplated by the Indenture. The Notes
have each been duly and validly authorized, executed and delivered by the
Company and, when paid for by the Initial Purchasers in accordance with the
terms of the Purchase Agreement (assuming the due authorization, execution and
delivery of the Indenture by the Trustee and due authentication and delivery of
the Notes by the Trustee in accordance with the Indenture), will constitute the
valid and legally binding obligations of the Company, entitled to the benefits
of the Indenture, and enforceable against the Company in accordance with their
terms. The Guarantees have been duly authorized, executed and delivered by each
of the Delaware Guarantors and, when the Notes are executed by the Company and
authenticated by the Trustee in accordance with the provisions of the Indenture
and delivered to and paid for by the Initial Purchasers in accordance with the
terms of the Purchase Agreement (assuming due authorization, execution and
delivery of the Indenture by the Non-Delaware Guarantors and the Trustee and due
authorization and delivery of the Notes by the Trustee in accordance with the
Indenture), will constitute the valid
<PAGE>
Societe Generale Securities Corporation
BT Alex. Brown Incorporated
Jefferies & Company, Inc.
Page 5
and legally binding obligations of each of the Guarantors, entitled to the
benefits of the Indenture, and enforceable against each of the Guarantors in
accordance with their terms. The Exchange Securities have been duly and validly
authorized by the Company.
7. The Company and each of the Delaware Guarantors have all requisite
corporate power and authority to execute, deliver and perform their respective
obligations under the Registration Rights Agreement; the Registration Rights
Agreement has been duly and validly authorized, executed and delivered by the
Company and each of the Delaware Guarantors, and (assuming due authorization,
execution and delivery thereof by the Non-Delaware Guarantors), will constitute
the valid and legally binding agreement of the Company and each of the
Guarantors, enforceable against the Company and each of the Guarantors in
accordance with its terms.
8. The Company and each of the Delaware Guarantors have all requisite
corporate power and authority to execute, deliver and perform their respective
obligations under the Purchase Agreement; the Purchase Agreement has been duly
and validly authorized, executed and delivered by the Company and each of the
Delaware Guarantors, and (assuming due authorization, execution and delivery
thereof by the Non-Delaware Guarantors), will constitute the valid and legally
binding agreement of the Company and each of the Guarantors, enforceable against
the Company and each of the Guarantors in accordance with its terms.
9. The Indenture, the Notes and the Registration Rights Agreement
conform in all material respects to the descriptions thereof contained in the
Offering Memorandum.
10. To our knowledge, none of the Company or the Guarantors is (A) in
violation of its certificate of incorporation or bylaws (except we express no
opinion with respect to the Non-Delaware Guarantors) or (B) in breach or
violation of any statute, judgment, decree, order, rule or regulation of the
United States of America, the State of New York or the General Corporation Law
of the State of Delaware applicable to it or any of its properties or assets,
except for any such breaches or violations which would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.
11. Assuming the accuracy and fulfillment of the representations,
warranties, covenants and agreements of the Company, the Guarantors and the
Initial Purchasers in the Purchase Agreement and that the net proceeds to the
Company from the Offering are used in the manner contemplated by the Offering
Memorandum, the execution, delivery and performance of the Purchase Agreement,
the Indenture and the Registration Rights Agreement and the consummation of the
financing transactions contemplated thereby (including the issuance and sale of
the Notes to the Initial Purchasers and the making of the Guarantees by the
Guarantors) will not conflict with or constitute or result in a breach or a
default under (or an event which with
<PAGE>
Societe Generale Securities Corporation
BT Alex. Brown Incorporated
Jefferies & Company, Inc.
Page 6
notice or passage of time or both would constitute a default under) or violation
of any of (A) the terms or provisions of any contract, loan agreement,
indenture, mortgage, deed of trust, lease or other instrument binding on or
affecting the Company or any Guarantor or any of their respective properties or
assets which has been identified to us pursuant to an officers' certificate of
the Company and listed on Schedule I hereto as being material to the Company and
its subsidiaries taken as a whole (except we express no opinion as to (i)
violations under contractual obligations listed on Schedule I hereto where such
violations are immaterial, (ii) violations resulting from cross-default
provisions relating to defaults under an agreement not listed on Schedule I
hereto or (iii) violations of financial covenants), (B) the certificate of
incorporation or bylaws of the Company or any of the Delaware Guarantors, or (C)
(assuming compliance with all applicable state securities or "Blue Sky" laws and
the rules and regulations of the National Association of Securities Dealers,
Inc. (the "NASD"), as to which we render no opinion), any statute, law or rule
or regulation of the United States of America, the State of New York or the
General Corporation Law of the State of Delaware or, to our knowledge, any
judgment, decree or order of any Federal or state court located in New York or
Delaware which is applicable to the Company or any of the Guarantors or any of
their respective properties or assets.
12. Assuming the accuracy and fulfillment of the representations,
warranties, covenants and agreements of the Company, the Guarantors and the
Initial Purchasers in the Purchase Agreement, no consent, approval,
authorization or order of any governmental authority is required for (A) the
issuance and sale by the Company of the Notes to the Initial Purchasers or the
consummation by the Company of the other financing transactions contemplated in
the Purchase Agreement or (B) the issuance and sale by the Guarantors of the
Guarantees or the consummation by the Guarantors of the other financing
transactions contemplated in the Purchase Agreement, except (i) such as may be
required under state securities or "Blue Sky" laws and regulations or such as
may be required by the NASD, as to which we express no opinion, (ii) those which
have previously been obtained and (iii) in the case of the Registration Rights
Agreement and the transactions contemplated thereby, those that will be required
under the Securities Act, the Trust Indenture Act, state securities or "Blue
Sky" laws and regulations or such as may be required by the NASD; provided,
however that we express no opinion as to any consent, approval, authorization or
order of any governmental authority that may be required by virtue of the legal
or regulatory status of the Initial Purchasers.
13. Except as disclosed in the Offering Memorandum, to our knowledge,
no legal or governmental proceedings are pending or threatened to which any of
the Company or the Guarantors is a party or to which the property or assets of
the Company or any of the Guarantors is subject which would be reasonably likely
to result, individually or in the aggregate, in a Material Adverse Effect.
<PAGE>
Societe Generale Securities Corporation
BT Alex. Brown Incorporated
Jefferies & Company, Inc.
Page 7
14. None of the Company or the Guarantors is an "investment company" as
such term is defined in the Investment Company Act of 1940, as amended, and the
rules and regulations of the Commission promulgated thereunder.
15. No registration under the Securities Act of the Notes or the
Guarantees is required in connection with the sale of the Notes to the Initial
Purchasers as contemplated by the Purchase Agreement and the Offering Memorandum
or in connection with the initial resale of the Notes by the Initial Purchasers
in accordance with the Purchase Agreement, and prior to the commencement of the
Exchange Offer (as defined in the Registration Rights Agreement) or the
effectiveness of the Shelf Registration Statement (as defined in the
Registration Rights Agreement), and the Indenture is not required to be
qualified under the Trust Indenture Act, in each case assuming (A) that the
purchasers who buy such Notes in the initial resale thereof are qualified
institutional buyers as defined in Rule 144A promulgated under the Securities
Act ("QIBs") or accredited investors as defined in Rule 501(a) (1), (2), (3) or
(7) promulgated under the Securities Act ("Accredited Investors"), (B) the
accuracy of the Initial Purchasers' representations and those of the Company
contained in the Purchase Agreement, including, without limitation, those
regarding the absence of a general solicitation in connection with the sale of
such Notes to the Initial Purchasers and the initial resale thereof and (C) the
due performance by the Initial Purchasers of the agreements set forth in Section
2(b) of the Purchase Agreement.
16. The description in the Offering Memorandum under the caption
"Certain U.S. Federal Income Tax Considerations" constitutes a fair summary of
the legal matters referred to therein. The statements made in the Offering
Memorandum under the captions "Description of Notes" and "Exchange and
Registration Rights Agreement," insofar as they purport to constitute summaries
of certain terms of documents referred to therein, constitute accurate summaries
of the terms of such documents in all material respects.
In addition, we have participated in conferences with officers and
representatives of the Company and the Guarantors, representatives of Deloitte &
Touche LLP and Coopers & Lybrand L.L.P., the independent public accountants for
the Company and the Guarantors, representatives of the Initial Purchasers and
counsel for the Initial Purchasers, at which conferences the contents of the
Offering Memorandum and related matters were discussed, and, although we have
not independently verified and are not passing upon and assume no responsibility
for the accuracy, completeness or fairness of the statements contained in the
Offering Memorandum (except to the extent specified in paragraphs 9 and 16
hereof), no facts have come to our attention which lead us to believe that the
Offering Memorandum, on the date thereof or at the Closing Date, contained or
contains an untrue statement of a material fact or omitted or omits to state a
material fact required to be stated therein or necessary to make the statements
contained therein, in light of the circumstances under which they were made, not
<PAGE>
Societe Generale Securities Corporation
BT Alex. Brown Incorporated
Jefferies & Company, Inc.
Page 8
misleading (it being understood that we express no opinion with respect to the
financial statements and related notes thereto and the other financial,
statistical and accounting data included in the Offering Memorandum).
The opinions as expressed herein are subject to the following
qualifications and assumptions:
(a) the enforceability of the Indenture, the Notes, the Guarantees, the
Purchase Agreement, the Registration Rights Agreement and the obligations of the
Company and the Guarantors thereunder and the availability of certain rights and
remedial provisions provided for in such documents are subject to the effect of
bankruptcy, fraudulent conveyance or transfer, insolvency, reorganization,
arrangement, liquidation, conservatorship, moratorium and similar laws and are
subject to limitations imposed by other laws and judicial decisions relating to
or affecting the rights of creditors generally, and general principles of equity
(regardless of whether enforcement is considered in proceedings at law or in
equity) and upon the availability of injunctive relief or other equitable
remedies, including, without limitation, where (i) the breach of covenants or
provisions imposes restrictions or burdens upon a debtor and it cannot be
demonstrated that the enforcement of such remedies, restrictions or burdens is
reasonably necessary for the protection of a creditor; (ii) a creditor's
enforcement of remedies, covenants or provisions under the circumstances, or the
manner or procedures of such enforcement, would violate such creditor's implied
covenant of good faith and fair dealing, or would be commercially unreasonable;
or (iii) a court having jurisdiction finds that remedies, covenants or
provisions were, at the time made, or are in application, unconscionable as a
matter of law or contrary to public policy;
(b) with respect to the Indenture, the Notes, the Guarantees, the
Purchase Agreement and the Registration Rights Agreement, we express no opinion
as to the enforceability of (i) cumulative remedies to the extent such
cumulative remedies purport to or would have the effect of compensating the
party entitled to the benefits thereof in amounts in excess of the actual loss
suffered by such party, (ii) rights to indemnification or contribution, which
may be limited by applicable law or public policy considerations, or (iii) the
severability provisions contained in such documents;
(c) requirements in the Transaction Documents specifying that
provisions thereof may only be waived in writing may not be valid, binding or
enforceable to the extent that an oral agreement or an implied agreement by
trade practice or course of conduct has been created modifying any provision of
such documents; and
(d) with respect to the matters set forth in paragraph 11(C) above, we
express no opinion as to any law or regulation (i) which might be violated by
any misrepresentation or
<PAGE>
Societe Generale Securities Corporation
BT Alex. Brown Incorporated
Jefferies & Company, Inc.
Page 9
omission or a fraudulent act or (ii) to which the Company or the Guarantors may
be subject as a result of their specific business operations or regulatory
status and which are not applicable to business corporations generally (although
we are not aware of any such other law or regulation that would be violated as a
result of the execution, delivery and performance of the Purchase Agreement, the
Indenture and the Registration Rights Agreement and the consummation of the
financing transactions contemplated thereby).
The opinions expressed herein are based upon and are limited to the
laws of the State of New York, the General Corporation Law of the State of
Delaware and the laws of the United States of America to the extent specifically
referred to herein, and we express no opinion with respect to the laws of any
other state or jurisdiction.
Our opinions set forth in this letter are based upon the facts in
existence and laws in effect on the date hereof and we expressly disclaim any
obligation to update our opinions herein, regardless of whether changes in such
facts or laws come to our attention after the delivery hereof.
This opinion letter is solely for the benefit of the addressees hereof
in connection with the consummation of the financing transactions contemplated
by the Purchase Agreement. This opinion letter may not be relied upon in any
manner by any other person and may not be disclosed, quoted, filed with a
governmental agency or otherwise referred to without our express prior written
consent. Notwithstanding the foregoing, this opinion letter may be relied upon
by Marine Midland Bank, as Trustee under the Indenture.
Very truly yours,
<PAGE>
SCHEDULE I
Schedule of Material Agreements and Instruments
1. Purchase Agreement dated as of October 23, 1997, by and among
Stellex Industries, Inc., a Delaware corporation (the
"Company"), TSMD Acquisition Corp, a Delaware corporation
("TSMD Acquisition"), Stellex Microwave Systems, Inc., a
California corporation ("Stellex Microwave"), KII Holding
Corp., a Delaware corporation ("KII Holding"), KII Acquisition
Corp., a Delaware corporation ("KII Acquisition"), Stellex
Aerospace, a California corporation ("Stellex Aerospace"),
Bandy Machining International, a California corporation
("Bandy"), Paragon Precision Products, a California
corporation ("Paragon"), Scanning Electron Analysis
Laboratories, Inc., a California corporation ("SEAL"), and
General Inspection Laboratories, Inc., a California
corporation ("GIL") (collectively, the "Guarantors"), and
Societe Generale Securities Corporation, BT Alex. Brown
Incorporated and Jefferies & Company, Inc. (collectively, the
"Initial Purchasers").
2. Indenture dated as of October 31, 1997 by and among the
Company, the Guarantors and Marine Midland Bank, as trustee.
3. Registration Rights Agreement dated as of October 31, 1997 by
and among the Company, the Guarantors and the Initial
Purchasers.
4. Credit Agreement dated as of October 31, 1997 by and among the
Company, the Guarantors and Societe Generale, as Agent.
5. Stock Purchase Agreement dated as of October 31, 1997 by and
among TSMD Acquisition and W-J TSMD Inc.
6. Stock Purchase Agreement dated as of July 1, 1997, by and
among KII Acquisition and Kleinert Industrie Holding AG.
7. Stellex Aerospace Investor Agreement dated as of July 1, 1997,
by and among KII Holding and Greystoke Capital Management
Limited LDC, and Bradley C. Call, Julius E. Hodge, Lawrence R.
Smith, John Barriatua, Roland H. Marti, Arun Kumar and Louis
A. Brown.
8. Promissory Note dated as of July 1, 1997 by KII Acquisition to
Kleinert Industrie Holding AG.
9. Promissory Note dated September 6, 1991 by Paragon to Farm
Bureau Life Insurance Company.
10. Promissory Note dated July 1, 1997 by KII Holding to Trinity
Investment Corp.
<PAGE>
11. Amended and Restated Management Advisory Services Agreement, effective
as of November 1, 1997, by and between Mentmore Holdings Corporation,
the Company and the Guarantors.
12. Tax Allocation and Indemnity Agreement dated as of October 31, 1997,
and retroactively applied to the calendar year ended December 31, 1997,
by and among the Company and the Guarantors.
13. Gallium Arsenide and Thin Film Supply and Services Agreement
dated as of October 31, 1997 between the Company and Watkins-
Johnson Company ("Watkins-Johnson").
14. Metal Injection Molding, Glass Seal and Hybrid Assembly
Facility Agreement dated as of October 31, 1997 between the
Company and Watkins-Johnson.
15. Patent Cross License Agreement dated as of October 31, 1997
between the Company and Watkins-Johnson.
<PAGE>
Annex C-2
Form of legal opinion of O'Melveny & Myers.
<PAGE>
[Letterhead of O'Melveny & Myers LLP]
October 31, 1997
Societe Generale Securities Corporation
BT Alex. Brown Incorporated
Jefferies & Company, Inc.
c/o Societe Generale Securities Corporation
1221 Avenue of the Americas
New York, NY 10020
Ladies and Gentlemen:
We have acted as special California counsel to Stellex Industries,
Inc., a Delaware corporation (the "Company"), in connection with the issuance
and sale by the Company, pursuant to the Purchase Agreement, dated as of October
23, 1997 (the "Purchase Agreement"), among the Company, TSMD Acquisition Corp.,
a Delaware corporation ("TSMD Acquisition"), KII Holding Corp., a Delaware
corporation ("KII Holding"), KII Acquisition Corp., a Delaware corporation ("KII
Acquisition"), Stellex Microwave Systems, Inc., a California corporation
("Stellex Microwave"), Stellex Aerospace, a California corporation ("Stellex
Aerospace"), Bandy Machining International, a California corporation ("Bandy"),
Paragon Precision Products, a California corporation ("Paragon"), Scanning
Electron Analysis Laboratories, Inc., a California corporation ("SEAL") and
General Inspection Laboratories, Inc., a California corporation ("GIL") and
Societe Generale Securities Corporation, BT Alex. Brown Incorporated and
Jefferies & Company, Inc. (collectively, the "Initial Purchasers"), of $100
million aggregate principal amount of the Company's 9 1/2% Senior Subordinated
Notes due 2007 (the "Notes), which will be issued under an Indenture, dated as
of October 31, 1997 (the "Indenture"), among the Company, the Guarantors (as
defined below) and Marine Midland Bank, as trustee. TSMD Acquisition, Stellex
Microwave, KII Holding, KII Acquisition, Stellex Aerospace, Bandy, Paragon, SEAL
and GIL are collectively hereinafter referred to as the "Guarantors." Stellex
Microwave, Stellex Aerospace, Bandy, Paragon, SEAL and GIL are sometimes
collectively hereinafter referred to as the "California Guarantors."
We are providing this opinion to you at the request of the Company
pursuant to Section 5(d) of the Purchase Agreement. Except as otherwise
indicated, capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to such terms in the Purchase Agreement.
For the purposes of this opinion we have reviewed only the following
documents and made no other investigations or inquiry:
(i) the Articles of Incorporation and Bylaws of each of the
California Guarantors;
<PAGE>
(ii) the corporate minute books and stock transfer records of each
of the California Guarantors (other than SEAL and Bandy, which
do not have stock ledgers and for which we reviewed only
copies of stock certificates);
(iii) the California Guarantors' Certificates (copies of which have
been delivered to you);
(iv) A Certificate of Status-Domestic Corporation issued by the
Secretary of State of the State of California as of October
22, 1997 for each of the California Guarantors;
(v) A letter from the Franchise Tax Board of the State of
California for each of the California Guarantors stating that
each such corporation is in good standing with that agency
dated October 22, 1997 (except with respect to Stellex
Aerospace and Stellex Microwave, which letters are dated
October 23, 1997);
(vi) The opinion dated October 31, 1997 of Heller, Ehrman, White &
McAuliffe as counsel to Watkins-Johnson Company, a California
corporation, and Stellex Microwave in connection with the
Stock Purchase Agreement dated as of August 29, 1997, by and
among Watkins-Johnson Company, Stellex Microwave and TSMD
Acquisition (the "Heller Opinion");
(vii) resolutions of the Board of directors of each of the
California Guarantors with respect to the transactions
referred to herein;
(viii) the Preliminary Offering Memorandum and Offering Memorandum;
(ix) the Indenture;
(x) the Purchase Agreement; and
(xi) the Registration Rights Agreement.
The Indenture, Purchase Agreement and Registration Rights Agreement are
hereinafter referred to as the "Transaction Agreements." We have assumed the
genuineness of all signatures (other than the signatures of persons signing the
Transaction Agreements on behalf of the California Guarantors), the authenticity
of all documents submitted to us as originals and the conformity with originals
of all documents submitted to us as copies. To the extent the California
Guarantors' obligations depend on the due authorization, execution and delivery
of the Transaction Agreements by the other parties to the Transaction
Agreements, we have assumed that the Transaction Agreements have been so
authorized, executed and delivered. We have further assumed that the unexecuted
copies of draft agreements we reviewed contain terms identical to the
Transaction Agreements when executed. We have also assumed the regularity and
sufficiency of corporate proceedings of each of the California Guarantors
through December 31, 1996.
<PAGE>
On the basis of such examination, our reliance upon the assumptions in
this opinion and our consideration of those questions of law we considered
relevant, and subject to the limitations and qualifications in this opinion, we
are of the opinion that:
1. Each of the California Guarantors has been duly incorporated and is
validly existing in good standing under the laws of the State of California,
with corporate power to (i) own its properties and assets and to carry on its
business as described in the Offering Memorandum and (ii) enter into and perform
its obligations under the Transaction Agreements.
2. The outstanding shares of capital stock of each of the California
Guarantors have been duly authorized by all necessary corporate action on the
part of such corporation, and are validly issued, fully paid and non-assessable,
and all of the outstanding shares of capital stock of the California Guarantors
are owned of record by the Company or another Guarantor, all except as set forth
in the Offering Memorandum or the Certificates for Paragon.
3. The execution and delivery by, and performance of, each of the
California Guarantors of the Indenture have been duly authorized by all
necessary corporate action on the part of each of the California Guarantors, and
the Indenture has been duly executed and delivered by each of the California
Guarantors.
4. The execution and delivery by, and performance of, each of the
California Guarantors of the Registration Rights Agreement have been duly
authorized by all necessary corporate action on the part of each of the
California Guarantors, and the Registration Rights Agreement has been duly
executed and delivered by each of the California Guarantors.
5. The execution and delivery by, and performance of, each of the
California Guarantors of the Purchase Agreement have been duly authorized by all
necessary corporate action on the part of each of the California Guarantors, and
the Purchase Agreement has been duly executed and delivered by each of the
California Guarantors.
6. Assuming the accuracy and fulfillment of the representations,
warranties, covenants and agreements of the Company, the Guarantors and the
Initial Purchasers in the Transaction Agreements and that the net proceeds to
the Company from the Offering are used in the manner contemplated by the
Offering Memorandum, the execution and delivery by the California Guarantors of,
and performance of their respective obligations on or prior to the date of this
opinion under, the Transaction Agreements (A) do not violate any of the Articles
of Incorporation or Bylaws of any of the California Guarantors and (B) do not
violate any California statute, law, rule or regulation that we have, in the
exercise of customary professional diligence, recognized as applicable to the
California Guarantors or the transactions of the type contemplated by the
Transaction Agreements.
7. Stellex Microwave is not in violation of its Articles of
Incorporation or Bylaws.
For purposes of the opinions expressed in paragraph 6 above, we have
assumed that each of the California Guarantors will not in the future take any
discretionary action (including a decision not to act) permitted by any of the
Transaction Agreements that would cause the
<PAGE>
performance of any of the Transaction Agreements to violate any California or
federal statute, rule or regulation.
In addition, our opinion in paragraph 6 above is subject to:
(i) limitations on enforceability based on by bankruptcy,
insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally
(including, without limitation, fraudulent conveyance
laws) and by general principles of equity, including,
without limitation, concepts of materiality,
reasonableness, good faith and fair dealing and the
possible unavailability of specific performance or
injunctive relief, regardless of whether considered in
a proceeding in equity or at law; and
(ii) the unenforceability under certain circumstances of
provisions imposing penalties, liquidated damages,
acceleration of future amounts due (other than
principal) without appropriate discount to present
value, late charges, prepayment charges and increased
interest rates upon default.
As to our opinion in paragraph 6, we further advise you of California
statutory provisions and case law to the effect that, in certain circumstances,
a guarantor may be exonerated if the creditor, without the consent of the
guarantor, materially alters the original obligation of the principal, elects
remedies for default that impair the subrogation or reimbursement rights of the
guarantor against the principal, or otherwise takes action that materially
prejudices the guarantor. There is also authority (including California Civil
Code Section 2856, which has not yet been the subject of judicial
interpretation) to the effect that a guarantor may effectively waive statutory
suretyship defenses if express waivers of such defenses are set forth in the
guaranty. We express no opinion as to the effectiveness, under California law,
of the waivers set forth in the Transaction Agreements. We also express no
opinion as to the effect on the California Guarantor's obligations under the
Indenture of: (i) any modification to or amendment of the Company's obligations
that materially increases those obligations, or (ii) any other action that
materially prejudices a California Guarantor, if, in any such instance, such
modification, amendment or action occurs without notice to and the consent of
the such California Guarantor.
The law covered by this opinion is limited to the present law of the
State of California. We express no opinion as to the laws of any other
jurisdiction and no opinion regarding the statutes, administrative decisions,
rules, regulations or requirements of any county, municipality, subdivision or
local authority of any jurisdiction. In addition, we express no opinion
concerning (i) antitrust, unfair competition or trade practice laws or
regulations, (ii) pension and employee benefit laws and regulations, (iii)
federal or state environmental laws and regulations, (iv) land use or
subdivision laws or regulations, (v) federal or state securities laws or (vi)
usury laws.
With respect to the opinions expressed in paragraphs 1 and 2 regarding
Stellex Microwave, we have relied on the Heller Opinion, a copy of which has
been provided to you. With respect to the opinions express in paragraph 7, we
have relied exclusively on the Heller Opinion.
<PAGE>
This opinion is furnished by us as special counsel for the Company and
may be relied upon by you only in connection with the transaction contemplated
by the Purchase Agreement. It may not be used or relied upon by you for any
other purpose or , except as otherwise set forth in this paragraph, by any other
person, nor may copies be delivered to any other person, without in each
instance our prior written consent. This opinion may be relied upon by Winston &
Strawn and Simpson Thacher & Bartlett in its entirety for the purposes of any
opinion you may request of them in connection with the transactions contemplated
by the Purchase Agreement. In addition, this opinion may be relied upon by
Marine Midland Bank, as Trustee under the Indenture.
We call attention to the fact that the opinions expressed herein may be
affected by actions taken or omitted or events occurring or failing to occur
after the date hereof. We have not undertaken to determine, or inform any
person, whether any such actions are taken, omitted, occur or fail to occur.
Respectfully submitted,
<PAGE>
EXECUTION COPY
STELLEX INDUSTRIES, INC.
9 1/2% Senior Subordinated Notes due 2007
INDENTURE
Dated as of October 31, 1997
Marine Midland Bank,
Trustee
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
<S> <C>
310(a)(1) .............................. 7.10
(a)(2) .............................. 7.10
(a)(3) .............................. N.A.
(a)(4) .............................. N.A.
(b) .............................. 7.8; 7.10
(c) .............................. N.A.
311(a) .............................. 7.11
(b) .............................. 7.11
(c) .............................. N.A.
312(a) .............................. 2.5
(b) .............................. 11.3
(c) .............................. 11.3
313(a) .............................. 7.6
(b)(1) .............................. N.A.
c (b)(2) .............................. 7.6
(c) .............................. 7.6
(d) .............................. 7.6
314(a) .............................. 4.2
4.10; 12.2
(b) .............................. N.A.
(c)(1) .............................. 12.4
(c)(2) .............................. 12.4
(c)(3) .............................. N.A.
(d) .............................. N.A.
(e) .............................. 12.5
(f) .............................. 4.9
315(a) .............................. 7.1
(b) .............................. 7.5; 12.2
(c) .............................. 7.1
(d) .............................. 7.1
(e) .............................. 6.11
316(a)(last sentence)........................ 12.6
(a)(1)(A) .............................. 6.5
(a)(1)(B) .............................. 6.4
(a)(2) .............................. N.A.
(b) .............................. 6.7
317(a)(1) .............................. 6.8
(a)(2) .............................. 6.9
(b) .............................. 2.4
318(a) .............................. 12.1
</TABLE>
N.A. means Not Applicable.
Note: This Cross-Reference Table shall not, for any purpose,
be deemed to be part of this Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
<S> <C> <C>
Definitions and Incorporation by Reference................................. 1
SECTION 1.1. Definitions................................................................ 1
SECTION 1.2. Other Definitions.......................................................... 24
SECTION 1.3. Incorporation by Reference of Trust
Indenture Act........................................................... 24
SECTION 1.4. Rules of Construction...................................................... 25
SECTION 1.5. One Class of Securities.................................................... 25
ARTICLE II
The Securities................................................ 25
SECTION 2.1. Form and Dating............................................................ 25
SECTION 2.2. Execution and Authentication............................................... 27
SECTION 2.3. Registrar and Paying Agent................................................. 28
SECTION 2.4. Paying Agent To Hold Money in Trust........................................ 28
SECTION 2.5. Securityholder Lists....................................................... 28
SECTION 2.6. Transfer and Exchange...................................................... 29
SECTION 2.7. Replacement Securities..................................................... 36
SECTION 2.8. Outstanding Securities..................................................... 37
SECTION 2.9. Temporary Securities....................................................... 37
SECTION 2.10. Cancellation............................................................... 38
SECTION 2.11. Defaulted Interest......................................................... 38
SECTION 2.12. CUSIP Numbers.............................................................. 38
ARTICLE III
Redemption.................................................. 39
SECTION 3.1. Notices to Trustee......................................................... 39
SECTION 3.2. Selection of Securities To Be Redeemed..................................... 39
SECTION 3.3. Notice of Redemption....................................................... 39
SECTION 3.4. Effect of Notice of Redemption............................................. 40
SECTION 3.5. Deposit of Redemption Price................................................ 40
SECTION 3.6. Securities Redeemed in Part................................................ 41
ARTICLE IV
Covenants.................................................. 41
SECTION 4.1. Payment of Securities...................................................... 41
SECTION 4.2. SEC Reports................................................................ 41
SECTION 4.3. Limitation on Indebtedness................................................. 42
SECTION 4.4. Limitation on Restricted Payments.......................................... 45
SECTION 4.5. Limitation on Restrictions on
Distributions from Restricted
Subsidiaries............................................................ 49
SECTION 4.6. Limitation on Sales of Assets and
Subsidiary Stock........................................................ 50
SECTION 4.7. Limitation on Affiliate Transactions....................................... 53
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SECTION 4.8. Change of Control.......................................................... 55
SECTION 4.9. Limitation on Sales of Subsidiary
Capital Stock........................................................... 56
SECTION 4.10. Limitation on Liens........................................................ 57
SECTION 4.11. Limitation on Layering..................................................... 57
SECTION 4.12. Future Guarantors.......................................................... 57
SECTION 4.13. Compliance Certificate..................................................... 57
SECTION 4.14. Further Instruments and Acts............................................... 57
SECTION 4.15. Maintenance of Office or Agency............................................ 58
SECTION 4.16. Corporate Existence........................................................ 58
SECTION 4.17. Payment of Taxes and Other Claims.......................................... 58
SECTION 4.18. Maintenance of Properties and Insurance.................................... 58
SECTION 4.19. Compliance with Laws....................................................... 59
ARTICLE V
Successor Company.............................................. 59
SECTION 5.1. When the Company May Merge or Transfer
Assets.................................................................. 59
SECTION 5.2. When Subsidiary Guarantor May Merge or
Transfer Assets......................................................... 60
ARTICLE VI
Defaults and Remedies............................................ 61
SECTION 6.1. Events of Default.......................................................... 61
SECTION 6.2. Acceleration............................................................... 63
SECTION 6.3. Other Remedies............................................................. 64
SECTION 6.4. Waiver of Past Defaults.................................................... 64
SECTION 6.5. Control by Majority........................................................ 64
SECTION 6.6. Limitation on Suits........................................................ 65
SECTION 6.7. Rights of Holders To Receive Payment....................................... 65
SECTION 6.8. Collection Suit by Trustee................................................. 65
SECTION 6.9. Trustee May File Proofs of Claim........................................... 66
SECTION 6.10. Priorities................................................................. 66
SECTION 6.11. Undertaking for Costs...................................................... 66
SECTION 6.12. Waiver of Stay or Extension Laws........................................... 67
ARTICLE VII
Trustee................................................... 67
SECTION 7.1. Duties of Trustee.......................................................... 67
SECTION 7.2. Rights of Trustee.......................................................... 68
SECTION 7.3. Individual Rights of Trustee............................................... 69
SECTION 7.4. Trustee's Disclaimer....................................................... 69
SECTION 7.5. Notice of Defaults......................................................... 69
SECTION 7.6. Reports by Trustee to Holders.............................................. 69
SECTION 7.7. Compensation and Indemnity................................................. 70
SECTION 7.8. Replacement of Trustee..................................................... 71
SECTION 7.9. Successor Trustee by Merger................................................ 72
SECTION 7.10. Eligibility; Disqualification.............................................. 72
SECTION 7.11. Preferential Collection of Claims
Against Company......................................................... 72
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ARTICLE VIII
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Discharge of Indenture; Defeasance...................................... 73
SECTION 8.1. Discharge of Liability on Securities;
Defeasance.............................................................. 73
SECTION 8.2. Conditions to Defeasance................................................... 74
SECTION 8.3. Application of Trust Money................................................. 75
SECTION 8.4. Repayment to Company....................................................... 75
SECTION 8.5. Indemnity for Government Obligations....................................... 75
SECTION 8.6. Reinstatement.............................................................. 76
ARTICLE IX
Amendments.................................................. 76
SECTION 9.1. Without Consent of Holders................................................. 76
SECTION 9.2. With Consent of Holders.................................................... 77
SECTION 9.3. Compliance with Trust Indenture Act........................................ 78
SECTION 9.4. Revocation and Effect of Consents and
Waivers................................................................. 78
SECTION 9.5. Notation on or Exchange of Securities...................................... 79
SECTION 9.6. Trustee To Sign Amendments................................................. 79
ARTICLE X
Subordination................................................ 79
SECTION 10.1. Agreement To Subordinate................................................... 79
SECTION 10.2. Liquidation, Dissolution, Bankruptcy....................................... 80
SECTION 10.3. Default on Designated Senior
Indebtedness............................................................ 80
SECTION 10.4. Acceleration of Payment of Securities...................................... 81
SECTION 10.5. When Distribution Must Be Paid Over........................................ 82
SECTION 10.6. Subrogation................................................................ 82
SECTION 10.7. Relative Rights............................................................ 82
SECTION 10.8. Subordination May Not Be Impaired by
Company or the Subsidiary Guarantors.................................... 82
SECTION 10.9. Rights of Trustee and Paying Agent......................................... 83
SECTION 10.10. Distribution or Notice to
Representatives......................................................... 83
SECTION 10.11. Article X Not To Prevent Events of
Default or Limit Right To Accelerate.................................... 83
SECTION 10.12. Trust Moneys Not Subordinated.............................................. 83
SECTION 10.13. Trustee Entitled To Rely................................................... 84
SECTION 10.14. Trustee To Effectuate Subordination........................................ 84
SECTION 10.15. Trustee Not Fiduciary for Holders of
Senior Indebtedness and Guarantor
Senior Indebtedness...................................................... 84
SECTION 10.16. Reliance by Holders of Senior
Indebtedness and Guarantor Senior
Indebtedness on Subordination
Provisions............................................................... 85
ARTICLE XI
Subsidiary Guarantee..................................................... 85
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SECTION 11.1. Subsidiary Guarantee....................................................... 85
SECTION 11.2. Limitation on Liability.................................................... 87
SECTION 11.3. Successors and Assigns..................................................... 87
SECTION 11.4. No Waiver.................................................................. 87
SECTION 11.5. Right of Contribution...................................................... 88
SECTION 11.6. No Subrogation............................................................. 88
SECTION 11.7. Additional Subsidiary Guarantors........................................... 88
SECTION 11.8. Modification............................................................... 88
SECTION 11.9. Release of Subsidiary Guarantor............................................ 89
SECTION 11.10. Subordination of Subsidiary Guarantees..................................... 89
ARTICLE XII
Miscellaneous.............................................................. 89
SECTION 12.1. Trust Indenture Act Controls............................................... 89
SECTION 12.2. Notices.................................................................... 90
SECTION 12.3. Communication by Holders with other
Holders.................................................................... 90
SECTION 12.4. Certificate and Opinion as to
Conditions Precedent....................................................... 90
SECTION 12.5. Statements Required in Certificate or
Opinion.................................................................... 91
SECTION 12.6. When Securities Disregarded................................................ 91
SECTION 12.7. Rules by Trustee, Paying Agent and
Registrar.................................................................. 91
SECTION 12.8. Legal Holidays............................................................. 92
SECTION 12.9. Governing Law.............................................................. 92
SECTION 12.10. No Recourse Against Others................................................. 92
SECTION 12.11. Successors................................................................. 92
SECTION 12.12. Multiple Originals......................................................... 92
SECTION 12.13. Variable Provisions........................................................ 92
SECTION 12.14. Qualification of Indenture................................................. 92
SECTION 12.15. Table of Contents; Headings................................................ 93
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INDENTURE dated as of October 31, 1997, among STELLEX INDUSTRIES, INC., a
Delaware corporation (as further defined below, the "Company"), the Subsidiary
Guarantors (as defined herein) identified on the signature pages hereto, and
Marine Midland Bank, a New York banking corporation and trust company, as
trustee (the "Trustee").
Each party agrees as follows for the benefit of the other
parties and for the equal and ratable benefit of the Holders of the Company's 9
1/2% Senior Subordinated Notes due 2007 (the "Initial Notes") and, if and when
issued in exchange for Initial Notes as provided in the Registration Rights
Agreement (as hereinafter defined), the Company's Series B 9 1/2% Senior
Subordinated Notes due 2007 (the "Exchange Notes" and, together with the Initial
Notes, the "Securities"):
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.1. Definitions.
"Acquired Indebtedness" of any specified Person means
Indebtedness of any other Person existing at the time such other Person is
merged with or into or becomes a Restricted Subsidiary of such specified Person,
including Indebtedness Incurred in connection with, or in contemplation of, such
other Person's becoming a Restricted Subsidiary of such specified Person.
"Additional Assets" means (i) any property or assets (other
than Indebtedness and Capital Stock) used in connection with the business of the
Company or any of its Restricted Subsidiaries on the Issue Date or in a Related
Business or (ii) the Capital Stock of a Person that is a Restricted Subsidiary
prior to the acquisition of such Capital Stock or becomes a Restricted
Subsidiary as a result of the acquisition of such Capital Stock by the Company
or another Restricted Subsidiary; provided, however, that, in the case of clause
(ii), such Restricted Subsidiary is primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person,
directly or indirectly, controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
'control' when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
'controlling' and 'controlled' have meanings correlative to the foregoing;
provided that the beneficial ownership of 10% or more of the Voting Stock of a
Person shall be deemed to be control.
"Asset Disposition" means any sale, lease, transfer or
other disposition (or series of related sales, leases, transfers
<PAGE>
2
or dispositions) of shares of Capital Stock of a Restricted Subsidiary (other
than directors' qualifying shares), property or other assets, including by way
of a Sale/Leaseback Transaction (each referred to for the purposes of this
definition as a 'disposition'), by the Company or any of its Restricted
Subsidiaries, in each case resulting in Net Available Cash of $1,000,000 or more
(including any disposition by means of a merger, consolidation or similar
transaction, except that the sale, lease, conveyance or other disposition of all
or substantially all of the assets of the Company and its Subsidiaries taken as
a whole will be governed by the provisions of Section 4.8 and/or the provisions
of Article V and not by the provisions of Section 4.6) other than (i) a
disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Restricted Subsidiary, (ii) a disposition of property
or assets in the ordinary course of business, (iii) dispositions of inventory in
the ordinary course of business, (iv) for purposes of Section 4.6 only, a
disposition that constitutes a Restricted Payment permitted by Section 4.4 and
(v) dispositions of obsolete or worn-out equipment.
"Average Life" means, as of the date of determination, with
respect to any Indebtedness or Preferred Stock, the quotient obtained by
dividing (i) the sum of the product of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment of
such Indebtedness or redemption or similar payment with respect to such
Preferred Stock multiplied by the amount of such payment by (ii) the sum of all
such payments.
"Bank Indebtedness" means any and all Obligations, whether
outstanding on the Issue Date or thereafter incurred, payable by the Company or
its Subsidiaries under or in respect of the New Credit Facility and any related
notes, collateral documents, letters of credit and guarantees, including,
without limitation, principal, premium (if any), interest (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company whether or not a claim for post filing
interest is allowed in such proceedings), fees, charges, expenses, reimbursement
obligations, guarantees, indemnities and all other amounts payable thereunder or
in respect thereof.
"Board of Directors" means the Board of Directors or
equivalent governing body of a Person (or the general partner of such Person, as
the case may be) or any committee thereof duly authorized to act on behalf of
such Board of Directors or equivalent governing body.
"Business Day" means a day other than a Saturday, Sunday or
other day on which banking institutions in New York State are authorized or
required by law to close.
<PAGE>
3
"Capitalized Lease Obligation" of a Person means an obligation
of such Person that is required to be classified and accounted for on the
balance sheet of such Person as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease.
"Capital Stock" of any Person means (i) in the case of a
corporation, corporate stock, (ii) in the case of an association or business
entity, any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock, (iii) in the case of a
partnership or limited liability company, partnership or membership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person, in each case, including
Preferred Stock.
"Change of Control" means the occurrence of any of the
following events:
(i)(A) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
'person' (as such term is used in Sections 13(d) and 14(d) of the Exchange Act),
other than one or more Permitted Holders, is or becomes the beneficial owner (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of more than 35% of the total voting power of the Voting Stock of
the Company and (B) the Permitted Holders 'beneficially own' (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, in the
aggregate a lesser percentage of the total voting power of the Voting Stock of
the Company than such other person and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the Board of Directors of the Company;
(ii) the first day on which a majority of the members
of the Board of Directors of the Company are not Continuing
Directors;
(iii) any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all, or substantially all, the assets of
the Company and its Restricted Subsidiaries taken as a whole to any 'person' or
group of 'persons' for purposes of Section 13(d) of the Exchange Act (other than
to any Wholly Owned Subsidiary of the Company or to one or more Permitted
Holders); or
(iv) the adoption of a plan of liquidation of the Company.
<PAGE>
4
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination
means the ratio of (i) the aggregate amount of EBITDA for the period of the most
recent four consecutive fiscal quarters for which internal financial information
is available ending at least 30 days prior to the date of such determination to
(ii) Consolidated Interest Expense for such four fiscal quarters; provided,
however, that, without duplication, (1) if the Company or any Restricted
Subsidiary has Incurred any Indebtedness (other than in the case of Indebtedness
arising under revolving credit borrowings, in which case Consolidated Interest
Expense shall be computed based upon the average daily balance of such
Indebtedness during the period) since the beginning of such period that remains
outstanding or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving effect on a pro forma basis to such Indebtedness as if such Indebtedness
had been Incurred on the first day of such period and the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Indebtedness as if such discharge had occurred on the first
day of such period, (2) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition or if the
transaction giving rise to the need to calculate the Consolidated Coverage Ratio
is an Asset Disposition, the EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive) directly attributable to the assets
which are the subject of such Asset Disposition for such period, or increased by
an amount equal to the EBITDA (if negative) directly attributable thereto for
such period and Consolidated Interest Expense for such period shall be reduced
by an amount equal to the Consolidated Interest Expense directly attributable to
any Indebtedness of the Company or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to the Company and
its continuing Restricted Subsidiaries in connection with such Asset Disposition
for such period (and, if the Capital Stock of any Restricted Subsidiary is sold,
the Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale), (3) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary)
or an acquisition of assets, including any acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit of a business, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the
<PAGE>
5
Incurrence or retirement of any Indebtedness) as if such Investment or
acquisition occurred on the first day of such period and EBITDA for such period
shall be calculated without giving effect to clause (ii) set forth in the
definition of Consolidated Net Income and (4) if since the beginning of such
period any Person (that subsequently became a Restricted Subsidiary or was
merged with or into the Company or any Restricted Subsidiary since the beginning
of such period) shall have made any Asset Disposition or any Investment that
would have required an adjustment pursuant to clause (2) or (3) above if made by
the Company or a Restricted Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition or Investment occurred on
the first day of such period. For purposes of this definition, whenever pro
forma effect is to be given to an acquisition of assets, the amount of income or
earnings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting officer of the Company. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest expense on such
Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Indebtedness).
"Consolidated Interest Expense" means, for any period, the
total interest expense of the Company and its consolidated Restricted
Subsidiaries, plus, to the extent not included in such interest expense, (i)
interest expense attributable to capital leases, (ii) amortization of debt
discount and debt issuance cost (excluding the amortization of deferred
financing fees), (iii) capitalized interest, (iv) non-cash interest expense, (v)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (vi) interest actually paid by the
Company or any such Restricted Subsidiary under any Guarantee of Indebtedness or
other obligation of any other Person, (vii) net costs associated with Hedging
Obligations (including amortization of fees), (viii) (A) Disqualified Stock
dividends and (B) Preferred Stock dividends of a Restricted Subsidiary that is
not a Subsidiary Guarantor, in each case other than dividends paid in Capital
Stock (except Disqualified Stock) and only in respect of such Disqualified Stock
or Preferred Stock held by Persons other than the Company or a Wholly Owned
Subsidiary and (ix) the cash contributions to any employee stock ownership plan
or similar trust to the extent such contributions are used by such plan or trust
to pay interest or fees to any Person (other than the Company) in connection
with Indebtedness Incurred by such plan or trust; provided, however, that there
shall be excluded therefrom (A) any such interest expense of any Unrestricted
Subsidiary to the extent the related Indebtedness is not Guaranteed or paid by
the Company or any
<PAGE>
6
Restricted Subsidiary, (B) interest on Put/Call Promissory Notes and (C)
dividends on Put/Call Preferred Stock.
"Consolidated Net Income" means, for any period, the net
income (loss) of the Company and its consolidated Subsidiaries; provided,
however, that there shall not be included in such Consolidated Net Income:
(i) any net income (loss) of any Person (other than the
Company) if such Person is not a Restricted Subsidiary, except that
(A), subject to the limitations contained in clause (iv) below, the
Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate
amount of cash actually distributed by such Person during such period
to the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution
paid to a Restricted Subsidiary, to the limitations contained in clause
(iii) below) and (B) the Company's equity in a net loss of any such
Person (other than an Unrestricted Subsidiary) for such period shall be
included in determining such Consolidated Net Income,
(ii) any net income (loss) of any Person acquired by the
Company or a Subsidiary in a pooling of interests transaction for any
period prior to the date of such acquisition,
(iii) any net income of any Restricted Subsidiary to the
extent such Restricted Subsidiary is prohibited, directly or
indirectly, from paying dividends or distributions, directly or
indirectly, to the Company or any other Restricted Subsidiary, except
that (A), subject to the exclusion contained in clause (iv) below, the
Company's equity in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net Income up to
the aggregate amount of cash actually distributed by such Restricted
Subsidiary during such period to the Company or another Restricted
Subsidiary as a dividend or other distribution (subject, in the case of
a dividend paid to another Restricted Subsidiary, to the limitation
contained in this clause) and (B) the Company's equity in a net loss of
any such Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income,
(iv) any gain or loss realized upon the sale or other
disposition of any property, plant or equipment of the Company or its
consolidated Subsidiaries (including pursuant to any Sale/Leaseback
Transaction) which is not sold or otherwise disposed of in the ordinary
course of business and any gain or loss realized upon the sale or other
disposition of any Capital Stock of any Person,
<PAGE>
7
(v) any extraordinary gain or loss,
(vi) the cumulative effect of a change in accounting
principles,
(vii) foreign currency exchange gains and losses, and
(viii) any income (loss) from discontinued operations.
Notwithstanding the foregoing, for the purpose of Section 4.4
only, there shall be excluded from Consolidated Net Income any dividends,
repayments of loans or advances or other transfers of assets from Unrestricted
Subsidiaries to the Company or a Restricted Subsidiary to the extent such
dividends, repayments or transfers increase the amount of Restricted Payments
permitted under Section 4.4(a)(3)(D).
"Consolidated Net Worth" means the total of the amounts shown
on the balance sheet of the Company and its Restricted Subsidiaries, determined
on a consolidated basis in accordance with GAAP, as of the end of the most
recent fiscal quarter of the Company ending at least 30 days prior to the taking
of any action for the purpose of which the determination is being made, as (i)
the par or stated value of all outstanding Capital Stock of the Company plus
(ii) paid-in capital or capital surplus relating to such Capital Stock plus
(iii) any retained earnings or earned surplus less (A) any accumulated deficit
and (B) any amounts attributable to Disqualified Stock.
"Continuing Directors" means, as of any date of determination,
any member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the Issue Date or (ii) was nominated by either of the
Principals to serve on such Board of Directors.
"Currency Agreement" means in respect of a Person any foreign
exchange contract, currency swap agreement or other similar agreement or
arrangement as to which such Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage
of time or both would be, an Event of Default.
"Depositary" means The Depository Trust Company, its nominees
and their respective successors and assigns, or such other depository
institution hereinafter appointed by the Company.
"Designated Senior Indebtedness" means (i) the Bank
Indebtedness in the case of the Company, (ii) any Guarantee by a Subsidiary
Guarantor of the Bank Indebtedness in the case of such Subsidiary Guarantor and
(iii) any other Senior Indebtedness in the case of the Company or Guarantor
Senior Indebtedness in the case of such Subsidiary Guarantor which, at the date
of
<PAGE>
8
determination, has an aggregate principal amount outstanding of, or under which,
at the date of determination, the holders thereof are committed to lend up to,
at least $10 million and is specifically designated by the Company or such
Subsidiary Guarantor as "Designated Senior Indebtedness" for purposes of this
Indenture.
"Disqualified Stock" means, with respect to any Person, any
Capital Stock which by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable automatically or at
the option of the holder thereof for Indebtedness or other Disqualified Stock or
(iii) is redeemable at the option of the holder thereof, in whole or in part, in
each case on or prior to the 91st day following the Stated Maturity of the
Notes.
"EBITDA" for any period means the Consolidated Net Income for
such period, plus the following (without duplication) to the extent deducted in
calculating such Consolidated Net Income: (i) income tax expense, (ii)
Consolidated Interest Expense, (iii) depreciation expense, (iv) amortization
expense (including amortization of goodwill and other intangibles), (v) non-cash
management compensation expense, (vi) any increase in cost of sales resulting
from the write-up of inventory in accordance with Accounting Principles Board
Opinion No. 16 (or a successor provision) and (vii) all other non-cash items
reducing Consolidated Net Income (excluding any non-cash item to the extent it
requires an accrual of or reserve for cash disbursements for any future period),
in each case for such period, (viii) any extraordinary, non-recurring or unusual
loss plus any net loss realized in connection with an asset disposition and (ix)
all premiums or prepayments of Indebtedness and minus (x) all non-cash items
increasing Consolidated Net Income.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Offer Registration Statement" has the meaning
set forth in the Registration Rights Agreement.
"Foreign Subsidiary" means any Subsidiary which is
incorporated or otherwise organized under the laws of any jurisdiction other
than the United States of America, any state thereof or the District of
Columbia.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the date of this Indenture,
including those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
<PAGE>
9
such other statements by such other entity as approved by a significant segment
of the accounting profession. All ratios and computations based on GAAP
contained in this Indenture shall be computed in conformity with GAAP.
"Guarantee" means a guarantee, direct or indirect, in any
manner (including, without limitation, letters of credit and reimbursement
agreements in respect thereof), of all or any part of any Indebtedness;
provided, however, that the term 'Guarantee' shall not include endorsements for
collection or deposit in the ordinary course of business. The term 'Guarantee'
used as a verb has a corresponding meaning.
"Guarantor Senior Indebtedness" means, with respect to a
Subsidiary Guarantor, whether outstanding on the Issue Date or thereafter
incurred, (i) any Guarantee of Indebtedness of the Company and its Subsidiaries
under the New Credit Facility, including, without limitation, obligations of the
Company to pay principal and interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law), reimbursement obligations under letters of
credit, fees, expenses and indemnities, and all Hedging Obligations entered into
with any lender under the New Credit Facility, whether outstanding on the date
of this Indenture or thereafter incurred, (ii) the principal of, premium, if
any, and interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other Obligations with respect to, any other
Indebtedness of such Subsidiary Guarantor permitted to be incurred by such
Subsidiary Guarantor under the terms of this Indenture, whether outstanding on
the date of this Indenture or thereafter incurred, unless the instrument under
which such Indebtedness is incurred expressly provides that it is on a parity
with or subordinated in right of payment to the obligations of such Subsidiary
Guarantor under its Subsidiary Guarantee and (iii) all Obligations of the
Subsidiary Guarantor with respect to the foregoing; provided, however, that
Guarantor Senior Indebtedness shall not include (1) any obligations of such
Subsidiary Guarantor to the Company or any other Subsidiary of the Company, (2)
any liability for Federal, state, local or other taxes owed or owing by such
Subsidiary Guarantor, (3) any accounts payable or other liability to trade
creditors arising in the ordinary course of business (including Guarantees
thereof or instruments evidencing such liabilities) or (4) any Indebtedness,
Guarantee or obligation of such Subsidiary Guarantor that is expressly
subordinate or junior in right of payment to any other Indebtedness, Guarantee
or obligation of such Subsidiary Guarantor, including any Guarantor Senior
Subordinated Indebtedness and Guarantor Subordinated Obligations of such
Subsidiary Guarantor.
<PAGE>
10
"Guarantor Senior Subordinated Indebtedness" means, with
respect to a Subsidiary Guarantor, the obligations of such Subsidiary Guarantor
under the Subsidiary Guarantee and any other Indebtedness of such Subsidiary
Guarantor, whether outstanding on the Issue Date or thereafter incurred, that
specifically provides that such Indebtedness is to rank pari passu in right of
payment with the obligations of such Subsidiary Guarantor under the Subsidiary
Guarantee and is not subordinated by its terms in right of payment to any
Indebtedness or other obligation of such Subsidiary Guarantor which is not
Guarantor Senior Indebtedness of such Subsidiary Guarantor.
"Guarantor Subordinated Obligation" means, with respect to a
Subsidiary Guarantor, any Indebtedness of such Subsidiary Guarantor (whether
outstanding on the Issue Date or thereafter incurred) which is subordinate or
junior in right of payment to the obligations of such Subsidiary Guarantor under
the Subsidiary Guarantee pursuant to a written agreement.
"Hedging Obligations" of any Person means the obligations of
such Person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" or "Securityholder" means the Person
in whose name a Note is registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise
become liable for; provided, however, that any Indebtedness or Disqualified
Stock of a Person existing at the time such Person becomes a Subsidiary (whether
by merger, consolidation, acquisition or otherwise) shall be deemed to be
incurred by such Subsidiary at the time it becomes a Subsidiary.
"Indebtedness" means, with respect to any Person on any
date of determination (without duplication),
(i) the principal of and, if any is due and payable at
such time, premium in respect of indebtedness of such Person
for borrowed money,
(ii) the principal of and, if any is due and payable
at such time, premium in respect of obligations of such Person
evidenced by bonds, debentures, notes or other similar
instruments,
(iii) all obligations of such Person in respect of
unreimbursed drawings under letters of credit or other similar
instruments (including reimbursement obligations with respect
thereto) (other than letters of credit securing obligations
entered into in the ordinary course of business to the extent
any drawings thereunder are reimbursed no later than the fifth
Business Day following receipt by such
<PAGE>
11
Person of a demand for reimbursement following payment on
the letter of credit),
(iv) all obligations of such Person to pay the
deferred and unpaid purchase price of property or services
(except Trade Payables), which purchase price is due more than
six months after the date of placing
such property in service or taking delivery and title thereto or the
completion of such services,
(v) all Capitalized Lease Obligations of such Person,
(vi) the amount of all obligations of such Person with
respect to the redemption, repayment or other repurchase of any
Disqualified Stock or, with respect to any Restricted
Subsidiary that is not a Subsidiary Guarantor, the aggregate
liquidation preference of any Preferred Stock (but excluding,
in each case, any accrued dividends),
(vii) all Indebtedness of other Persons secured by a
Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; provided, however, that
the amount of such Indebtedness shall be the lesser of (A) the
fair market value of such asset at such date of determination
and (B) the amount of such Indebtedness of such other Person,
(viii) all Indebtedness of other Persons to the
extent Guaranteed by such Person,
(ix) to the extent not otherwise included in this
definition, Hedging Obligations and,
(x) Acquired Indebtedness.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above (or the
accreted value thereof, in the case of Indebtedness that does not require
current payments of interest) and the maximum liability, upon the occurrence of
the contingency giving rise to the obligation, of any contingent obligations at
such date. Indebtedness shall not include interest or commitment or other fees.
"Indenture" means this Indenture as amended or supplemented
from time to time.
"Interest Rate Agreement" means with respect to any Person any
interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement as to which such Person is party or a
beneficiary.
<PAGE>
12
"Investment" in any Person means any direct or indirect
advance, loan (other than advances to customers in the ordinary course of
business that are recorded as accounts receivable on the balance sheet of such
Person and advances to employees of such Person and its Restricted Subsidiaries
made in the ordinary course of business) or other extension of credit (including
by way of Guarantee or similar arrangement) or capital contribution to (by means
of any transfer of cash or other property to others or any payment for property
or services for the account or use of others), or any purchase or acquisition
for consideration of Capital Stock, Indebtedness or other similar instruments
issued by such Person; provided that if the sole consideration for any such
investment is Capital Stock of such Person or its Subsidiaries that is not
Disqualified Stock, then such investment shall not be deemed an Investment for
purposes of this Indenture. 'Investment' shall exclude extensions of trade
credit by the Company and its Restricted Subsidiaries on commercially reasonable
terms in accordance with such Person's normal trade practices. For purposes of
the definition of 'Unrestricted Subsidiary' and the 'Limitation on Restricted
Payments' covenant, (i) 'Investment' shall include the portion (proportionate to
the Company's equity interest in such Subsidiary) of the fair market value of
the net assets of any Subsidiary of the Company at the time that such Subsidiary
is designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent 'Investment' in an Unrestricted
Subsidiary in an amount (if positive) equal to (x) the Company's 'Investment' in
such Subsidiary at the time of such original designation less (y) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of such Subsidiary at the time that such
Subsidiary is so re-designated a Restricted Subsidiary; and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined in good
faith by the Board of Directors. For the purposes of calculating the amount of
other 'Investments,' including Permitted Investments, the amount of any
Investment shall be the original cost of such Investment plus the cost of all
additional Investments by the Company or any of its Restricted Subsidiaries,
without any adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment, reduced by the
payment of dividends or distributions in connection with such Investment or any
other amounts received in respect of such Investment; provided that no such
payment of dividends or distributions or receipt of any such other amounts shall
reduce the amount of any Investment if such payment of dividends or
distributions or receipt of any such amounts would be included in Consolidated
Net Income.
"Issue Date" means the date on which the Initial Notes are
originally issued.
<PAGE>
13
"KII Holding" means KII Holding Corp., a Restricted Subsidiary
of the Company on the Issue Date, and its successors and assigns.
"Kleinert" means Kleinert Industries, Inc., the predecessor to
Stellex Aerospace, Inc. and a Restricted Subsidiary of the Company on the Issue
Date.
"Legal Holiday" has the meaning ascribed in Section 12.8.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any conditional sale or other
title retention agreement or lease in the nature thereof).
"Liquidated Damages" shall have the meaning set forth in
Section 3 of the Registration Rights Agreement.
"Make-Whole Premium" means, with respect to a Note, an amount
equal to the greater of (i) 4.75% of the outstanding principal amount of such
Note and (ii) the excess of (a) the present value of the remaining interest,
premium and principal payments due on such Note as if such Note were redeemed on
November 1, 2002, computed using a discount rate equal to the Treasury Rate plus
75 basis points, over (b) the outstanding principal amount of such Note.
"Management Agreement" means the Management Advisory Services
Agreement, dated as of July 1, 1997, between the Company, certain of its
Subsidiaries and Mentmore, as it may be amended, modified, supplemented or
restated from time to time.
"Management Equity Interests" means shares of Capital Stock of
the Company or of a Subsidiary Guarantor or options, warrants or stock
appreciation or similar rights to purchase such Capital Stock, in each case held
by any current or former officer, employee or other member of management (or
their estates or beneficiaries under their estates) of the Company or of such
Subsidiary Guarantor pursuant to any management equity subscription agreement,
employment agreement, employee benefit plan, stockholder agreement, stock option
agreement or similar management investor agreement and which may be required to
be repurchased by the Company or such Subsidiary Guarantor, or which may be
repurchased at the option of the Company or such Subsidiary Guarantor, in each
case pursuant to the terms of any such agreement under which such equity
interests were issued.
"Mentmore" means Mentmore Holdings Corporation and its
successors.
"Net Available Cash" from an Asset Disposition means cash
payments received (including any cash payments received by way of deferred
payment of principal pursuant to a Note or
<PAGE>
14
installment receivable or otherwise, but only as and when received, but
excluding any other consideration received in the form of assumption by the
acquiring Person of Indebtedness or other obligations relating to such
properties or assets or received in any other non-cash form) therefrom, in each
case net of (i) all legal, accounting, investment banking, financial advisory,
brokerage, consultant, title and recording tax expenses, commissions and other
fees and expenses incurred, and all Federal, state, provincial, foreign and
local taxes required to be paid or accrued as a liability under GAAP, as a
consequence of such Asset Disposition, (ii) all payments made on any
Indebtedness which is secured by any assets subject to such Asset Disposition,
in accordance with the terms of any Lien upon such assets, or which must by its
terms, or in order to obtain a necessary consent to such Asset Disposition, or
by applicable law be repaid out of the proceeds from such Asset Disposition,
(iii) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition and (iv) the deduction of appropriate amounts to be provided by the
seller as a reserve, in accordance with GAAP, against any liabilities associated
with the assets disposed of in such Asset Disposition and retained by the
Company or any Restricted Subsidiary after such Asset Disposition, including,
without limitation, in respect of sales price adjustments, pension and other
post-employment benefit liabilities and liabilities related to indemnification
obligations associated with the assets sold or disposed of in such Asset
Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of
Capital Stock, means the cash proceeds of such issuance or sale net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"New Credit Facility" means that certain credit facility to be
entered into on the Issue Date among the Company, the Subsidiary Guarantors,
Societe Generale, and the lenders from time to time party thereto, including all
collateral documents, instruments and agreements executed in connection
therewith, and the term New Credit Facility shall also include any amendments,
supplements, modifications, extensions, renewals, restatements or refundings
thereof and any credit facilities or agreements that replace, refund or
refinance any part of the loans, other credit facilities or commitments
thereunder, including any such replacement, refunding or refinancing facility
that increases the amount borrowable thereunder or alters the maturity thereof.
"Non-Recourse Debt" means Indebtedness (i) as to which neither
the Company nor any Restricted Subsidiary (a) provides any Guarantee or credit
support of any kind (including any undertaking, Guarantee, indemnity, agreement
or instrument that
<PAGE>
15
would constitute Indebtedness) or (b) is directly or indirectly liable (as a
guarantor or otherwise) and (ii) no default with respect to which (including any
rights that the holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any
holder of any other Indebtedness of the Company or any Restricted Subsidiary to
declare a default under such other Indebtedness or cause the payment thereof to
be accelerated or payable prior to its stated maturity.
"Obligations" means any principal, interest, penalties, fees,
indemnities, damages and other liabilities payable under the instruments
governing, or under agreements entered into in connection with, any
Indebtedness.
"Offering Memorandum" means the Offering Memorandum dated
October 23, 1997 relating to the Initial Notes; provided that after the issuance
of Exchange Notes, all references herein to "Offering Memorandum" shall be
deemed references to the prospectus relating to the Exchange Notes.
"Officer" means the Chairman of the Board, the President, any
Vice President, the Treasurer or the Secretary of the Company, as applicable.
"Officers' Certificate" means a certificate signed by two
Officers.
"Opinion of Counsel" means a written opinion from legal
counsel who is reasonably acceptable to the Trustee. The counsel may be an
employee of or counsel to the Company or the Trustee.
"Permitted Holders" means (i) Richard L. Kramer and William L.
Remley (the 'Principals'), (ii) any spouse or immediate family member of a
Principal and any child or spouse of any spouse or immediate family member of a
Principal, (iii) a trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding,
directly or indirectly, a controlling interest of which consists of a Principal
and/or such other Persons referred to in the immediately preceding clause (ii)
or (iv) the trustees of any trust referred to in clause (iii).
"Permitted Investment" means an Investment by the Company or
any Restricted Subsidiary in (i) the Company or in a Restricted Subsidiary or a
Person which will, upon the making of such Investment, become a Restricted
Subsidiary; provided, however, that the primary business of such Restricted
Subsidiary is a Related Business; (ii) another Person if as a result of such
Investment such other Person is merged or consolidated with or into, or
transfers or conveys all or substantially all its assets to, the Company or a
Restricted Subsidiary; provided, however, that such Person's primary business is
a Related Business; (iii) Temporary Cash Investments; (iv) receivables owing to
the
<PAGE>
16
Company or any Restricted Subsidiary, if created or acquired in the ordinary
course of business and payable or dischargeable in accordance with customary
trade terms; provided, however, that such trade terms may include such
concessionary trade terms as the Company or any such Restricted Subsidiary deems
reasonable under the circumstances; (v) payroll, travel, relocation and similar
advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses for accounting purposes and that are made
in the ordinary course of business; (vi) loans or advances to employees made in
the ordinary course of business of the Company or such Restricted Subsidiary;
(vii) stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments; (viii) Guarantees permitted to be
made pursuant to Section 4.3; (ix) Investments in securities of trade creditors
received in settlement of obligations or pursuant to any plan of reorganization
or similar arrangement upon the bankruptcy of insolvency of any trade creditors
of customers; (x) Currency Agreements and Interest Rate Agreements entered into
in the ordinary course of business; provided that such agreements are entered
into for bona fide hedging purposes, are not for speculation or trading purposes
and are designed to protect against fluctuations in interest rates, currency
exchange rates or commodity prices, as the case may be, and, in the case of
Interest Rate Agreements, any such Interest Rate Agreement has a notional amount
corresponding to the Indebtedness being hedged thereby; (xi) Investments made by
the Company or a Restricted Subsidiary in connection with an Asset Disposition
made in compliance with Section 4.6; (xii) any acquisition of assets solely in
exchange for the issuance of Capital Stock (other than Disqualified Stock) of
the Company; (xiii) any Investment existing on the date of this Indenture; and
(xiv) other Investments in any Person having an aggregate fair market value,
when taken together with all other Investments made pursuant to this clause
(xiv) that are at the time outstanding, not to exceed $5 million.
"Permitted Junior Securities" means (A) Capital Stock of the
Company or (B) debt securities that (i) are subordinated to all Senior
Indebtedness (and any debt securities issued in exchange for Senior
Indebtedness) to substantially the same extent as, or to a greater extent than,
the Notes are subordinated to Senior Indebtedness and (ii) have a Stated
Maturity no earlier than one year after the Stated Maturity of the New Credit
Facility (or, if earlier, the Notes).
"Permitted Liens" means (i) Liens securing Senior Indebtedness
and Guarantor Senior Indebtedness that is permitted by the terms of this
Indenture to be incurred; (ii) Liens in favor of the Company or any Restricted
Subsidiary; (iii) Liens on property of a Person existing at the time such Person
becomes a Subsidiary of the Company or is merged into or consolidated with the
Company or any Subsidiary of the Company; provided that such
<PAGE>
17
Liens were in existence prior to the time such Person becomes a Subsidiary or
the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company; (iv) Liens on property existing at the time of acquisition thereof by
the Company or any Subsidiary of the Company; provided that such Liens were in
existence prior to the contemplation of such acquisition; (v) Liens to secure
the performance of statutory obligations, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course of
business; (vi) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by Section 4.3(b)(ix) covering only the assets acquired
with such Indebtedness; (vii) Liens existing on the date of this Indenture;
(viii) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor; (ix) statutory Liens or landlords',
carriers', warehousemens', mechanics', suppliers' or similar Liens incurred in
the ordinary course of business of the Company or any Subsidiary of the Company;
(x) easements, minor title defects, irregularities in title or other charges or
encumbrances on property not interfering in any material respect with the use of
such property by the Company or a Subsidiary of the Company; (xi) Liens incurred
or deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security; (xii)
liens securing industrial revenue bonds or other tax-favored financing; (xiii)
deposit arrangements entered into in connection with acquisitions or in the
ordinary course of business; (xiv) other Liens securing obligations incurred in
the ordinary course of business which obligations do not exceed $2 million at
any one time outstanding; and (xv) any extensions, substitutions, replacements
or renewals of the foregoing.
"Person" means any individual, corporation, partnership joint
venture, association, joint-stock company, trust, limited liability company,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Public Equity Offering" means an underwritten primary public
offering of common stock of the Company pursuant to an effective registration
statement under the Securities Act.
<PAGE>
18
"Put/Call Preferred Stock" means Preferred Stock which may be
issued by the Company or a Subsidiary Guarantor to the holders of any Management
Equity Interests of the Company or such Subsidiary Guarantor in exchange for
such Management Equity Interests held by such holders; provided that (a)
payments on such Preferred Stock, including pursuant to any redemption,
repurchase or default provision, and payments of dividends on such Preferred
Stock, in each case in cash, may be made only to the extent Restricted Payments
would then be permitted to be made in accordance with Section 4.4 with any such
payment being included in the calculation of the amount of Restricted Payments
pursuant to clause (3) of paragraph (a) of such covenant and (b) no failure to
pay such Preferred Stock or failure to comply with any other provision of such
Preferred Stock or of the instrument governing such Preferred Stock shall cause
a default or event of default under any Indebtedness of the Company and its
Restricted Subsidiaries.
"Put/Call Promissory Notes" means promissory notes which may
be issued by the Company or a Subsidiary Guarantor to the holders of any
Management Equity Interests of the Company or such Subsidiary Guarantor in
exchange for such Management Equity Interests held by such holders; provided
that (a) such notes and any guarantees thereof are expressly subordinated to the
Notes or the applicable Subsidiary Guarantee pursuant to the terms of the
instrument governing such notes, (b) such notes are not secured by any Lien or
any property or assets of the Company or any of its Restricted Subsidiaries, (c)
payments of principal on such notes, including pursuant to any guarantee,
redemption, repurchase or default provision, and payments of interest on such
notes, including pursuant to any guarantee, in each case in cash, may be made
only to the extent Restricted Payments would then be permitted to be made in
accordance with Section 4.4, with any such payment being included in the
calculation of the amount of Restricted Payments pursuant to clause (3) of
paragraph (a) of such covenant and (d) no failure to pay such notes or failure
to comply with any other provision of such notes or of the instrument governing
such notes shall cause a default or event of default under any Indebtedness of
the Company and its Restricted Subsidiaries.
"QIB" means any "qualified institutional buyer" (as
defined under the Securities Act).
"Redemption Date" means the date specified by the Company in a
notice delivered pursuant to Section 3.3 as the date on which the Company has
elected to redeem all of the Securities pursuant to paragraph 5 of the
Securities after the occurrence of a Change of Control.
"Refinancing Indebtedness" means Indebtedness issued in
exchange for, or that refunds, refinances, replaces, renews, repays or extends
(including pursuant to any defeasance or discharge mechanism) (collectively,
'refinances,' and
<PAGE>
19
'refinanced' shall have a correlative meaning) any Indebtedness existing on the
date of this Indenture or Incurred in compliance with this Indenture (including
Indebtedness of the Company that refinances Indebtedness of any Restricted
Subsidiary and Indebtedness of any Restricted Subsidiary that refinances
Indebtedness of another Restricted Subsidiary) including Indebtedness that
refinances other Refinancing Indebtedness; provided, however, that (i) the
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being refinanced (or, if earlier, the Notes), (ii)
the Refinancing Indebtedness has an Average Life at the time such Refinancing
Indebtedness is Incurred that is equal to or greater than the Average Life of
the Indebtedness being refinanced and (iii) such Refinancing Indebtedness is
Incurred in an aggregate principal amount (or if issued with original issue
discount, an aggregate issue price) that is equal to or less than the sum of the
aggregate principal amount (or if issued with original issue discount, the
aggregate accreted value) then outstanding of the Indebtedness being refinanced
plus the amount of reasonable fees and expenses and prepayment premiums incurred
in connection with such refinancing; provided further, however, that Refinancing
Indebtedness shall not include (x) Indebtedness of a Restricted Subsidiary which
is not a Subsidiary Guarantor that refinances Indebtedness of the Company or (y)
Indebtedness of the Company or a Restricted Subsidiary that refinances
Indebtedness of an Unrestricted Subsidiary (unless such Unrestricted Subsidiary
is concurrently redesignated a Restricted Subsidiary).
"Registered Exchange Offer" shall have the meaning set forth
in the Registration Rights Agreement.
"Registration Rights Agreement" means the Exchange and
Registration Rights Agreement, dated as of October 31, 1997, among the Company,
the Subsidiary Guarantors, Societe Generale Securities Corporation, BT Alex.
Brown Incorporated and Jefferies & Company, Inc.
"Related Business" means the businesses of the Company and the
Restricted Subsidiaries on the date of this Indenture and any business related,
ancillary or complementary thereto, or which is an extension thereof, in each
case as determined by the Company in good faith.
"Representative" means any trustee, agent or representative
(if any) of an issue of Designated Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of the
Company other than an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such property to a Person (other than to the Company or a
Restricted Subsidiary) and
<PAGE>
20
the Company or a Restricted Subsidiary leases it from such Person.
"SEC" means the U.S. Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company
or a Subsidiary Guarantor secured by a Lien.
"Securities" means the Securities issued under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Custodian" means the custodian with respect to the
Global Security (as appointed by the Depositary), or any successor Person
thereto and shall initially be the Trustee.
"Senior Indebtedness" means, whether outstanding on the Issue Date
or thereafter incurred, (i) all Indebtedness of the Company under the New Credit
Facility, including, without limitation, obligations to pay principal and
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law),
reimbursement obligations under letters of credit, fees, expenses and
indemnities, and all Hedging Obligations with respect to Indebtedness under the
New Credit Facility, including, without limitation, Hedging Obligations entered
into with any lender under the New Credit Facility, whether outstanding on the
date of the Indenture or thereafter incurred, (ii) the principal of, premium, if
any, and interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other Obligations with respect to, any other
Indebtedness of the Company permitted to be incurred by the Company under the
terms of the Indenture, whether outstanding on the date of the Indenture or
thereafter incurred, unless the instrument under which such Indebtedness is
incurred expressly provides that it is on a parity with, or subordinated in
right of payment to, the Securities and (iii) all Obligations of the Company
with respect to the foregoing; provided, however, that Senior Indebtedness will
not include (1) any obligation of the Company to any Subsidiary, (2) any
liability for Federal, state, foreign, local or other taxes owed or owing by the
Company, (3) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including Guarantees thereof or instruments
evidencing such liabilities) or (4) any Indebtedness, Guarantee or obligation of
the Company that is expressly subordinate or junior in right of payment to any
other Indebtedness, Guarantee or obligation of the Company, including
<PAGE>
21
any Senior Subordinated Indebtedness and any Subordinated Obligations.
"Senior Subordinated Indebtedness" means the Securities and
any other Indebtedness of the Company that specifically provides that such
Indebtedness is to rank pari passu with the Securities in right of payment and
is not subordinated by its terms in right of payment to any Indebtedness or
other obligation of the Company which is not Senior Indebtedness.
"Series B Preferred Stock" means Series B Preferred Stock of
KII Holding required to be issued to its officers and employees pursuant to the
Agreement, dated as of July 1, 1997, among KII Holding and the other parties
thereto.
"Shelf Registration Statement" has the meaning ascribed
thereto in the Registration Rights Agreement.
"Significant Subsidiary" means any Restricted Subsidiary that
would be a 'Significant Subsidiary' of the Company within the meaning of Rule
1-02 under Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the
date specified in such security as the fixed date on which the payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the
Company (whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Securities pursuant to a
written agreement.
"Subsidiary" of any Person means any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person.
"Subsidiary Guarantee" means the Guarantee by a Subsidiary
Guarantor of the Company's obligations with respect to the Securities.
"Subsidiary Guarantor" means each Subsidiary of the Company
existing on the Issue Date and each new Subsidiary (other than Foreign
Subsidiaries and Unrestricted Subsidiaries) that
<PAGE>
22
guarantees the Company's obligations with respect to the Securities.
"Temporary Cash Investments" means any of the following: (i)
any investment in direct obligations of the United States of America or any
agency thereof or obligations Guaranteed by the United States of America or any
agency thereof, (ii) investments in time deposit accounts, certificates of
deposit, eurodollar time deposits, bankers' acceptances and money market
deposits maturing within 360 days of the date of acquisition thereof issued by a
bank or trust company which is organized under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States of America having capital, surplus and undivided profits aggregating in
excess of $250,000,000 (or the foreign currency equivalent thereof) and whose
long-term debt is rated 'A' (or such similar equivalent rating) or higher by at
least one nationally recognized statistical rating organization (as defined in
Rule 436 under the Securities Act), (iii) repurchase obligations with a term of
not more than 30 days for underlying securities of the types described in clause
(i) above entered into with a bank meeting the qualifications described in
clause (ii) above, (iv) investments in commercial paper, maturing not more than
180 days after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United States
of America with a rating at the time as of which any investment therein is made
of 'P-1' (or higher) according to Moody's Investors Service, Inc. or 'A-1' (or
higher) according to Standard & Poor's Ratings Services, (v) investments in
securities with maturities of six months or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the United
States of America, or by any political subdivision or taxing authority thereof,
and rated at least 'A' by Standard & Poor's Ratings Services or 'A' by Moody's
Investors Service, Inc. and (vi) investment funds registered under the
Investment Company Act of 1940, as amended, investing at least 95% of their
assets in securities of any of the types described in clauses (i) through (v)
above.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date of this Indenture; provided, however,
that, in the event the Trust Indenture Act of 1939 is amended after such date,
"TIA" means, to the extent required by any such amendments, the Trust Indenture
Act of 1939 as so amended.
"Trade Payables" means, with respect to any Person, any
accounts payable or any indebtedness or monetary obligation to trade creditors
created, assumed or Guaranteed by such Person arising in the ordinary course of
business in connection with the acquisition of goods or services.
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23
"Transfer Restricted Securities" means Securities that bear or
are required to bear the legend set forth in Section 2.6(g)(i) hereof.
"Treasury Rate" means the yield to maturity at the time of the
computation of United States Treasury securities with a constant maturity (as
compiled by and published in the most recent Federal Reserve Statistical Release
H.15(519)), which has become publicly available at least two Business Days prior
to the date fixed for prepayment (or, if such Statistical Release is no longer
published, any publicly available source of similar market data) most nearly
equal to the then remaining average life to the first date on which the
Securities are subject to optional redemption by the Company; provided, however,
that if the average life of such Security is not equal to the constant maturity
of the United States Treasury security for which weekly average 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 United States
Treasury securities for which such yields are given, except that if the average
life of the Securities is less than one year, the weekly average yield on
actually traded United States Treasury securities adjusted to a constant
maturity of one year shall be used.
"Trustee" means the party named as such in this Indenture
until a successor replaces it and, thereafter, means the successor.
"Trust Officer" means any officer or assistant officer of the
Trustee assigned by the Trustee to administer this Indenture.
"Uniform Commercial Code" means the New York Uniform
Commercial Code as in effect from time to time.
"Unrestricted Subsidiary" means (i) any Subsidiary of the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of,
or owns or holds any Lien on any property of, the Company or any other
Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so
designated; provided, however, that either (A) the Subsidiary to be so
designated has total consolidated assets of $10,000 or less or (B) if such
Subsidiary has consolidated assets greater than $10,000, then such designation
would be permitted under Section 4.4. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
immediately after giving effect to such designation
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24
(x) the Company could Incur $1.00 of additional Indebtedness under Section
4.3(a) and (y) no Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital
Stock of such corporation then outstanding and normally entitled to vote in the
election of directors.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the
Company all the Capital Stock of which (other than directors' qualifying shares)
is owned by the Company or another Wholly Owned Subsidiary.
SECTION 1.2. Other Definitions.
Defined in
Term Section
"Affiliate Transaction".................................. 4.7
"Agent Member"........................................... 2.1(c)
"Authenticating Agent.................................... 2.2
"Bankruptcy Law"......................................... 6.1
"Blockage Notice"........................................ 10.3
"covenant defeasance option"............................. 8.1(b)
"Custodian".............................................. 6.1
"Definitive Securities".................................. 2.1(d)
"Event of Default"....................................... 6.1
"Global Security"........................................ 2.1(b)
"legal defeasance option"................................ 8.1(b)
"Non-Global Purchaser"................................... 2.1(d)
"Offer" ................................................. 4.6
"Offer Amount"........................................... 4.6(b)
"Offer Period"........................................... 4.6(b)
"pay the Securities"..................................... 10.3
"Paying Agent"........................................... 2.3
"Payment Blockage Notice................................. 10.3
"Payment Blockage Period"................................ 10.3
"Purchase Agreement"..................................... 2.1(b)
"Purchase Date........................................... 4.6(b)
"Registrar".............................................. 2.3
"Restricted Payment"..................................... 4.4
"Rule 144A".............................................. 2.1(b)
"Successor Company"...................................... 5.1
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25
SECTION 1.3. Incorporation by Reference of Trust Indenture
Act. This Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Security holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means
the Trustee.
"obligor" on the indenture securities means the Company, the
Subsidiary Guarantors and any other obligor on the indenture
securities.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by the TIA reference to another statute or defined by SEC rule
have the meanings assigned to them by such definitions.
SECTION 1.4. Rules of Construction. Unless the
context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words
in the plural include the singular;
(6) unsecured Indebtedness shall not be deemed to be
subordinate or junior to Secured Indebtedness merely by
virtue of its nature as unsecured Indebtedness;
(7) the principal amount of any noninterest bearing or
other discount security at any date shall be the principal amount
thereof that would be shown on a balance sheet of the issuer dated such
date prepared in accordance with GAAP; and
(8) the principal amount of any Preferred Stock shall
be (i) the maximum liquidation preference of such Preferred Stock or
(ii) the maximum mandatory redemption or mandatory
<PAGE>
26
repurchase price with respect to such Preferred Stock,
whichever is greater.
SECTION 1.5. One Class of Securities. The Initial Notes and
the Exchange Notes shall vote and consent together on all matters as one class
and none of the Initial Notes or the Exchange Notes shall have the right to vote
or consent as a separate class on any matter.
ARTICLE II
The Securities
SECTION 2.1. Form and Dating. (a) The Initial Notes and the
Trustee's certificate of authentication shall be substantially in the form of
Exhibit A, which is hereby incorporated in and expressly made a part of this
Indenture. The Exchange Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit B, which is hereby incorporated by
reference and expressly made a part of this Indenture. The Securities may have
notations, legends or endorsements required by law, stock exchange rule or
usage, in addition to those set forth on Exhibits A and B. The Company and the
Trustee shall approve the forms of the Securities and any notation, endorsement
or legend on them. Each Security shall be dated the date of its authentication.
The terms of the Securities set forth in Exhibit A and Exhibit B are part of the
terms of this Indenture and, to the extent applicable, the Company, the
Subsidiary Guarantors and the Trustee, by their execution and delivery of this
Indenture, expressly agree to be bound by such terms.
(b) Global Securities. The Initial Notes are being
offered and sold by the Company pursuant to a Purchase Agreement, dated October
23, 1997, among the Company, the Subsidiary Guarantors, Societe Generale
Securities Corporation, BT Alex. Brown Incorporated and Jefferies & Company,
Inc. (the "Purchase Agreement").
Initial Notes offered and sold to a QIB in reliance on Rule
144A under the Securities Act ("Rule 144A") as provided in the Purchase
Agreement, shall be issued initially in the form of one or more permanent global
Securities in definitive, fully registered form without interest coupons with
the Global Securities Legend and Restricted Securities Legend set forth in
Exhibit A hereto (each, a "Global Security"), which shall be deposited on behalf
of the purchasers of the Initial Notes represented thereby with the Trustee, at
its New York office, as custodian for the Depositary, and registered in the name
of the Depositary or a nominee of the Depositary, duly executed by the Company
and authenticated by the Trustee as hereinafter provided. The aggregate
principal amount of the Global Securities may from time to time be increased or
decreased by endorsements made on
<PAGE>
27
such Global Securities by the Trustee and the Depositary or its nominee as
hereinafter provided.
(c) Book-Entry Provisions. This Section 2.1(c) shall
apply only to Global Securities.
Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the Depositary or by the Trustee as the
custodian of the Depositary or under such Global Security, and the Depositary
may be treated by the Company, the Trustee and any agent of the Company or the
Trustee as the absolute owner of such Global Security for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the
Company, the Trustee or any agent of the Company or the Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Depositary or impair, as between the Depositary and its Agent Members, the
operation of customary practices of the Depositary governing the exercise of the
rights of a holder of a beneficial interest in any Global Security.
(d) Certificated Securities. Except as provided in Section
2.6, owners of beneficial interests in Global Securities will not be entitled to
receive Definitive Securities (as hereinafter defined). Initial Notes offered
and sold to Persons who are not QIBs (referred to herein as the "Non-Global
Purchasers"), as provided in the Purchase Agreement, shall be issued initially
to such Persons in the form of certificated Initial Notes bearing the Restricted
Securities Legend set forth in Exhibit A hereto ("Definitive Securities");
provided, however, that upon transfer of such Definitive Securities to a QIB,
such Definitive Securities will, unless the Global Security has previously been
exchanged, be exchanged for an interest in a Global Security pursuant to the
provisions of Section 2.6 hereof. Definitive Securities will bear the Restricted
Securities Legend set forth on Exhibit A unless removed in accordance with
Section 2.6(g) hereof.
SECTION 2.2. Execution and Authentication. Two Officers
shall sign the Securities for the Company by manual or facsimile signature.
If an Officer whose signature is on a Security no longer holds
that office at the time the Trustee authenticates the Security, the Security
shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of
the Trustee manually authenticates the Security. The signature of the Trustee on
a Security shall be conclusive evidence that such Security has been duly and
validly authenticated and issued under this Indenture.
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28
The Trustee shall authenticate and deliver: (1) Initial Notes
for original issue in an aggregate principal amount of $100 million and (2)
Exchange Notes for issue only in a Registered Exchange Offer pursuant to the
Registration Rights Agreement, and only in exchange for Initial Notes of an
equal principal amount, in each case upon a written order of the Company signed
by two Officers or by an Officer and either an Assistant Treasurer or an
Assistant Secretary of the Company. Such order shall specify the amount of the
Securities to be authenticated and the date on which the original issue of
Securities is to be authenticated and whether the Securities are to be Initial
Notes or Exchange Notes. The aggregate principal amount of Securities
outstanding at any time may not exceed $100 million except as provided in
Section 2.7.
The Trustee may appoint an agent (the "Authenticating Agent")
reasonably acceptable to the Company to authenticate the Securities. Unless
limited by the terms of such appointment, any such Authenticating Agent may
authenticate Securities whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
agent.
SECTION 2.3. Registrar and Paying Agent. The Company shall
maintain an office or agency where Securities may be presented for registration
of transfer or for exchange (the "Registrar") and an office or agency where
Securities may be presented for payment (the "Paying Agent"). The Registrar
shall keep a register of the Securities and of their transfer and exchange. The
Company may have one or more co-registrars and one or more additional paying
agents. The term "Paying Agent" includes any additional paying agent.
The Company shall enter into an appropriate agency agreement
with any Registrar, Paying Agent or co-registrar not a party to this Indenture,
which shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall notify
the Trustee of the name and address of each such agent. If the Company fails to
maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be
entitled to appropriate compensation therefor pursuant to Section 7.7. The
Company or any of its domestically incorporated Wholly Owned Subsidiaries may
act as Paying Agent, Registrar, co-registrar or transfer agent.
The Company initially appoints the Trustee as Registrar and
Paying Agent for the Securities.
SECTION 2.4. Paying Agent To Hold Money in Trust. By at
least 11:00 a.m. (New York City time) on the date on which any principal of or
interest on any Security is due and payable, the Company shall deposit with the
Paying Agent a sum sufficient to pay such principal or interest when due. The
Company shall
<PAGE>
29
require each Paying Agent (other than the Trustee) to agree in writing that such
Paying Agent shall hold in trust for the benefit of Securityholders or the
Trustee all money held by such Paying Agent for the payment of principal of or
interest on the Securities and shall notify the Trustee of any default by the
Company in making any such payment. If the Company or a Subsidiary acts as
Paying Agent, it shall segregate the money held by it as Paying Agent and hold
it as a separate trust fund. The Company at any time may require a Paying Agent
(other than the Trustee) to pay all money held by it to the Trustee and to
account for any funds disbursed by such Paying Agent. Upon complying with this
Section, the Paying Agent (if other than the Company or a Subsidiary) shall have
no further liability for the money delivered to the Trustee. Upon any
bankruptcy, reorganization or similar proceeding with respect to the Company,
the Trustee shall serve as Paying Agent for the Securities.
SECTION 2.5. Securityholder Lists. The Trustee shall preserve
in as current a form as is reasonably practicable the most recent list available
to it of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall furnish to the Trustee, in writing at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Securityholders.
SECTION 2.6. Transfer and Exchange.
(a) Transfer and Exchange of Definitive Securities. When
Definitive Securities are presented by a Holder to the Registrar or a
co-registrar with a request:
(x) to register the transfer of such Definitive
Securities; or
(y) to exchange such Definitive Securities for an
equal principal amount of Definitive Securities of other
authorized denominations,
the Registrar or co-registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
provided, however, that:
(i) such Definitive Securities shall be duly endorsed or
accompanied by a written instrument of transfer in form reasonably
satisfactory to the Company and the Registrar or co-registrar, duly
executed by such Holder or his attorney duly authorized in writing; and
(ii) if such Definitive Securities are Transfer Restricted
Securities, such Definitive Securities shall also be accompanied by the
following additional information and documents, as applicable:
<PAGE>
30
(A) if such Transfer Restricted Securities are being
delivered to the Registrar by a Holder for registration in the
name of such Holder, without transfer, a certification from
such Holder to that effect (in the form set forth on the
reverse of the Security); or
(B) if such Transfer Restricted Securities are being
transferred (x) to the Company or to a QIB in accordance with
Rule 144A under the Securities Act or (y) pursuant to an
effective registration statement under the Securities Act, a
certification from such Holder to that effect (in the form set
forth on the reverse of the Security); or
(C) if such Transfer Restricted Securities are being
transferred (w) pursuant to an exemption from registration in
accordance with Rule 144 or Regulation S under the Securities
Act; or (x) to an institutional "accredited investor" within
the meaning of Rule 501(a)(1), (2), (3) or (7) under the
Securities Act that is acquiring the security for its own
account, or for the account of such an institutional
accredited investor, in each case in a minimum principal
amount of the Securities of $250,000 for investment purposes
and not with a view to, or for offer or sale in connection
with, any distribution in violation of the Securities Act; or
(y) in reliance on another exemption from the registration
requirements of the Securities Act: (i) a certification to
that effect from such Holder (in the form set forth on the
reverse of the Security), (ii) if the Company or the Trustee
so requests, an Opinion of Counsel reasonably acceptable to
the Company and to the Trustee to the effect that such
transfer is in compliance with the Securities Act and (iii) in
the case of clause (x), a signed letter from the transferee
substantially in the form of Exhibit C hereto.
(b) Restrictions on Transfer of a Definitive Security for a
Beneficial Interest in a Global Security. A Definitive Security may not be
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Trustee of
a Definitive Security, duly endorsed or accompanied by appropriate instruments
of transfer, in form satisfactory to the Trustee, together with:
(i) certification, in the form set forth on the reverse of
the Security, to the effect that such Definitive Security is being
transferred to a QIB in accordance with Rule 144A under the Securities
Act; and
(ii) written instructions from the Holder thereof directing
the Trustee to make, or to direct the Securities Custodian to make, an
endorsement on the Global Security to
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31
reflect an increase in the aggregate principal amount of the
Securities represented by the Global Security,
then the Trustee shall cancel such Definitive Security and cause, or direct the
Securities Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Securities Custodian, the
aggregate principal amount of Securities represented by the Global Security to
be increased accordingly. If no Global Securities are then outstanding, the
Company shall issue and the Trustee shall authenticate, upon written order of
the Company in the form of an Officers' Certificate, a new Global Security in
the appropriate principal amount. The Trustee shall deliver copies of each
certification and instruction received by it pursuant to clauses (i) and (ii)
above to the Depositary and, upon receipt thereof, the Depositary shall make
appropriate adjustments to its books and records to reflect exchange of such
Definitive Security for an interest in the Global Security in accordance with
Section 2.6(c).
(c) Transfer and Exchange of Global Securities. (i) The
transfer and exchange of Global Securities or beneficial interests therein shall
be effected through the Depositary, in accordance with this Indenture (including
applicable restrictions on transfer set forth herein, if any) and the procedures
of the Depositary therefor.
(ii) A Global Security deposited with the Depositary or
with the Trustee as custodian for the Depositary pursuant to Section 2.1 shall
be transferred to the beneficial owners thereof only if such transfer complies
with this Section 2.6 and (i) the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary for such Global Security or if at
any time such Depositary ceases to be a "clearing agency" registered under the
Exchange Act and a successor depositary is not appointed by the Company within
90 days of such notice, or (ii) an Event of Default has occurred and is
continuing and the Registrar has received a request from the Depository or the
Trustee to issue Definitive Securities.
(iii) Any Global Security that is transferable to the
beneficial owners thereof pursuant to this Section shall be surrendered by the
Depositary to the Trustee to be so transferred, in whole or from time to time in
part, without charge, and the Company shall sign and the Trustee shall
authenticate and deliver, upon such transfer of each portion of such Global
Security, an equal aggregate principal amount of Definitive Securities of
authorized denominations. Each Definitive Security delivered in exchange for any
portion of a Global Security transferred pursuant to this Section shall be
executed, authenticated and delivered only in denominations of $1,000 and any
integral multiple thereof and shall be registered in such names as the
Depositary shall direct. Any Definitive Security delivered in exchange for an
interest in the Global
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32
Security shall, except as otherwise provided in Section 2.6(g), bear the
Restricted Securities Legend set forth in Exhibit A hereto.
(iv) The registered Holder of a Global Security may
grant proxies and otherwise authorize any Person, including Agent Members and
Persons that may hold interests through Agent Members, to take any action which
a Holder is entitled to take under this Indenture or the Securities.
(v) In the event of the occurrence of either of the
events specified in Section 2.6(c)(ii), the Company will promptly make available
to the Trustee a reasonable supply of certificated Securities in definitive,
fully registered form without interest coupons.
(d) Restriction on Transfer of a Beneficial Interest in a
Global Security for a Definitive Security.
(i) Any Person having a beneficial interest in a Global
Security may upon request exchange such beneficial interest for a
Definitive Security of the same aggregate principal amount; provided
that such request is accompanied by the information specified below.
Upon receipt by the Trustee of written instructions (or such other form
of instructions as is customary for the Depositary) from the Depositary
or its nominee on behalf of any Person having a beneficial interest in
a Global Security and, in the case of a Transfer Restricted Security,
the following additional information and documents (all of which may be
submitted by facsimile):
(A) if such beneficial interest is being transferred
to the Person designated by the Depositary as being the owner
of a beneficial interest in a Global Security, a certification
from such Person to that effect (in the form set forth on the
reverse of the Security); or
(B) if such beneficial interest is being transferred
(x) to a QIB in accordance with Rule 144A under the Securities
Act or (y) pursuant to an effective registration statement
under the Securities Act, a certification from such Person to
that effect (in the form set forth on the reverse of the
Security); or
(C) if such beneficial interest is being transferred
(w) pursuant to an exemption from registration in accordance
with Rule 144 or Regulation S under the Securities Act; or (x)
to an institutional "accredited investor" within the meaning
of Rule 501(a)(1), (2), (3) or (7) under the Securities Act
that is acquiring the security for its own account, or
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33
for the account of such an institutional accredited investor,
in each case in a minimum principal amount of the Securities
of $250,000 for investment purposes and not with a view to, or
for offer or sale in connection with, any distribution in
violation of the Securities Act; or (y) in reliance on another
exemption from the registration requirements of the Securities
Act: (i) a certification to that effect from the transferee
(in the form set forth on the reverse of the Security), (ii)
if the Company or the Trustee so requests, an Opinion of
Counsel reasonably acceptable to the Company and to the
Trustee to the effect that such transfer is in compliance with
the Securities Act, and (iii) in the case of clause (x), a
signed letter from the transferee in the form of Exhibit C
hereto;
then the Securities Custodian, at the direction of the Trustee, will
cause, in accordance with the standing instructions and procedures
existing between the Depositary and the Securities Custodian, the
aggregate principal amount of the Global Security to be reduced
accordingly and, following such reduction, the Company will execute and
the Trustee will authenticate and deliver to the transferee one or more
Definitive Securities in accordance with clause (ii) below.
(ii) Definitive Securities issued in exchange for a
beneficial interest in a Global Security pursuant to this Section
2.6(d) shall be registered in such names and in such authorized
denominations as the Depositary, pursuant to instructions from its
direct or indirect participants or otherwise, shall instruct the
Trustee in writing. The Trustee shall deliver such Definitive
Securities to the Persons in whose names such Securities are so
registered in accordance with the instructions of the Depositary.
(e) Restrictions on Transfer and Exchange of Global
Securities. Notwithstanding any other provisions of this Indenture (other than
the provisions set forth in subsection (c) of this Section 2.6), a Global
Security may not be transferred as a whole except by the Depositary to a nominee
of the Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) [Intentionally Omitted];
(g) Legend.
(i) Except as permitted by the following paragraph (ii)
each Security certificate evidencing Global Securities and Definitive
Securities (and all Securities issued in
<PAGE>
34
exchange therefor or substitution thereof) shall bear a legend in
substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "SECURITIES ACT"), OR ANY STATE SECURITIES
LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE
DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO
YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND
THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE
ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
SUCH SECURITY), ONLY (A) TO THE ISSUER, (B) PURSUANT TO A
REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER
THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER
IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS
AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN
INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS
ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT
OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN
A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR
SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE ISSUER'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY
SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) AND
(F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF
THEM, AND IN THE CASE OF THE FOREGOING CLAUSE (E), A
CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER
SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE ISSUER AND THE TRUSTEE. THIS LEGEND WILL BE
REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE."
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35
(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by a
Global Security) pursuant to Rule 144 under the Securities Act or
pursuant to an effective registration statement under the Securities
Act:
(A) in the case of any Transfer Restricted Security
that is a Definitive Security, the Registrar shall permit the
Holder thereof to exchange such Transfer Restricted Security
for a Definitive Security that does not bear the legend set
forth in paragraph (i) above and rescind any restriction on
the transfer of such Security; and
(B) in the case of any such Transfer Restricted
Security represented by a Global Security, such Transfer
Restricted Security shall not be required to bear the legend
set forth in paragraph (i) above, although it shall continue
to be subject to the provisions of Section 2.6(c) hereof;
provided, however, that with respect to any request for an
exchange of a Transfer Restricted Security that is represented
by a Global Security for a Definitive Security that does not
bear the legend set forth in paragraph (i) above, which
request is made in reliance upon Rule 144, the Holder thereof
shall certify in writing to the Trustee that such request is
being made pursuant to Rule 144 (such certification to be in
the form set forth on the reverse of the Security).
(h) Cancellation or Adjustment of Global Security. At
such time as all beneficial interests in a Global Security have either been
exchanged for Definitive Securities, redeemed, repurchased or canceled, such
Global Security shall be returned to the Trustee for cancellation. At any time
prior to such cancellation, if any beneficial interest in a Global Security is
exchanged for Definitive Securities, redeemed, repurchased or canceled, the
principal amount of Securities represented by such Global Security shall be
reduced and an endorsement shall be made on such Global Security by the
Securities Custodian to reflect such reduction.
(i) Obligations with Respect to Transfers and
Exchanges of Securities.
(i) To permit registrations of transfers and exchanges,
the Company shall, subject to the other terms and conditions of this
Article II, execute and the Trustee shall authenticate Definitive
Securities and Global Securities at the Registrar's or co-registrar's
request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any
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36
transfer tax, assessments, or similar governmental charge payable in
connection therewith (other than any such transfer taxes or similar
governmental charges payable upon exchange or transfer pursuant to
Sections 4.6, 4.8 or 9.5 or pursuant to paragraph 5 of the Securities).
(iii) The Registrar or co-registrar shall not be required to
register the transfer of or exchange of (a) any Definitive Security
selected for redemption in whole or in part pursuant to Article III,
except the unredeemed portion of any Definitive Security being redeemed
in part, or (b) any Security for a period beginning (1) 15 Business
Days before the mailing of a notice of an offer to repurchase or redeem
Securities and ending at the close of business on the day of such
mailing or (2) 15 Business Days before an interest payment date and
ending on such interest payment date.
(iv) Prior to the due presentation for registration of
transfer of any Security, the Company, the Trustee, the Paying Agent,
the Registrar or any co-registrar may deem and treat the person in
whose name a Security is registered as the absolute owner of such
Security for the purpose of receiving payment of principal of and
interest on such Security and for all other purposes whatsoever,
whether or not such Security is overdue, and none of the Company, the
Trustee, the Paying Agent, the Registrar or any co-registrar shall be
affected by notice to the contrary.
(v) All Securities issued upon any registration of
transfer or exchange pursuant to the terms of this Indenture shall
evidence the same debt and shall be entitled to the same benefits under
this Indenture as the Securities surrendered upon such registration of
transfer or exchange.
(j) No Obligation of the Trustee. (i) The Trustee shall have
no responsibility or obligation to any beneficial owner of a Global Security, a
member of, or a participant in, the Depositary or other Person with respect to
the accuracy of the records of the Depositary or its nominee or of any
participant or member thereof, with respect to any ownership interest in the
Securities or with respect to the delivery to any participant, member,
beneficial owner or other Person (other than the Depositary) of any notice
(including any notice of redemption) or the payment of any amount or delivery of
any Securities (or other security or property) under or with respect to such
Securities. All notices and communications to be given to the Holders and all
payments to be made to Holders in respect of the Securities shall be given or
made only to or upon the order of the registered Holders (which shall be the
Depositary or its nominee in the case of a Global Security). The rights of
beneficial owners in any Global Security shall be exercised only through the
Depositary subject to the applicable rules and procedures of the Depositary. The
Trustee may rely and shall be fully protected in relying upon
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37
information furnished by the Depositary with respect to its
members, participants and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to
monitor, determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to any
registration of transfer of any interest in any Security (including any
transfers between or among Depositary participants, members or beneficial owners
in any Global Security) other than to require delivery of such certificates and
other documentation or evidence as are expressly required by, and to do so if
and when expressly required by, the terms of this Indenture, and to examine the
same to determine substantial compliance as to form with the express
requirements hereof.
SECTION 2.7. Replacement Securities. If a mutilated Security
is surrendered to the Registrar or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security if the requirements of
Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies
any other reasonable requirements of the Trustee. If required by the Trustee or
the Company, such Holder shall furnish an indemnity bond sufficient in the
judgment of the Company and the Trustee to protect the Company, the Trustee, the
Paying Agent, the Registrar and any co-registrar from any loss which any of them
may suffer if a Security is replaced. The Company and the Trustee may charge the
Holder for their expenses in replacing a Security. Every replacement Security is
an additional obligation of the Company.
SECTION 2.8. Outstanding Securities. Securities outstanding at
any time are all Securities authenticated by the Trustee except for those
canceled by it, those delivered to it for cancellation and those described in
this Section as not outstanding. A Security does not cease to be outstanding
because the Company or an Affiliate of the Company holds the Security.
If a Security is replaced pursuant to Section 2.7, it ceases
to be outstanding unless the Trustee and the Company receive proof satisfactory
to them that the replaced Security is held by a protected purchaser.
If the Paying Agent segregates and holds in trust, in
accordance with this Indenture, on a redemption date or maturity date money
sufficient to pay all principal and interest payable on that date with respect
to the Securities (or portions thereof) to be redeemed or maturing, as the case
may be, and the Paying Agent is not prohibited from paying such money to the
Securityholders on that date pursuant to the terms of this Indenture, then on
and after that date such Securities (or portions thereof) cease to be
outstanding and interest on them ceases to accrue.
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38
SECTION 2.9. Temporary Securities. Until definitive Securities
are ready for delivery, the Company may prepare and the Trustee shall
authenticate temporary Securities. Temporary Securities shall be substantially
in the form of definitive Securities but may have variations that the Company
considers appropriate for temporary Securities. Without unreasonable delay, the
Company shall prepare and the Trustee shall authenticate definitive Securities.
After the preparation of definitive Securities, the temporary Securities shall
be exchangeable for definitive Securities upon surrender of the temporary
Securities at any office or agency maintained by the Company for that purpose
and such exchange shall be without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities, the Company shall execute,
and the Trustee shall authenticate and deliver in exchange therefor, one or more
definitive Securities representing an equal principal amount of Securities.
Until so exchanged, the Holder of temporary Securities shall in all respects be
entitled to the same benefits under this Indenture as a Holder of Definitive
Securities.
SECTION 2.10. Cancellation. The Company at any time may
deliver Securities to the Trustee for cancellation. The Registrar and the Paying
Agent shall forward to the Trustee any Securities surrendered to them for
registration of transfer, exchange or payment. The Trustee and no one else shall
cancel and destroy (subject to the record retention requirements of the Exchange
Act) all Securities surrendered for registration of transfer, exchange, payment
or cancellation and deliver a certificate of such destruction to the Company
unless the Company directs the Trustee to deliver canceled Securities to the
Company. The Company may not issue new Securities to replace Securities it has
redeemed, paid or delivered to the Trustee for cancellation.
SECTION 2.11. Defaulted Interest. If the Company defaults in a
payment of interest on the Securities, the Company shall pay defaulted interest
(plus interest on such defaulted interest to the extent lawful) in any lawful
manner. The Company may pay the defaulted interest to the Persons who are
Securityholders on a subsequent special record date. The Company shall fix or
cause to be fixed (or upon the Company's failure to do so the Trustee shall fix)
any such special record date and payment date to the reasonable satisfaction of
the Trustee which specified record date shall not be less than 10 days prior to
the payment date for such defaulted interest and shall promptly mail or cause to
be mailed to each Securityholder a notice that states the special record date,
the payment date and the amount of defaulted interest to be paid. The Company
shall notify the Trustee in writing of the amount of defaulted interest proposed
to be paid on each Security and the date of the proposed payment, and at the
same time the Company shall deposit with the Trustee an amount of money equal to
the aggregate amount proposed to be paid in respect of such defaulted interest
or shall make
<PAGE>
39
arrangements satisfactory to the Trustee for such deposit prior to the date of
the proposed payment, such money when so deposited to be held in trust for the
benefit of the Person entitled to such defaulted interest as provided in this
Section.
SECTION 2.12. CUSIP Numbers. The Company in issuing the
Securities may use "CUSIP" numbers (if then generally in use) and, if so, the
Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to
Holders, provided, however, that any such notice may state that no
representation is made as to the correctness of such numbers either as printed
on the Securities or as contained in any notice of a redemption and that
reliance may be placed only on the other identification numbers printed on the
Securities, and any such redemption shall not be affected by any defect in or
omission of such numbers.
ARTICLE III
Redemption
SECTION 3.1. Notices to Trustee. If the Company elects to
redeem Securities pursuant to paragraph 5 of the Securities, it shall notify the
Trustee in writing of the redemption date and the principal amount of Securities
to be redeemed.
The Company shall give each notice to the Trustee provided for
in this Section at least 60 days before the redemption date unless the Trustee
consents to a shorter period. Such notice shall be accompanied by an Officers'
Certificate from the Company to the effect that such redemption will comply with
the conditions herein. If fewer than all the Securities are to be redeemed, the
record date relating to such redemption shall be selected by the Company and set
forth in the related notice given to the Trustee, which record date shall be not
less than 15 days after the date of such notice.
SECTION 3.2. Selection of Securities To Be Redeemed. If fewer
than all the Securities are to be redeemed, the Trustee shall select the
Securities to be redeemed pro rata or by lot or by a method that complies with
applicable legal and securities exchange requirements, if any, and that the
Trustee considers fair and appropriate and in accordance with methods generally
used at the time of selection by fiduciaries in similar circumstances. The
Trustee shall make the selection from outstanding Securities not previously
called for redemption. The Trustee may select for redemption portions of the
principal of Securities that have denominations larger than $1,000. Securities
and portions of them the Trustee selects shall be in amounts of $1,000 or a
whole multiple of $1,000. Provisions of this Indenture that apply to Securities
called for redemption also apply to portions of Securities called for
redemption. The
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40
Trustee shall notify the Company promptly of the Securities or portions of
Securities to be redeemed.
SECTION 3.3. Notice of Redemption. At least 30 days but not
more than 60 days before a date for redemption of Securities, the Company shall
mail a notice of redemption by first-class mail to each Holder of Securities to
be redeemed.
The notice shall identify the Securities to be redeemed and
shall state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be
surrendered to the Paying Agent to collect the redemption
price;
(5) if fewer than all the outstanding Securities are
to be redeemed, the identification and principal amounts of
the particular Securities to be redeemed;
(6) that, unless the Company defaults in making such
redemption payment or the Paying Agent is prohibited from making such
payment pursuant to the terms of this Indenture, interest on Securities
(or portion thereof) called for redemption ceases to accrue on and
after the redemption date;
(7) the CUSIP number, if any, printed on the
Securities being redeemed; and
(8) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed
on the Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section.
SECTION 3.4. Effect of Notice of Redemption. Once notice of
redemption is mailed, Securities called for redemption become due and payable on
the redemption date and at the redemption price stated in the notice. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, plus accrued interest to the redemption date;
provided that if the redemption date is after a regular record date and on or
prior to the interest payment date, the accrued interest shall be payable to the
Securityholder of the redeemed Securities registered on the relevant record
date.
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41
Failure to give notice or any defect in the notice to any Holder shall not
affect the validity of the notice to any other Holder.
SECTION 3.5. Deposit of Redemption Price. By at least 11:00
a.m. (New York City time) on the date on which any principal of or interest on
any Security is due and payable, the Company shall deposit with the Paying Agent
(or, if the Company or a Subsidiary is the Paying Agent, shall segregate and
hold in trust) money sufficient to pay the redemption price of and accrued
interest on all Securities to be redeemed on that date other than Securities or
portions of Securities called for redemption which are owned by the Company or a
Subsidiary and have been delivered by the Company or such Subsidiary to the
Trustee for cancellation.
If the Company complies with the preceding paragraph, then,
unless the Company defaults in the payment of such redemption price, interest on
the Securities to be redeemed will cease to accrue on and after the applicable
redemption date, whether or not such Securities are presented for payment.
SECTION 3.6. Securities Redeemed in Part. Upon surrender of a
Security that is redeemed in part, the Company shall execute and the Trustee
shall authenticate for the Holder (at the Company's expense) a new Security
equal in a principal amount to the unredeemed portion of the Security
surrendered.
ARTICLE IV
Covenants
SECTION 4.1. Payment of Securities. The Company shall promptly
pay the principal of and interest on the Securities on the dates and in the
manner provided in the Securities and in this Indenture. Principal and interest
shall be considered paid on the date due if on such date the Trustee or the
Paying Agent holds in accordance with this Indenture money sufficient to pay all
principal and interest then due and the Trustee or the Paying Agent, as the case
may be, is not prohibited from paying such money to the Securityholders on that
date pursuant to the terms of this Indenture.
The Company shall pay interest on overdue principal at the
rate specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
Notwithstanding anything to the contrary contained in this
Indenture, the Company may, to the extent it is required to do so by law, deduct
or withhold income or other similar taxes imposed by the United States of
America from principal or interest payments hereunder.
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42
SECTION 4.2. SEC Reports. Notwithstanding that the Company may
not be required to remain subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, the Company will file with the SEC (unless the SEC
will not accept such a filing) and provide the Trustee and Securityholders with
the annual reports and such information, documents and other reports which are
specified in Sections 13 and 15(d) of the Exchange Act. The Company also will
comply with the other provisions of TIA Section 314(a). Notwithstanding the
foregoing, the Company shall not be required to make any such filings prior to
the date on which the Company's annual report on Form 10-K for the fiscal year
ended December 31, 1997 would have been required to be filed if, at the time
such filings would have been required to be made with the SEC, either (i) the
Company shall have provided to each Holder the information that would have been
required to be filed or (ii) the Exchange Offer Registration Statement has been
filed with the SEC but has not yet been declared effective and copies of the
Exchange Offer Registration Statement and any amendments thereto (to the extent
such registration statement and/or amendments contain additional information not
disclosed in the Offering Memorandum that would have been the subject of a
filing required to be made under Section 13 or 15(d) of the Exchange Act) have
been provided to each Holder, provided that any exhibits to the Exchange Offer
Registration Statement (or any amendments thereto) need not be delivered to any
Holder of the Securities, but sufficient copies thereto shall be furnished to
the Trustee as reasonably requested to permit the Trustee to deliver any such
exhibits to any Holder upon request. In addition, the Company and the Subsidiary
Guarantors agree that, for so long as any Securities remain outstanding, they
will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144(d)(4) under the Securities Act.
SECTION 4.3. Limitation on Indebtedness. (a) (i) The Company
will not Incur, and will not permit any Restricted Subsidiary to Incur, any
Indebtedness (including Acquired Indebtedness) or issue Disqualified Stock and
(ii) the Company will not permit any of its Restricted Subsidiaries that are not
Subsidiary Guarantors to issue any shares of Preferred Stock; provided, however,
that the Company or any Subsidiary Guarantor may Incur Indebtedness (including
Acquired Indebtedness) or issue Disqualified Stock if on the date thereof (and
after giving effect to the application of proceeds therefrom) the Consolidated
Coverage Ratio would be greater than 1.85:1 if such Incurrence shall occur on or
prior to December 31, 1998 and greater than 2.0:1 if such Incurrence shall occur
thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company
and its Restricted Subsidiaries may Incur the following Indebtedness and issue
the following Disqualified Stock:
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43
(i) Indebtedness (including, without limitation, letters of
credit and Guarantees) of the Company or any Subsidiary Guarantor under
the New Credit Facility with respect thereto in an aggregate principal
amount outstanding at any time not to exceed $50 million, less the
aggregate amount of all proceeds from all Asset Dispositions that have
been applied since the Issue Date to permanently reduce the outstanding
amount of such Indebtedness pursuant to Section 4.6;
(ii) Indebtedness of the Company owing to and held by any
Subsidiary Guarantor or Indebtedness of a Restricted Subsidiary owing
to and held by the Company or any Subsidiary Guarantor; provided,
however, that any subsequent issuance or transfer of any Capital Stock
or any other event which results in any such Subsidiary Guarantor
ceasing to be a Subsidiary Guarantor or any subsequent transfer of any
such Indebtedness (except to the Company or a Subsidiary Guarantor or a
pledge or other transfer thereof intended to create a security interest
therein) will be deemed to constitute the Incurrence of such
Indebtedness by the issuer thereof;
(iii) Indebtedness represented by the Securities (including
the Subsidiary Guarantees) and any Indebtedness or Disqualified Stock
of the Company or any Restricted Subsidiary (other than the
Indebtedness described in clauses (i) and (ii) of this Section 4.3(b))
outstanding on the Issue Date;
(iv) Indebtedness of a Subsidiary Guarantor outstanding on or
prior to the date on which such Subsidiary Guarantor was acquired by
the Company or a Subsidiary Guarantor (other than Indebtedness Incurred
in connection with, or in contemplation of, the transaction or series
of related transactions pursuant to which such Subsidiary Guarantor
became a Subsidiary Guarantor or was otherwise acquired by the Company
or a Subsidiary Guarantor); provided, however, that the aggregate
principal amount, accreted value or liquidation preference, as
applicable, of such Indebtedness does not exceed $5 million at any one
time outstanding;
(v) Indebtedness (A) in respect of performance bonds, bankers'
acceptances, workers' compensation claims, surety or appeal bonds,
payment obligations in connection with self-insurance or similar
obligations, and bank overdrafts (and letters of credit in respect
thereof) provided by the Company or any Subsidiary Guarantor in the
ordinary course of its business and which do not secure other
Indebtedness and (B) under Currency Agreements and Interest Rate
Agreements Incurred which, at the time of Incurrence, is in the
ordinary course of business; provided that such agreements are entered
into for bona fide hedging purposes, are not for speculation or trading
purposes and are designed
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44
to protect against fluctuations in interest rates or currency exchange
rates, as the case may be, and, in the case of Interest Rate
Agreements, any such Interest Rate Agreement has a notional amount
corresponding to the Indebtedness being hedged thereby;
(vi) Indebtedness represented by Guarantees by the Company of
Indebtedness otherwise permitted to be Incurred pursuant to this
covenant and Indebtedness represented by Guarantees by a Subsidiary
Guarantor of Indebtedness of the Company or of another Restricted
Subsidiary otherwise permitted to be Incurred pursuant to this
covenant;
(vii) Indebtedness incurred by the Company or any Subsidiary
Guarantor and arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, from guarantees or
letters of credit, surety bonds or performance bonds securing any
obligations of the Company or any Restricted Subsidiary pursuant to
such agreements, in each case incurred in connection with the purchase
or sale of a business or assets otherwise permitted by this Indenture;
(viii) Indebtedness of the Company or any Subsidiary Guarantor
in an aggregate principal amount not to exceed $5 million at any time
outstanding incurred in connection with the purchase, redemption,
acquisition, cancellation or other retirement for value of Subsidiary
Management Equity Interests;
(ix) the incurrence by the Company or any Subsidiary Guarantor
of Indebtedness represented by Capitalized Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of the Company or such Subsidiary Guarantor, in an aggregate
principal amount not to exceed the principal amount of such Capitalized
Lease Obligations outstanding on the date hereof plus $10 million at
any time outstanding;
(x) the issuance by KII Holding of Series B Preferred Stock
having an aggregate liquidation preference not to exceed $200,000 at
any one time outstanding to its officers and employees;
(xi) (A) Indebtedness of the Company or a Subsidiary Guarantor
represented by Put/Call Promissory Notes and (B) Disqualified Stock of
the Company or a Subsidiary Guarantor represented by Put/Call Preferred
Stock, in each case incurred or issued in exchange for Management
Equity Interests, in an aggregate amount not to exceed the value
(calculated in accordance with the respective agreements
<PAGE>
45
pursuant to which such Management Equity Interests were
issued or exchanged) of the Management Equity Interests so
exchanged;
(xii) the issuance by the Company or any Subsidiary Guarantor
of Refinancing Indebtedness in exchange for, or the net proceeds which
are used to refund, refinance or replace, Indebtedness that was
permitted by Section 4.3(a) or by clauses (iii), (iv) and (viii) of
this Section 4.3(b) to be incurred; and
(xiii) other Indebtedness of the Company or any Subsidiary
Guarantor in an aggregate principal amount at any one time outstanding
not to exceed $12.5 million.
(c) Notwithstanding the foregoing, neither the Company nor any
Restricted Subsidiary shall Incur any Indebtedness pursuant to Section 4.3(b) if
the proceeds thereof are used, directly or indirectly, to Refinance any
Subordinated Obligations of the Company unless such new Indebtedness shall be
subordinated to the Notes to at least the same extent as such Subordinated
Obligations being Refinanced. No Subsidiary Guarantor shall incur any
Indebtedness pursuant to Section 4.3(b) if the proceeds thereof are used,
directly or indirectly, to Refinance any Guarantor Subordinated Obligation of
such Subsidiary Guarantor unless such Indebtedness shall be subordinated to the
obligations of such Subsidiary Guarantor under the Subsidiary Guarantee to at
least the same extent as such Guarantor Subordinated Obligation of such
Subsidiary Guarantor.
(d) The Company will not permit any Unrestricted Subsidiary to
Incur any Indebtedness other than Non-Recourse Debt, provided, however, if any
such Indebtedness ceases to be Non-Recourse Debt, such event shall be deemed to
constitute an Incurrence of Indebtedness by the Company or a Restricted
Subsidiary.
(e) For purposes of determining compliance with this Section
4.3, (i) in the event that an item of Indebtedness meets the criteria of more
than one of the types of Indebtedness described above, the Company will classify
(and may reclassify from time to time) such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in one of the above
clauses and (ii) an item of Indebtedness may be divided and classified in more
than one of the types of Indebtedness described above.
SECTION 4.4. Limitation on Restricted Payments. (a) The
Company will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, (i) declare or pay any dividend or make any distribution on or in
respect of its Capital Stock (including any payment in connection with any
merger or consolidation involving the Company) except dividends or distributions
payable solely in its Capital Stock (other than
<PAGE>
46
Disqualified Stock) or in options, warrants or other rights to purchase such
Capital Stock and except dividends or distributions payable to the Company or
another Restricted Subsidiary (and, if such Restricted Subsidiary making such
dividend or distribution is not wholly owned, to its other shareholders on a pro
rata basis), (ii) purchase, repurchase, redeem, retire or otherwise acquire or
retire for value any Capital Stock of the Company or any Restricted Subsidiary
held by Persons other than the Company or another Restricted Subsidiary, (iii)
purchase, repurchase, redeem, defease or otherwise acquire or retire for value,
prior to scheduled maturity, scheduled repayment or scheduled sinking fund
payment any Subordinated Obligations (other than regular scheduled payments of
interest and the purchase, repurchase or other acquisition of Subordinated
Obligations in anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each case due within one year of the date of
such purchase, repurchase or acquisition) or (iv) make any Investment (other
than a Permitted Investment) in any Person (any such dividend, distribution,
purchase, redemption, repurchase, defeasance, other acquisition, retirement,
payment or Investment being herein referred to as a 'Restricted Payment') if at
the time the Company or such Restricted Subsidiary makes such Restricted
Payment:
(1) a Default or Event of Default shall have occurred
and be continuing (or would result therefrom);
(2) the Company and its Restricted Subsidiaries could
not Incur at least $1.00 of additional Indebtedness under
Section 4.3(a); or
(3) the aggregate amount of such Restricted Payment and all
other Restricted Payments (the amount so expended, if other than in
cash, to be determined in good faith by the Board of Directors of the
Company) made subsequent to the Issue Date (excluding Restricted
Payments permitted by Section 4.4(b)(i), (ii), (iv) and (vii)), would
exceed the sum of: (A) 50% of the Consolidated Net Income with respect
to the period (treated as one accounting period) from the beginning of
the fiscal quarter in which the Issue Date occurs) to the end of the
most recent fiscal quarter for which internal financial statements are
available ending at least 30 days prior to the date of such Restricted
Payment (or, in case such Consolidated Net Income is a deficit, minus
100% of such deficit); (B) the aggregate Net Cash Proceeds received by
the Company from the issue or sale of Capital Stock (other than
Disqualified Stock) subsequent to the Issue Date (other than an
issuance or sale to a Subsidiary) and, without duplication, the
aggregate amount of any other capital contributions received by the
Company in cash subsequent to the Issue Date and on or prior to the
date the Restricted Payment occurs; (C) the amount by which
Indebtedness of the Company is reduced on the Company's balance sheet
upon the conversion or exchange (other than by
<PAGE>
47
a Restricted Subsidiary) subsequent to the Issue Date of any
Indebtedness of the Company convertible or exchangeable for Capital
Stock (other than Disqualified Stock) of the Company (less the amount
of any cash or other property distributed by the Company upon such
conversion or exchange); and (D) the amount equal to the net reduction
in Investments in Unrestricted Subsidiaries resulting from (i)
repayments of the principal of loans or advances or other transfers of
assets to the Company or any Restricted Subsidiary from Unrestricted
Subsidiaries or (ii) the redesignation of Unrestricted Subsidiaries as
Restricted Subsidiaries or (iii) the sale or liquidation of any
Unrestricted Subsidiaries (valued in each case as provided in the
definition of 'Investment') not to exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made by
the Company or any Restricted Subsidiary in such Unrestricted
Subsidiary, which amount was previously included in the calculation of
the amount of Restricted Payments.
(b) The provisions of Section 4.4(a) will not
prohibit:
(i) any purchase, redemption, defeasance or other acquisition
of Capital Stock of the Company or Subordinated Obligations made by
exchange for, or out of the net proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than
Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary); provided, however, that (A) such purchase, redemption,
defeasance or other acquisition will be excluded in the calculation of
the amount of Restricted Payments pursuant to Section 4.4(a)(3) and (B)
the Net Cash Proceeds from such sale will be excluded from Section
4.4(a)(3)(B);
(ii) any purchase, redemption, defeasance or other acquisition
of Subordinated Obligations made by exchange for, or out of the net
proceeds of the substantially concurrent sale of, Subordinated
Obligations of the Company; provided, however, that (A) the principal
amount of such new Indebtedness does not exceed the principal amount
(or accreted value, if applicable) of the Subordinated Obligations
being so redeemed, repurchased, defeased, acquired or retired for value
(plus the amount of any premium required to be paid under the terms of
the instrument governing the Subordinated Obligations being so
redeemed, repurchased, defeased, acquired or retired and related fees
and expenses) (except to the extent such excess is a result of a
simultaneous incurrence of additional Indebtedness permitted to be
incurred under this Indenture), (B) such new Indebtedness is
subordinated to the Securities on terms substantially the same as those
contained in the instrument or agreement governing or evidencing such
Subordinated Obligations so purchased, exchanged, redeemed,
<PAGE>
48
repurchased, defeased, acquired or retired for value, (C) such new
Indebtedness has a final scheduled maturity date no earlier than the
final scheduled maturity date of such Subordinated Obligations (or, if
earlier, the Securities) purchased, exchanged, redeemed, repurchased,
defeased, acquired or retired for value and (D) such new Indebtedness
has an Average Life equal to or greater than the Average Life of such
Subordinated Obligations purchased, exchanged, redeemed, repurchased,
defeased, acquired or retired for value; provided further, however,
that such purchase, redemption, defeasance or other acquisition will be
excluded in the calculation of the amount of Restricted Payments
pursuant to Section 4.4(a)(3);
(iii) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividend would
have complied with this covenant; provided, however, that the amount of
such dividend will be included in the calculation of the amount of
Restricted Payments pursuant to Section 4.4(a)(3);
(iv) Investments in securities not constituting cash or
Temporary Cash Investments received in connection with an Asset
Disposition made pursuant to the provisions of Section 4.6; provided
that such amounts will be excluded in the calculation of the amount of
Restricted Payments pursuant to Section 4.4(a)(3);
(v) the payment of scheduled dividends on, or the scheduled or
mandatory redemption, repurchase or retirement of, any Disqualified
Stock (other than Put/Call Preferred Stock) issued after the date
hereof in compliance with the provisions of this Indenture; provided
that such amounts will be included in the calculation of the amount of
Restricted Payments pursuant to Section 4.4(a)(3);
(vi) payments made with respect to the repurchase, redemption
or other acquisition or retirement for value of Management Equity
Interests (A) prior to the third anniversary of the Issue Date in an
aggregate principal amount not to exceed $500,000 in any twelve-month
period and (B) subsequent to the third anniversary of the Issue Date in
an aggregate principal amount not to exceed $2 million in any twelve
month period; provided that (1) subsequent to the third anniversary of
the Issue Date, the Company may make an additional $2 million of such
payments in any such twelve-month period if, after giving pro forma
effect to all such payments, the Consolidated Coverage Ratio would be
greater than 2.5:1, and (2) to the extent such Management Equity
Interests have been exchanged for Put/Call Promissory Notes or Put/Call
Preferred Stock incurred or issued in accordance with Section
4.3(b)(xi), such amounts may be applied toward the repurchase of or
payment on such Put/Call Promissory Notes and Put/Call Preferred Stock;
and provided further
<PAGE>
49
that such amounts will be included in the calculation of the
amount of Restricted Payments pursuant to Section 4.4(a)(3);
(vii) the repurchase of Management Equity Interests in
exchange for Put/Call Promissory Notes and Put/Call Preferred Stock
incurred or issued in accordance with Section 4.3(b)(xi); provided that
such repurchase will be excluded in the calculation of the amount of
Restricted Payments pursuant to Section 4.4(a)(3); and
(viii) other Restricted Payments in an aggregate amount not to
exceed $5 million; provided that such amounts will be included in the
calculation of the amount of Restricted Payments pursuant to Section
4.4(a)(3);
provided, however, that at the time of, and after giving effect to, any
Restricted Payment permitted by clauses (v), (vi), and (viii) of this Section
4.4(b) no Default or Event of Default shall have occurred and be continuing. In
addition, payments and transactions permitted pursuant to Section 4.7(b)(v),
(vi), (vii), (viii), (ix) and (x) shall not be deemed to be Restricted Payments.
SECTION 4.5. Limitation on Restrictions on Distributions from
Restricted Subsidiaries. The Company will not, and will not permit any
Restricted Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions on
its Capital Stock or pay any Indebtedness or other obligation owed to the
Company, (ii) make any loans or advances to the Company or (iii) transfer any of
its property or assets to the Company or any Restricted Subsidiary, except:
(1) any encumbrance or restriction pursuant to an agreement in effect
at or entered into on the Issue Date (including pursuant to the New Credit
Facility);
(2) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Capital Stock of such
Restricted Subsidiary or Indebtedness Incurred by such Restricted Subsidiary on
or prior to the date on which such Restricted Subsidiary was acquired by the
Company or a Restricted Subsidiary and outstanding on such date (other than
Indebtedness Incurred in connection with, or in contemplation of, the
transaction or series of related transactions pursuant to which such Restricted
Subsidiary became a Restricted Subsidiary or was acquired by the Company or a
Restricted Subsidiary);
(3) any encumbrance or restriction contained in agreements or
instruments with respect to purchase money obligations for property acquired in
the ordinary course of business that impose restrictions of the nature described
in clause (iii) of this Section 4.5 on the property so acquired;
<PAGE>
50
(4) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement referred to in
clause (1), (2) or (3) of this Section 4.5 or contained in any amendment to an
agreement referred to in clause (1), (2) or (3) of this Section 4.5; provided,
however, that the encumbrances and restrictions contained in any such
refinancing agreement or amendment are not, taken as a whole, materially less
favorable to the Noteholders than the encumbrances and restrictions contained in
any such agreement as determined in good faith by the Company;
(5) in the case of clause (iii) of this Section 4.5, any encumbrance or
restriction (A) that restricts in a customary manner the subletting, assignment
or transfer of any property or asset that is subject to a lease, license or
similar contract, (B) by virtue of any transfer of, agreement to transfer,
option or right with respect to, or Lien on, any property or assets of the
Company or any Restricted Subsidiary not otherwise prohibited by this Indenture
or (C) contained in security agreements, mortgages or Capitalized Lease
Obligations securing Indebtedness of a Restricted Subsidiary to the extent such
encumbrance or restrictions restrict the transfer of the property subject to
such security agreements, mortgages or Capitalized Lease Obligations;
(6) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of Capital
Stock or assets of such Restricted Subsidiary pending the closing of such sale
or disposition;
(7) any encumbrance or restriction arising under or by
reason of applicable law;
(8) any encumbrance or restriction contained in this
Indenture;
(9) customary net worth provisions contained in leases and other
agreements entered into by a Restricted Subsidiary in the ordinary course of
business; and
(10) customary restrictions contained in any agreements or
documentation governing Indebtedness issued pursuant to Section 4.3(b)(xiii);
provided that such restrictions are no more restrictive, taken as a whole, than
those pursuant to the New Credit Facility.
SECTION 4.6. Limitation on Sales of Assets and Subsidiary
Stock. (a) The Company will not, and will not permit any Restricted Subsidiary
to, make any Asset Disposition unless (i) the Company or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at least
equal to the fair market value, as determined in good faith by the Board of
Directors of the Company (including as to the value of all non cash
consideration), of the shares and assets subject
<PAGE>
51
to such Asset Disposition, (ii) at least 75% of the consideration thereof
received by the Company or such Restricted Subsidiary is in the form of cash or
Temporary Cash Investments and (iii) an amount equal to 100% of the Net
Available Cash from such Asset Disposition is applied by the Company or such
Restricted Subsidiary, as the case may be, within 365 days from the later of the
date of such Asset Disposition or the receipt of such Net Available Cash (A)
first, to the extent the Company or any Restricted Subsidiary, as the case may
be, elects (or is required by the terms of the New Credit Facility or any Senior
Indebtedness), to prepay, repay or purchase Indebtedness under the New Credit
Facility or other Senior Indebtedness or Indebtedness (other than Disqualified
Stock) of a Wholly Owned Subsidiary (in each case other than Indebtedness owed
to the Company or an Affiliate of the Company); (B) second, to the extent of any
remaining balance of Net Available Cash after any election in accordance with
clause (A) of this Section 4.6(a), (or in any combination with clause (A)) to
the extent the Company or such Restricted Subsidiary, as the case may be,
elects, to the investment by the Company or any Wholly Owned Subsidiary in
Additional Assets; (C) third, to the extent of any remaining balance of such Net
Available Cash after any election in accordance with clauses (A) and (B) of this
Section 4.6(a), to make an Offer (as defined below) to purchase Notes pursuant
to and subject to the conditions set forth in Section 4.6(b) within 45 days from
the 365th day after the later of the date of such Asset Disposition and the
receipt of such Net Available Cash; and (D) fourth, to the extent of any
remaining balance of such Net Available Cash after election or application in
accordance with clauses (A), (B) and (C) of this Section 4.6(a), to general
corporate purposes; provided, however, that in connection with any prepayment,
repayment, purchase or other acquisition of Indebtedness pursuant to clause (A)
of this Section 4.6(a), the Company or such Restricted Subsidiary will retire
such Indebtedness and will cause any related loan commitment or availability (if
any) to be permanently reduced in an amount equal to the principal amount so
prepaid, repaid or purchased.
Notwithstanding the provisions of this Section 4.6(a), the
Company and its Restricted Subsidiaries shall not be required to apply any Net
Available Cash in accordance herewith except to the extent that the aggregate
Net Available Cash from all Asset Dispositions which are not applied in
accordance with this Section 4.6 exceeds $2,000,000. The Company shall not be
required to make an Offer for Securities pursuant to this Section 4.6 if the Net
Available Cash available therefor (after application of the proceeds as provided
in clauses (A) and (B) of this Section 4.6(a)) is less than $5,000,000 (which
lesser amounts shall be carried forward for purposes of determining whether an
Offer is required with respect to the Net Available Cash from subsequent Asset
Dispositions).
For the purposes of this Section 4.6(a), the following
are deemed to be cash: (x) the assumption by the transferee of
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52
Indebtedness of the Company or any Restricted Subsidiary (other than
Indebtedness that is subordinated to the Securities or the Subsidiary
Guarantees) and the release of the Company or such Restricted Subsidiary from
all liability on such Indebtedness in connection with such Asset Disposition,
and (y) securities received by the Company or any Restricted Subsidiary from the
transferee that are promptly converted by the Company or such Restricted
Subsidiary into cash or Temporary Cash Investments.
(b) In the event of an Asset Disposition that requires the
purchase of Securities pursuant to Section 4.6(a)(iii)(C), the Company will be
required to purchase Securities tendered pursuant to an offer by the Company for
the Securities (the "Offer") at a purchase price of 100% of their principal
amount plus accrued interest and Liquidated Damages, if any, to the date of
purchase in accordance with the procedures (including prorating in the event of
oversubscription) set forth in this Indenture. If the aggregate purchase price
of Securities tendered pursuant to the Offer is less than the Net Available Cash
allotted to the purchase of the Securities, the Company will apply the remaining
Net Available Cash in accordance with Section 4.6(a)(iii)(D).
Promptly, and in any event within 30 days after the Company
becomes obligated to make an Offer, the Company shall be obligated to deliver to
the Trustee and send, by first-class mail to each Holder, at the address
appearing in the Security Register, a written notice stating that the Holder may
elect to have his Securities purchased by the Company either in whole or in part
(subject to prorationing as hereinafter described in the event the Offer is
oversubscribed) in integral multiples of $1,000 of principal amount, at the
applicable purchase price. The notice shall specify a purchase date not less
than 30 days nor more than 60 days after the date of such notice (the "Purchase
Date") and shall contain (i) the most recently filed Annual Report on Form 10-K
(including audited consolidated financial statements) of the Company, the most
recent subsequently filed Quarterly Report on Form 10-Q of the Company and any
Current Report on Form 8-K of any the Company filed subsequent to such Quarterly
Report, other than Current Reports describing Asset Dispositions otherwise
described in the offering materials (or corresponding successor reports), (ii) a
description of material developments in the Company's business subsequent to the
date of the latest of such Reports, and (iii) if material, appropriate pro forma
financial information and all instructions and materials necessary to tender
Securities pursuant to the Offer, together with the information contained in
clause (3).
Not later than the date upon which written notice of an Offer
is delivered to the Trustee as provided below, the Company shall deliver to the
Trustee an Officers' Certificate as to (i) the amount of the Offer the "Offer
Amount"), (ii) the allocation of the Net Available Cash from the Asset
Dispositions pursuant to
<PAGE>
53
which such Offer is being made and (iii) the compliance of such allocation with
the provisions of Section 4.6(a). Upon the expiration of the period for which
the Offer remains open (the "Offer Period"), the Company shall deliver to the
Trustee for cancellation the Securities or portions thereof which have been
properly tendered to and are to be accepted by the Company. Not later than 11:00
a.m. (New York City time) on the Purchase Date, the Company shall irrevocably
deposit with the Trustee or with a paying agent (or, if the Company is acting as
Paying Agent, segregate and hold in trust) an amount in cash sufficient to pay
the Offer Amount for all Securities properly tendered to and accepted by the
Company. The Trustee shall, on the Purchase Date, mail or deliver payment to
each tendering Holder in the amount of the purchase price.
Holders electing to have a Security purchased will be required
to surrender the Security, together with all necessary endorsements and other
appropriate materials duly completed, to the Company at the address specified in
the notice at least three Business Days prior to the Purchase Date. Holders will
be entitled to withdraw their election in whole or in part if the Trustee or the
Company receives not later than one Business Day prior to the Purchase Date, a
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Security which shall be $1,000 or an integral multiple
thereof) which was delivered for purchase by the Holder, the aggregate principal
amount of such Security (if any) that remains subject to the original notice of
the Offer and that has been or will be delivered for purchase by the Company and
a statement that such Holder is withdrawing his election to have such Security
purchased. If at the expiration of the Offer Period the aggregate principal
amount of Securities surrendered by Holders exceeds the Offer Amount, the
Company shall select the Securities to be purchased on a pro rata basis (with
such adjustments as may be deemed appropriate by the Company so that only
securities in denominations of $1,000, or integral multiples thereof, shall be
purchased). Holders whose Securities are purchased only in part will be issued
new Securities equal in principal amount to the unpurchased portion of the
Securities surrendered.
A Security shall be deemed to have been accepted for purchase
at the time the Trustee, directly or through an agent, mails or delivers payment
therefor to the surrendering Holder.
(c) The Company shall comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Securities pursuant to
this Section 4.6. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section 4.6, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this Section 4.6 by virtue
thereof.
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54
SECTION 4.7. Limitation on Affiliate Transactions. (a) The
Company will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, enter into or conduct any transaction or series of transactions
(including the purchase, sale, lease or exchange of any property, or rendering
of any service) with any Affiliate of the Company or a Restricted Subsidiary (an
"Affiliate Transaction") unless (i) the terms of such transaction are no less
favorable to the Company or such Restricted Subsidiary, as the case may be, than
those that could be obtained at the time of such transaction in arm's-length
dealings with a Person who is not such an Affiliate; (ii) in the event such
Affiliate Transaction involves an aggregate amount in excess of $1,000,000, the
terms of such transaction shall have been approved by a majority of the members
of the Board of Directors of the Company (and such majority determines that such
Affiliate Transaction satisfies the criteria in clause (i) of this Section
4.7(a)) and (iii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $5,000,000, the Company has received a written opinion from
a nationally recognized independent investment banking, accounting or appraisal
firm that such Affiliate Transaction is fair to the Company or such Restricted
Subsidiary from a financial point of view.
(b) The foregoing shall not apply to:
(i) any Restricted Payment permitted to be made
pursuant to Section 4.4,
(ii) any issuance of securities, or other payments, awards or
grants in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans
approved by the Board of Directors of the Company,
(iii) any fees, indemnities, loans or advances to
employees in the ordinary course of business,
(iv) any transaction between the Company and a
Restricted Subsidiary or between Restricted Subsidiaries,
(v) any agreement in effect on the Issue Date or any amendment
thereto or transaction contemplated thereby (and any replacement or
amendment of any such agreement so long as any such amendment or
replacement thereof is not materially less favorable to the Holders
than the original agreement in effect on the Issue Date),
(vi) payments by the Company or any of its Restricted
Subsidiaries to Mentmore and/or its Affiliates made for any financial
advisory, financing, underwriting or placement services or in respect
of other investment banking activities, including, without limitation,
in connection with acquisitions or divestitures, which payments are
<PAGE>
55
approved by a majority of the members of the Board of
Directors of the Company in good faith;
(vii) payments under any tax sharing agreement to the extent
such payments do not otherwise exceed the tax liability the Company
would have had were it not party to such tax sharing agreement;
(viii) any other payment or reimbursement of reasonable and
customary fees and expenses incurred by an Affiliate for services
rendered to the Company or any of its Restricted Subsidiaries not to
exceed $250,000 in any twelve-month period (without duplication for any
amounts paid pursuant to any other clause of this Section 4.7);
(ix) the application of the proceeds of the Offering
and the transactions entered into in connection therewith in
the manner contemplated in the Offering Memorandum; and
(x) (A) payments under the Management Agreement in an amount
not to exceed $750,000 in any fiscal year and (B) after the first
anniversary of the Issue Date, additional payments under the Management
Agreement in an amount not to exceed 1% of the Company's total
consolidated sales in any fiscal year less any amount paid pursuant to
the preceding clause (A) of this Section 4.7(b)(x), provided, in the
case of clause (B) of this Section 4.7(b)(x), that the Company's
Consolidated Coverage Ratio, after giving pro forma effect to such
payment, is equal to or greater than 2.25 to 1, in each case plus
reasonable expenses incurred in connection with and reimbursable under
the Management Agreement.
SECTION 4.8. Change of Control. (a) Upon a Change of Control,
each Holder shall have the right to require that the Company repurchase all or
any part of such Holder's Securities at a purchase price in cash equal to 101%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
the date of repurchase (subject to the right of Holders of record on the
relevant record date to receive interest due on the related interest payment
date), in accordance with the terms contemplated in Section 4.8(b).
(b) (i) Within 30 days following any Change of Control, the
Company shall mail a notice to each Holder with a copy to the Trustee stating:
(1) that a Change of Control has occurred and that such Holder
has the right to require the Company to purchase any or all of such
Holder's Securities in denominations of $1,000 or any integral multiple
thereof at a purchase price in cash equal to 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date
of repurchase (subject to the right of Holders of record on a
<PAGE>
56
record date to receive interest on the relevant interest
payment date);
(2) the circumstances and relevant facts regarding
such Change of Control;
(3) the repurchase date (which shall be no earlier than 30
days nor later than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Company, consistent
with this covenant, that a Holder must follow in order to have its
Securities purchased by the Company.
(c) Holders electing to have a Security purchased will be
required to surrender the Security, together with all necessary endorsements and
other appropriate materials duly completed, to the Company at the address
specified in the notice at least three Business Days prior to the purchase date.
Holders will be entitled to withdraw their election if the Trustee or the
Company receives not later than one Business Day prior to the purchase date, a
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Security which was delivered for purchase by the Holder
as to which such notice of withdrawal is being submitted and a statement that
such Holder is withdrawing his election to have such Security purchased.
(d) On the purchase date, all Securities purchased by the
Company under this Section shall be delivered to the Trustee for cancellation,
and the Company shall pay the purchase price plus accrued and unpaid interest,
if any, to the Holders entitled thereto.
(e) The Company will comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Securities pursuant to
this Section 4.8. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section 4.8, the Company will
comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under this Section 4.8 by virtue
thereof.
(f) Notwithstanding the occurrence of a Change of Control, the
Company shall not be obligated to repurchase the Securities or otherwise comply
with this Section if the Company has irrevocably elected to redeem all the
Securities in accordance with Article 3; provided that the Company does not
default in its redemption obligations pursuant to such election.
SECTION 4.9. Limitation on Sales of Subsidiary Capital
Stock. The Company (i) will not, and will not permit any
Restricted Subsidiary of the Company to, transfer, convey, sell,
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57
lease or otherwise dispose of any Capital Stock of any Restricted Subsidiary to
any Person (other than to the Company or a Wholly Owned Subsidiary) and (ii)
will not permit any Restricted Subsidiary to issue any of its Capital Stock
(other than to management of such Restricted Subsidiary and, if necessary,
shares of its Capital Stock constituting directors' qualifying shares) to any
Person other than to the Company or a Wholly Owned Subsidiary, unless (a) after
any such transfer, conveyance, sale, lease, disposition or issuance, such
Restricted Subsidiary continues to be a Restricted Subsidiary and (b) the net
cash proceeds from such transfer, conveyance, sale, lease, disposition or
issuance are applied in accordance with Section 4.6; provided, however, that
this provision shall not prohibit the transfer, conveyance, sale, lease or other
disposition of all of the Capital Stock of any Restricted Subsidiary or the
retention of Preferred Stock which is not Disqualified Stock in connection with
any such transfer, conveyance, sale, lease or other disposition.
SECTION 4.10. Limitation on Liens. The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, assume or suffer to exist any Lien (other than Permitted Liens)
securing Indebtedness or trade payables on any asset now owned or hereafter
acquired, or any income or profits therefrom or assign or convey any right to
receive income therefrom, unless contemporaneously therewith effective provision
is made to secure the Securities equally and ratably with such Indebtedness or
trade payable for so long as such Indebtedness or trade payable is secured by a
Lien.
SECTION 4.11. Limitation on Layering. The Company shall not
Incur any Indebtedness if such Indebtedness is by its terms contractually
subordinate or junior in ranking in any respect to any Senior Indebtedness
unless such Indebtedness is Senior Subordinated Indebtedness or is contractually
subordinated in right of payment to Senior Subordinated Indebtedness. No
Subsidiary Guarantor shall Incur any Indebtedness if such Indebtedness is by its
terms subordinate or junior in ranking in any respect to any Guarantor Senior
Indebtedness of such Subsidiary Guarantor unless such Indebtedness is Guarantor
Senior Subordinated Indebtedness of such Subsidiary Guarantor or is
contractually subordinated in right of payment to Guarantor Senior Subordinated
Indebtedness of such Subsidiary Guarantor.
SECTION 4.12. Future Guarantors. The Company shall cause each
new Subsidiary having either net assets or stockholders' equity in excess of
$50,000 (other than (i) a new Subsidiary designated as an Unrestricted
Subsidiary and (ii) Foreign Subsidiaries) to become a Subsidiary Guarantor under
this Indenture and thereby Guarantee the Securities on the terms and conditions
set forth in this Indenture.
<PAGE>
58
SECTION 4.13. Compliance Certificate. The Company and each
Subsidiary Guarantor shall deliver to the Trustee within 120 days after the end
of each fiscal year of the Company an Officers' Certificate signed by the chief
executive officer, the chief financial officer or the chief accounting officer
stating that in the course of the performance by the signers of their duties as
Officers of the Company they would normally have knowledge of any Default or
Event of Default and whether or not the signers know of any Default or Event of
Default that occurred during such period. If they do, the certificate shall
describe the Default or Event of Default, its status and what action the Company
is taking or proposes to take with respect thereto. The Company also shall
comply with TIA ss. 314(a)(4).
SECTION 4.14. Further Instruments and Acts. Upon request of
the Trustee, the Company will execute and deliver such further instruments and
do such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
SECTION 4.15. Maintenance of Office or Agency. The Company
shall maintain the office or agency required under Section 2.3. The Company
shall give prior written notice to the Trustee of the location, and any change
in the location, of such office or agency. If at any time the Company shall
fail to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the address of the Trustee set forth in Section
12.2.
SECTION 4.16. Corporate Existence. Except as otherwise
permitted by Article V, the Company shall do or cause to be done, at its own
cost and expense, all things necessary to preserve and keep in full force and
effect its corporate existence and the corporate existence of each of its
Subsidiaries in accordance with the respective organizational documents of each
such Subsidiary and the material rights (charter and statutory) and franchises
of the Company and each such Subsidiary; provided, however, that the Company
shall not be required to preserve, with respect to itself, any material right or
franchise and, with respect to any of its Subsidiaries, any such existence,
material right or franchise, if the Board of Directors of the Company shall
determine in good faith that the preservation thereof is no longer desirable in
the conduct of the business of the Company and the Subsidiaries, taken as a
whole.
SECTION 4.17. Payment of Taxes and Other Claims. The Company
shall pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (i) all material taxes, assessments and governmental charges
(including withholding taxes and any penalties, interest and additions to taxes)
levied or imposed upon it or any of its Subsidiaries or properties of it or any
of its Subsidiaries and (ii) all lawful claims for labor, materials and supplies
that, if unpaid, might by law become a
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Lien upon the property of it or any of its Subsidiaries; provided, however, that
the Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings properly
instituted and diligently conducted for which adequate reserves, to the extent
required under GAAP, have been taken.
SECTION 4.18. Maintenance of Properties and Insurance. (a) The
Company shall, and shall cause each of its Subsidiaries to, maintain its
material properties in good working order and condition (subject to ordinary
wear and tear) and make all necessary repairs, renewals, replacements,
additions, betterments and improvements thereto and actively conduct and carry
on its business; provided, however, that nothing in this Section 4.18 shall
prevent the Company or any of its Subsidiaries from discontinuing the operation
and maintenance of any of its properties, if such discontinuance is, in the good
faith judgment of the Board of Directors of the Company or the Subsidiary, as
the case may be, desirable in the conduct of their respective businesses and is
not disadvantageous in any material respect to the Holders.
(b) The Company shall provide or cause to be provided, for
itself and each of its Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds that, in the good faith
judgment of the Board of Directors of the Company, are adequate and appropriate
for the conduct of the business of the Company and such Subsidiaries in a
prudent manner, with reputable insurers or with the government of the United
States of America or any agency or instrumentality thereof, in such amounts,
with such deductibles, and by such methods as shall be customary, in the good
faith judgment of the Board of Directors of the Company, for companies similarly
situated in the industry.
SECTION 4.19. Compliance with Laws. The Company shall comply,
and shall cause each of its Subsidiaries to comply, with all applicable
statutes, rules, regulations, orders and restrictions of the United States of
America, all states and municipalities thereof, and of any governmental
department, commission, board, regulatory authority, bureau, agency and
instrumentality of the foregoing, in respect of the conduct of their respective
businesses and the ownership of their respective properties, except for such
noncompliances as are not in the aggregate reasonably likely to have a material
adverse effect on the financial condition or results of operations of the
Company and its Subsidiaries, taken as a whole.
ARTICLE V
Successor Company
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SECTION 5.1. When the Company May Merge or Transfer Assets.
The Company will not consolidate with or merge with or into, or convey, transfer
or lease all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the
"Successor Company") will be a corporation organized and existing under
the laws of the United States of America, any State thereof or the
District of Columbia and the Successor Company (if not the Company)
will expressly assume, by supplemental indenture, executed and
delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Securities and this Indenture;
(ii) immediately after giving pro forma effect to such
transaction (and treating any Indebtedness which becomes an obligation
of the Successor Company or any Restricted Subsidiary as a result of
such transaction as having been Incurred by the Successor Company or
such Restricted Subsidiary at the time of such transaction), no Default
or Event of Default will have occurred and be continuing;
(iii) immediately after giving pro forma effect to such
transaction, the Successor Company would be able to Incur an additional
$1.00 of Indebtedness under Section 4.3(a);
(iv) immediately after giving effect to such transaction,
the Successor Company will have a Consolidated Net Worth in an amount
which is not less than the Consolidated Net Worth of the Company
immediately prior to such transaction; and
(v) the Company will have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if
any) comply with this Indenture, as set forth in this Indenture.
The Successor Company will succeed to, and be substituted for,
and may exercise every right and power of, the Company under this Indenture, but
the predecessor Company in the case of a lease of all its assets or
substantially all its assets will not be released from the obligation to pay the
principal of and interest on the Securities.
Notwithstanding the foregoing clauses (iii) and (iv), any
Wholly Owned Subsidiary may consolidate with, merge into or transfer all or part
of its properties and assets to the Company.
SECTION 5.2. When Subsidiary Guarantor May Merge or
Transfer Assets. No Subsidiary Guarantor may consolidate with or
merge with or into any Person other than the Company or any other
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Subsidiary Guarantor or sell substantially all of its assets unless:
(i) subject to the provisions of Section 11.9, the entity
formed by or surviving any such consolidation or merger (if other than
the Subsidiary Guarantor) or to which such sale, lease, conveyance or
other disposition shall have been made is a corporation organized and
existing under the laws of the United States or any State thereof or
the District of Columbia;
(ii) subject to the provisions of Section 11.9, such entity
assumes by supplemental indenture all of the obligations of the
Subsidiary Guarantor under the Indenture and the Subsidiary Guarantee;
(iii) immediately after giving effect to such transaction,
no Default or Event of Default shall have occurred and be continuing;
(iv) immediately after giving pro forma effect to such
transaction either (A) the Company would have been able to incur $1.00
of additional Indebtedness pursuant to Section 4.3(a) or (B) the
Company's Consolidated Coverage Ratio would be no less than such
Consolidated Coverage Ratio immediately prior to such transaction; and
(v) the Subsidiary Guarantor will have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each
stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with this Indenture, as set
forth in this Indenture.
Notwithstanding the foregoing, each Subsidiary Guarantor may
consolidate with or merge into or sell its assets to the Company or another
Subsidiary Guarantor.
ARTICLE VI
Defaults and Remedies
SECTION 6.1. Events of Default. An "Event of Default"
occurs if:
(1) the Company defaults in any payment of interest on, or
Liquidated Damages, if any, with respect to any Security when the same
becomes due and payable, whether or not such payment shall be
prohibited by Article X, and such default continues for a period of 30
days;
(2) the Company defaults in the payment of the principal or
premium, if any, of any Security when the same becomes due and payable
at its Stated Maturity, upon
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optional redemption, upon required repurchase, upon declaration or
otherwise, in each case whether or not such payment shall be prohibited
by Article X;
(3) the Company fails to comply with Article V;
(4) the Company fails to comply with Section 4.2, 4.3, 4.4,
4.5, 4.6, 4.7, 4.8, 4.9, 4.10, 4.11 or 4.12 (other than a failure to
repurchase Securities when required pursuant to Section 4.6 or 4.8
which failure shall constitute an Event of Default under Section
6.1(2)) and such failure continues for 30 days after the notice
specified below;
(5) the Company or any Subsidiary Guarantor fails to comply
with any of its agreements in the Securities or this Indenture (other
than those referred to in (1), (2), (3) or (4) above) and such failure
continues for 60 days after the notice specified below;
(6) the Company or any Significant Subsidiary fails to pay any
interest or principal of or premium on any Indebtedness within any
applicable grace period provided in such Indebtedness after final
maturity or the acceleration of any such Indebtedness by the holders
thereof because of a default and the total amount of such Indebtedness
unpaid or accelerated exceeds $10 million or its foreign currency
equivalent at the time;
(7) the Company or a Significant Subsidiary of the Company
pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief
against it in an involuntary case in which it is the
debtor;
(C) consents to the appointment of a Custodian of
it or for any substantial part of its property; or
(D) makes a general assignment for the benefit of
its creditors;
or takes any comparable action under any foreign laws
relating to insolvency;
(8) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company or any
Significant Subsidiary of the Company in an involuntary
case;
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(B) appoints a Custodian of the Company or any
Significant Subsidiary or for any substantial part of its
property of the Company or Significant Subsidiary; or
(C) orders the winding up or liquidation of the
Company or any Significant Subsidiary of the Company;
(or any similar relief is granted under any foreign laws) and the
order, decree or relief remains unstayed and in effect for 60 days;
(9) any final, non-appealable judgment or decree by a court of
competent jurisdiction for the payment of money in excess of $10
million or its foreign currency equivalent at the time is entered
against the Company or any Significant Subsidiary of the Company and
such judgment or decree remains unpaid and outstanding for a period of
60 days following such judgment and is not discharged, waived or
stayed; or
(10) except as otherwise permitted by this Indenture, any
Subsidiary Guarantee ceases to be in full force and effect or any
Subsidiary Guarantor denies or disaffirms its obligations under this
Indenture or its Subsidiary Guarantee.
The foregoing will constitute Events of Default whatever the
reason for any such Event of Default and whether it is voluntary or involuntary
or is 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.
The term "Bankruptcy Law" means Title 11, United States Code,
or any similar Federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, custodian or
similar official under any Bankruptcy Law.
A Default under clause (4) or (5) of this Section 6.1 is not
an Event of Default until the Trustee by notice to the Company or the Holders of
at least 25% in principal amount of the outstanding Securities by notice to the
Company gives notice of the Default and the Company does not cure such Default
within the time specified in said clause (4) or (5) after receipt of such
notice. Such notice must specify the Default, demand that it be remedied and
state that such notice is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days after
the occurrence thereof, written notice in the form of an Officers' Certificate
of any Event of Default under clause (6) of this Section 6.1 and any event which
with the giving of notice or the lapse of time would become an Event of Default
under
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clause (4), (5) or (9) of this Section 6.1 and what action the Company is taking
or proposes to take with respect thereto.
SECTION 6.2. Acceleration. If an Event of Default (other than
an Event of Default specified in Section 6.1(7) or (8) with respect to the
Company) occurs and is continuing, the Trustee by notice to the Company, or the
Holders of at least 25% in aggregate principal amount of the outstanding
Securities by notice to the Company and the Trustee, may declare the principal
of and accrued but unpaid interest on all the Securities to be due and payable;
provided that, so long as any Designated Senior Indebtedness shall be
outstanding, such acceleration shall not be effective until the earlier of (i)
an acceleration of any such Designated Senior Indebtedness and (ii) five
Business Days after receipt by the Company and the Representatives of written
notice of such acceleration. Upon such a declaration, such principal and
interest shall be due and payable immediately. If an Event of Default specified
in Section 6.1(7) or (8) with respect to the Company occurs and is continuing,
the principal of and accrued interest on all the Securities shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holders. The Holders of a majority in
aggregate principal amount of the outstanding Securities by notice to the
Trustee may rescind an acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of acceleration and the Trustee has been paid all
amounts due to it pursuant to Section 7.7. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
SECTION 6.3. Other Remedies. If an Event of Default occurs and
is continuing, the Trustee may pursue any available remedy to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the proceeding.
A delay or omission by the Trustee or any Securityholder in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are, to the extent
permitted by law, cumulative.
SECTION 6.4. Waiver of Past Defaults. The Holders of a
majority in aggregate principal amount of the Securities then outstanding by
notice to the Trustee may waive any past or existing Default and its
consequences except (i) a Default in the payment of the principal of or interest
on a Security or (ii) a Default in respect of a provision that under Section 9.2
cannot be amended without the consent of each Securityholder affected.
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When a Default is waived, it is deemed cured, and any Event of Default arising
therefrom shall be deemed to have been cured, but no such waiver shall extend to
any subsequent or other Default or impair any consequent right.
SECTION 6.5. Control by Majority. The Holders of a majority in
aggregate principal amount of the Securities then outstanding may direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee.
However, the Trustee may refuse to follow any direction that conflicts with law
or this Indenture or, subject to Section 7.1, that the Trustee determines is
unduly prejudicial to the rights of other Securityholders or would involve the
Trustee in personal liability; provided, however, that the Trustee may take any
other action deemed proper by the Trustee that is not inconsistent with such
direction. Prior to taking any action hereunder, the Trustee shall be entitled
to indemnification from the Securityholders satisfactory to it in its sole
discretion against all losses and expenses caused by taking or not taking such
action.
SECTION 6.6. Limitation on Suits. A Holder may not
pursue any remedy with respect to this Indenture or the
Securities unless:
(i) the Holder gives to the Trustee written notice
stating that an Event of Default is continuing;
(ii) the Holders of at least 25% in aggregate principal amount
of the Securities then outstanding make a written request to the
Trustee to pursue the remedy;
(iii) such Holder or Holders offer to the Trustee
reasonable security or indemnity against any loss, liability
or expense;
(iv) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of security or
indemnity; and
(v) the Holders of a majority in aggregate principal amount of
the Securities then outstanding do not give the Trustee a direction
inconsistent with the request during such 60-day period.
A Securityholder may not use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over
another Securityholder.
SECTION 6.7. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right
of any Holder to receive payment of principal of and interest on
the Securities held by such Holder, on or after the respective
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due dates expressed in the Securities, or to bring suit for the enforcement of
any such payment on or after such respective dates, shall not be impaired or
affected without the consent of such Holder.
SECTION 6.8. Collection Suit by Trustee. If an Event of
Default specified in Section 6.1(1) or (2) occurs and is continuing, the Trustee
may recover judgment in its own name and as trustee of an express trust against
the Company for the whole amount then due and owing (together with interest on
any unpaid interest to the extent lawful) and the amounts provided for in
Section 7.7.
SECTION 6.9. Trustee May File Proofs of Claim. The Trustee
may file such proofs of claim and other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company, its creditors or
its property and, unless prohibited by law or applicable regulations, may vote
on behalf of the Holders in any election of a trustee in bankruptcy or other
Person performing similar functions, and any Custodian in any such judicial
proceeding is hereby authorized by each Holder to make payments to the Trustee
and, in the event that the Trustee shall consent to the making of such payments
directly to the Holders, to pay to the Trustee any amount due it for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and its counsel, and any other amounts due the Trustee under Section
7.7.
SECTION 6.10. Priorities. If the Trustee collects any
money or property pursuant to this Article VI, it shall pay out
the money or property in the following order:
FIRST: to the Trustee for amounts due under Section
7.7;
SECOND: to holders of Senior Indebtedness and
Guarantor Senior Indebtedness to the extent required by
Article X;
THIRD: to Securityholders for amounts due and unpaid
on the Securities for principal and interest, ratably,
without preference or priority of any kind, according to the
amounts due and payable on the Securities for principal and
interest, respectively; and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any
payment to Securityholders pursuant to this Section. At least 15 days before
such record date, the Company shall mail to each Securityholder and the Trustee
a notice that states the record date, the payment date and amount to be paid.
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SECTION 6.11. Undertaking for Costs. In any suit for the
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as Trustee, a court in its
discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees and expenses,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section does
not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7
or a suit by Holders of more than 10% in aggregate principal amount of the
outstanding Securities.
SECTION 6.12. Waiver of Stay or Extension Laws. The Company
(to the extent it may lawfully do so) shall not at any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of this Indenture; and
the Company (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and shall not hinder, delay or impede
the execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law had been enacted.
ARTICLE VII
Trustee
SECTION 7.1. Duties of Trustee. (a) If an Event of Default has
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
their exercise as a prudent Person would exercise or use under the circumstances
in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of
Default:
(i) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, in the case of any such certificates or
opinions which by any provision hereof are specifically
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68
required to be furnished to the Trustee, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to
the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(i) this paragraph does not limit the effect of
paragraph (b) of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.5.
(d) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) Money held in trust by the Trustee need not be segregated
from other funds except to the extent required by law.
(f) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(g) Every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.2. Rights of Trustee. (a) The Trustee may
rely on any document believed by it to be genuine and to have
been signed or presented by the proper person. The Trustee need
not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
the Officers' Certificate or Opinion of Counsel.
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(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Trustee's conduct does not
constitute wilful misconduct or negligence.
(e) The Trustee may consult with counsel of its selection, and
the advice or opinion of counsel with respect to legal matters relating to this
Indenture and the Securities shall be full and complete authorization and
protection from liability in respect to any action taken, omitted or suffered by
it hereunder in good faith and in accordance with the advice or opinion of such
counsel.
(f) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such Holders
shall have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance with
such request or direction.
(g) The Trustee shall not be charged with knowledge of any
Default or Event of Default with respect to the Securities unless either (1) a
Trust Officer shall have actual knowledge of such Default or Event of Default or
(2) written notice of such Default or Event of Default shall have been given to
the Trustee by the Company or any other obligor on the Securities or by any
Holder of the Securities.
SECTION 7.3. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its respective Affiliates with the
same rights it would have if it were not Trustee. Any Paying Agent, Registrar,
co-registrar or co-paying agent may do the same with like rights. However, the
Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.4. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture, the Securities or any Subsidiary Guarantee, it shall not be
accountable for the Company's use of the proceeds from the Securities, and it
shall not be responsible for any statement of the Company or any Subsidiary
Guarantor in this Indenture or in any document issued in connection with the
sale of the Securities or in the Securities other than the Trustee's certificate
of authentication.
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SECTION 7.5. Notice of Defaults. If a Default occurs and is
continuing and if it is known to the Trustee, the Trustee shall mail to each
Securityholder notice of the Default within 30 days after it is known to a Trust
Officer or written notice of it is received by the Trustee. Except in the case
of a Default in payment of principal of, premium (if any) or interest on any
Security (including payments pursuant to the mandatory redemption provisions of
such Security, if any), the Trustee may withhold the notice if and so long as a
committee of its Trust Officers in good faith determines that withholding the
notice is in the interests of Securityholders.
SECTION 7.6. Reports by Trustee to Holders. As promptly as
practicable after each May 15 beginning with the May 15 following the date of
this Indenture, and in any event prior to July 15 in each year, the Trustee
shall mail to each Securityholder a brief report dated as of such May 15 that
complies with TIA ss. 313(a). The Trustee also shall comply with TIA ss. 313(b).
The Trustee shall promptly deliver to the Company a copy of any report it
delivers to Holders pursuant to this Section 7.6.
A copy of each report at the time of its mailing to
Securityholders shall be filed with the SEC and each stock exchange (if any) on
which the Securities are listed. The Company agrees to notify promptly the
Trustee whenever the Securities become listed on any stock exchange and of any
delisting thereof.
SECTION 7.7. Compensation and Indemnity. The Company shall pay
to the Trustee from time to time such compensation for its services as the
Company and the Trustee shall from time to time agree in writing. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company shall reimburse the Trustee upon request for all
reasonable out-of-pocket expenses incurred or made by it, including costs of
collection, in addition to such compensation for its services, except any such
expense, disbursement or advance as may arise from its negligence, wilful
misconduct or bad faith. Such expenses shall include the reasonable compensation
and expenses, disbursements and advances of the Trustee's agents, counsel,
accountants and experts. The Trustee shall provide the Company reasonable notice
of any expenditure not in the ordinary course of business; provided that prior
approval by the Company of any such expenditure shall not be a requirement for
the making of such expenditure nor for reimbursement by the Company thereof. The
Company shall indemnify each of the Trustee and any predecessor Trustees against
any and all loss, damage, claim, liability or expense (including attorneys' fees
and expenses) (other than taxes applicable to the Trustee's compensation
hereunder) incurred by it in connection with the acceptance or administration of
this trust and the performance of its duties hereunder. The Trustee shall notify
the Company promptly of any claim for which it may
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seek indemnity. Failure by the Trustee to so notify the Company shall not
relieve the Company of its obligations hereunder. The Company shall defend the
claim and the Trustee may have separate counsel, and the Company will pay the
reasonable fees and expenses of such counsel. The Company need not reimburse any
expense or indemnify against any loss, liability or expense incurred by the
Trustee through the Trustee's own wilful misconduct, negligence or bad faith.
To secure the Company's payment obligations in this Section,
the Trustee shall have a lien prior to the Securities on all money or property
held or collected by the Trustee other than money or property held in trust to
pay principal of and interest on particular Securities.
The Company's payment obligations pursuant to this Section
shall survive the resignation or removal of the Trustee and discharge of this
Indenture. When the Trustee incurs expenses after the occurrence of a Default
specified in Section 6.1(7) or (8) with respect to the Company, the expenses are
intended to constitute expenses of administration under the Bankruptcy Law.
SECTION 7.8. Replacement of Trustee. The Trustee may resign at
any time by so notifying the Company. The Holders of a majority in principal
amount of the Securities then outstanding, may remove the Trustee by so
notifying the Trustee and may appoint a successor Trustee. The Company shall
remove the Trustee if:
(i) the Trustee fails to comply with Section 7.10;
(ii) the Trustee is adjudged bankrupt or insolvent;
(iii) a receiver or other public officer takes charge
of the Trustee or its property; or
(iv) the Trustee otherwise becomes incapable of
acting.
If the Trustee resigns, is removed by the Company or by the
Holders of a majority in principal amount of the Securities and such Holders do
not reasonably promptly appoint a successor Trustee, or if a vacancy exists in
the office of Trustee for any reason (the Trustee in such event being referred
to herein as the retiring Trustee), the Company shall promptly appoint a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
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succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.7.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee or the
Holders of 10% in principal amount of the Securities may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to
this Section, the Company's obligations under Section 7.7 shall continue for the
benefit of the retiring Trustee.
SECTION 7.9. Successor Trustee by Merger. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee, provided that such corporation shall
be eligible under this Article Seven and TIA Section 3.10(a).
In case at the time such successor or successors by merger,
conversion or consolidation to the Trustee shall succeed to the trusts created
by this Indenture any of the Securities shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Securities so
authenticated; and in case at that time any of the Securities shall not have
been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name of the
successor to the Trustee; and in all such cases such certificates shall have the
full force which it is anywhere in the Securities or in this Indenture provided
that the certificate of the Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall
at all times satisfy the requirements of TIA ss. 310(a). The Trustee shall have
a combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. The Trustee shall comply with TIA
ss. 310(b); provided, however, that there shall be excluded from the operation
of TIA ss. 310(b)(1) any indenture or indentures under which other securities or
certificates of interest or participation in other securities of the Company are
outstanding if the requirements for such exclusion set forth in TIA ss.
310(b)(1) are met.
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SECTION 7.11. Preferential Collection of Claims Against
Company. The Trustee shall comply with ss. TIA 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated.
ARTICLE VIII
Discharge of Indenture; Defeasance
SECTION 8.1. Discharge of Liability on Securities; Defeasance.
(a) When (i) the Company delivers to the Trustee all outstanding Securities
(other than Securities replaced pursuant to Section 2.7) for cancellation or
(ii) all outstanding Securities have become due and payable, whether at maturity
or as a result of the mailing of a notice of redemption pursuant to Article 3
hereof or the Securities will become due and payable at their Maturity within 91
days, or the Securities are to be called for redemption within 91 days under
arrangements satisfactory to the Trustee for the giving of notice of redemption
by the Trustee in the name, and at the expense, of the Company, and, in each
case of this clause (ii), the Company irrevocably deposits or causes to be
deposited with the Trustee funds sufficient to pay at maturity or upon
redemption all outstanding Securities, including interest thereon to maturity or
such redemption date (other than Securities replaced pursuant to Section 2.7),
and if in either case the Company pays all other sums payable hereunder by the
Company, then this Indenture shall, subject to Section 8.1(c), cease to be of
further effect. The Trustee shall acknowledge satisfaction and discharge of this
Indenture on demand of the Company accompanied by an Officers' Certificate and
an Opinion of Counsel from the Company that all conditions precedent provided
herein for relating to satisfaction and discharge of this Indenture have been
complied with and at the cost and expense of the Company.
(b) Subject to Sections 8.1(c) and 8.2, the Company at any
time may terminate (i) all of its obligations under the Securities and this
Indenture ("legal defeasance option") or (ii) its obligations and the
obligations of the Subsidiary Guarantors under Sections 4.2, 4.3, 4.4, 4.5, 4.6,
4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, and 4.14 and the operation of Sections
6.1(4), 6.1(5), 6.1(6), 6.1(7) (but only with respect to a Significant
Subsidiary), 6.1(8) (but only with respect to a Significant Subsidiary), 6.1(9),
5.1(iii), 5.1(iv), 5.2(iii) and 5.2(iv) ("covenant defeasance option"). The
Company may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment
of the Securities may not be accelerated because of an Event of Default. If the
Company exercises its covenant defeasance option, payment of the Securities may
not be accelerated because of an Event of Default specified in Section
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6.1(4), 6.1(5), 6.1(6), 6.1(7) (but only with respect to a Significant
Subsidiary), 6.1(8) (but only with respect to a Significant Subsidiary) or
6.1(9) or because of the failure of the Company to comply with Sections 5.1(iii)
and 5.1(iv) or because of the failure of the Subsidiary Guarantors to comply
with Sections 5.2(iii) and 5.2(iv). If the Company exercises its legal
defeasance option, each Subsidiary Guarantor will be released from all of its
obligations under its Subsidiary Guarantee.
Upon satisfaction of the conditions set forth herein and upon
request of the Company, the Trustee shall acknowledge in writing the discharge
of those obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.3, 2.4, 2.5, 2.6, 2.7, 4.1, 4.15, 4.16, 4.17, 4.18 and
4.19, 7.7, 7.8, 8.4, 8.5 and 8.6 shall survive until the Securities have been
paid in full. Thereafter, the Company's obligations in Sections 7.7, 8.4 and 8.5
shall survive.
SECTION 8.2. Conditions to Defeasance. The Company
may exercise its legal defeasance option or its covenant
defeasance option only if:
(i) the Company irrevocably deposits or causes to be
deposited in trust with the Trustee money or U.S. Government
Obligations which through the scheduled payment of principal and
interest in respect thereof in accordance with their terms will provide
cash at such times and in such amounts as will be sufficient to pay
principal and interest and Liquidated Damages, if any, when due on all
outstanding Securities (except Securities replaced pursuant to Section
2.7) to maturity or redemption, as the case may be;
(ii) the Company delivers to the Trustee a certificate from
a nationally recognized firm of independent accountants expressing
their opinion that the payments of principal and interest when due and
without reinvestment on the deposited U.S. Government Obligations plus
any deposited money without investment will provide cash at such times
and in such amounts as will be sufficient to pay principal and interest
when due on all outstanding Securities (except Securities replaced
pursuant to Section 2.7) to maturity or redemption, as the case may be;
(iii) 91 days pass after the deposit is made and during the
91-day period no Default specified in Section 6.1(7) or (8) with
respect to the Company occurs which is continuing at the end of the
period;
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(iv) the deposit does not constitute a default under any
other material agreement binding on the Company and is not prohibited
by Article X;
(v) the Company delivers to the Trustee an Opinion of
Counsel to the effect that the trust resulting from the deposit does
not constitute, or is qualified as, a regulated investment company
under the Investment Company Act of 1940;
(vi) in the case of the legal defeasance option, the
Company shall have delivered to the Trustee an Opinion of Counsel
stating that (i) the Company have received from, or there has been
published by, the Internal Revenue Service a ruling, or (ii) since the
date of this Indenture there has been a change in the applicable
federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Securityholders
will not recognize income, gain or loss for federal income tax purposes
as a result of such deposit and defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such deposit and defeasance
had not occurred;
(vii) in the case of the covenant defeasance option, the
Company shall have delivered to the Trustee an Opinion of Counsel to
the effect that the Securityholders will not recognize income, gain or
loss for federal income tax purposes as a result of such covenant
defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such deposit and covenant defeasance had not occurred; and
(viii) the Company delivers to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the defeasance and discharge of the Securities as
contemplated by this Article 8 have been complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article 3.
SECTION 8.3. Application of Trust Money. The Trustee shall
hold in trust money or U.S. Government Obligations deposited with it pursuant to
this Article 8. It shall apply the deposited money and the money from U.S.
Government Obligations either directly or through the Paying Agent (including
the Company acting as its own Paying Agent as the Trustee may determine) and in
accordance with this Indenture to the payment of principal of and interest on
the Securities. Money and securities so held in trust are not subject to Article
X.
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SECTION 8.4. Repayment to Company. The Trustee and the Paying
Agent shall promptly turn over to the Company upon request any excess money or
securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee
and the Paying Agent shall pay to the Company upon written request any money
held by them for the payment of principal or interest that remains unclaimed for
two years, and, thereafter, Securityholders entitled to the money must look to
the Company for payment as general creditors.
SECTION 8.5. Indemnity for Government Obligations. The Company
shall pay and shall indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against deposited U.S. Government Obligations or the
principal and interest received on such U.S. Government Obligations other than
any such tax, fee or other charge which by law is for the account of the Holders
of the defeased Securities; provided that the Trustee shall be entitled to
charge any such tax, fee or other charge to such Holder's account.
SECTION 8.6. Reinstatement. If the Trustee or Paying Agent is
unable to apply any money or U.S. Government Obligations in accordance with this
Article 8 by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article 8 until such time as the Trustee
or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with this Article 8; provided, however, that, (a) if
the Company has made any payment of interest on or principal of any Securities
following the reinstatement of their obligations, the Company shall be
subrogated to the rights of the Holders of such Securities to receive such
payment from the money or U.S. Government Obligations held by the Trustee or
Paying Agent and (b) unless otherwise required by any legal proceeding or any
order or judgment of any court or governmental authority, the Trustee or Paying
Agent shall return all such money and U.S. Government Obligations to the Company
promptly after receiving a written request therefor at any time, if such
reinstatement of the Company's obligations has occurred and continues to be in
effect.
ARTICLE IX
Amendments
SECTION 9.1. Without Consent of Holders. The Company
and the Trustee may amend this Indenture or the Securities
without notice to or consent of any Securityholder:
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(i) to cure any ambiguity, omission, defect or
inconsistency;
(ii) to comply with Article 5;
(iii) to provide for uncertificated Securities in addition
to or in place of certificated Securities; provided, however, that the
uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Code or in a manner such that the uncertificated
Securities are as described in Section 163(f)(2)(B) of the Code;
(iv) to add additional guarantees with respect to the
Securities, including any new Subsidiary Guarantees;
(v) to secure the Securities;
(vi) to add to the covenants of the Company for the
benefit of the Holders or to surrender any right or power
herein conferred upon the Company;
(vii) to make any change that does not adversely affect
the rights of any Securityholder;
(viii) to comply with any requirements of the SEC in
connection with qualifying this Indenture under the TIA; or
(ix) to provide for the issuance of the Exchange Notes,
which will have terms substantially identical in all material respects
to the Initial Notes (except that the transfer restrictions contained
in the Initial Notes will be modified or eliminated, as appropriate),
and which will be treated, together with any outstanding Initial Notes,
as a single issue of securities.
An amendment under this Section may not make any change that
adversely affects the rights under Article X of any holder of Senior
Indebtedness or Guarantor Senior Indebtedness then outstanding unless the
holders of such Senior Indebtedness or Guarantor Senior Indebtedness (or the
Representatives thereof authorized to give a consent) consent to such change.
After an amendment under this Section becomes effective, the
Company shall mail to Securityholders a notice briefly describing such
amendment. The failure to give such notice to all Securityholders, or any defect
therein, shall not impair or affect the validity of an amendment under this
section.
SECTION 9.2. With Consent of Holders. The Company and
the Trustee may amend this Indenture or the Securities without
notice to any Securityholder but with the written consent of the
Holders of at least a majority in principal amount of the
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Securities then outstanding. However, without the consent of each Securityholder
affected, an amendment may not:
(i) reduce the amount of Securities whose Holders must
consent to an amendment, supplement or waiver;
(ii) reduce the rate of or extend the time for payment
of interest on any Security;
(iii) reduce the principal of or extend the Stated
Maturity of any Security;
(iv) reduce the premium payable upon the redemption of any
Security or change the time at which any Security may be redeemed in
accordance with Article 3;
(v) make any Security payable in money other than that
stated in the Security;
(vi) impair the right of any Holder to receive payment of
principal of and interest on such Holder's Securities on or after the
due dates therefor or to institute suit for the enforcement of any
payment on or with respect to such Holder's Securities; or
(vii) make any change in the second sentence of this
Section.
It shall not be necessary for the consent of the Holders under
this Section to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent approves the substance thereof.
An amendment under this Section may not make any change that
adversely affects the rights under Article X of any holder of Senior
Indebtedness or Guarantor Senior Indebtedness then outstanding unless the
holders of such Senior Indebtedness or Guarantor Senior Indebtedness (or the
Representatives thereof authorized to give a consent) consent to such change.
After an amendment under this Section becomes effective, the
Company shall mail to Securityholders a notice briefly describing such
amendment. The failure to give such notice to all Securityholders, or any defect
therein, shall not impair or affect the validity of an amendment under this
Section.
SECTION 9.3. Compliance with Trust Indenture Act.
Every amendment to this Indenture or the Securities shall comply
with the TIA as then in effect.
SECTION 9.4. Revocation and Effect of Consents and
Waivers. A consent to an amendment or a waiver by a Holder of a
Security shall bind the Holder and every subsequent Holder of
that Security or portion of the Security that evidences the same
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debt as the consenting Holder's Security, even if notation of the consent or
waiver is not made on the Security. After an amendment or waiver becomes
effective, it shall bind every Securityholder.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Securityholders entitled to give their
consent or take any other action described above or required or permitted to be
taken pursuant to this Indenture. If a record date is fixed, then
notwithstanding the immediately preceding paragraph, those Persons who were
Securityholders at such record date (or their duly designated proxies), and only
those Persons, shall be entitled to give such consent or to revoke any consent
previously given or to take any such action, whether or not such Persons
continue to be Holders after such record date. No such consent shall be valid or
effective for more than 120 days after such record date.
SECTION 9.5. Notation on or Exchange of Securities. If an
amendment changes the terms of a Security, the Trustee may require the Holder of
the Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determine, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.6. Trustee To Sign Amendments. The Trustee shall
sign any amendment authorized pursuant to this Article 9 if the amendment does
not adversely affect the rights, duties, liabilities or immunities of the
Trustee. If it does, the Trustee may but need not sign it. In signing such
amendment the Trustee shall be entitled to receive indemnity reasonably
satisfactory to it and to receive, and (subject to Section 7.1) shall be fully
protected in relying upon, in addition to the documents required by Section
12.4, an Officers' Certificate and an Opinion of Counsel stating that such
amendment complies with the provisions of this Article 9.
ARTICLE X
Subordination
SECTION 10.1. Agreement To Subordinate. The Company and each
Subsidiary Guarantor agree, and each Securityholder by accepting a Security and
the related Subsidiary Guarantee agrees, that the payment of principal of,
premium, if any, interest and Liquidated Damages, if any, on the Securities and
the related Subsidiary Guarantee shall be subordinated in right of payment, to
the extent and in the manner provided in this Article X, to the prior payment in
full in cash of (i) all Senior Indebtedness,
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whether outstanding on the Issue Date or thereafter incurred, in the case of the
Securities, and (ii) all Guarantor Senior Indebtedness of such Subsidiary
Guarantor, in the case of its obligations under the Subsidiary Guarantee, and
that the subordination is for the benefit of and enforceable by the holders of
Senior Indebtedness and Guarantor Senior Indebtedness. The Securities shall in
all respects rank pari passu with all other Senior Subordinated Indebtedness of
the Company, the related Subsidiary Guarantee of each Subsidiary Guarantor shall
in all respects rank pari passu with all Guarantor Senior Subordinated
Indebtedness of such Subsidiary Guarantor and only Indebtedness of the Company
which is Senior Indebtedness will rank senior to the Securities and only
Indebtedness of such Subsidiary Guarantor which is Guarantor Senior Indebtedness
of such Subsidiary Guarantor shall rank senior to the obligations of such
Subsidiary Guarantor under the Subsidiary Guarantee, in each case in accordance
with the provisions set forth herein. Unsecured Indebtedness is not deemed to be
subordinate or junior to Secured Indebtedness merely because it is unsecured.
All provisions of this Article X shall be subject to Section 10.12.
SECTION 10.2. Liquidation, Dissolution, Bankruptcy. Upon any
payment or distribution of the assets of the Company or any Subsidiary Guarantor
to creditors upon a total or partial liquidation or a total or partial
dissolution of the Company or such Subsidiary Guarantor or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or such Subsidiary Guarantor or their respective properties:
(1) holders of Senior Indebtedness in the case of the Company,
or holders of Guarantor Senior Indebtedness of such Subsidiary
Guarantor, in the case of such Subsidiary Guarantor, shall be entitled
to receive payment in full in cash of all Senior Indebtedness, in the
case of the Company, or all such Guarantor Senior Indebtedness in the
case of such Subsidiary Guarantor, before Securityholders shall be
entitled to receive any payment of principal of or interest on or of
any kind or character with respect to the Securities from the Company
or such Subsidiary Guarantor, whether directly by the Company or
pursuant to the Subsidiary Guarantee; and
(2) until the Senior Indebtedness, in the case of the Company,
or such Guarantor Senior Indebtedness in the case of such Subsidiary
Guarantor, is paid in full in cash, any payment or distribution to
which Securityholders would be entitled but for this Article X shall be
made to holders of Senior Indebtedness in the case of payments or
distributions made by the Company or the holders of such Guarantor
Senior Indebtedness in the case of payments or distributions made by
such Subsidiary Guarantor, in each case as their respective interests
may appear.
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provided, however, that Securityholders may receive Permitted Junior Securities
and payments from the trust pursuant to Section 8.3.
SECTION 10.3. Default on Designated Senior Indebtedness.
Neither the Company nor any Subsidiary Guarantor may pay the principal of,
premium, if any, interest or Liquidated Damages, if any, on or other amounts
with respect to the Securities (except in Permitted Junior Securities or from
the trust pursuant to Article VIII) or make any deposit pursuant to Article VIII
or repurchase, redeem or otherwise retire any Securities, whether directly by
the Company or by such Subsidiary Guarantor under the Subsidiary Guarantee
(collectively, "pay the Securities") if (i) a default in the payment when due of
Designated Senior Indebtedness occurs and is continuing beyond any applicable
period of grace or (ii) any other default on Designated Senior Indebtedness
occurs and is continuing with respect to Designated Senior Indebtedness that
permits the holders of the Designated Senior Indebtedness as to which such
default relates to accelerate its maturity and the Trustee receives a notice of
such default (a "Payment Blockage Notice") from the holders of any Designated
Senior Indebtedness unless the default has been cured or waived and any such
Payment Blockage Notice has been rescinded or such Senior Indebtedness has been
paid in full in cash.
The Company may and shall resume payments on the Securities:
(a) in the case of a payment default, upon the date on
which such default is cured or waived in writing, and
(b) in the case of a nonpayment default, the earlier of the
date on which such nonpayment default is cured or waived in writing and
179 days after the date on which the applicable Payment Blockage Notice
is received, unless the maturity of any Designated Senior Indebtedness
has been accelerated.
No new Payment Blockage Notice may be sent (irrespective of the number
of defaults with respect to Designated Senior Indebtedness at such time) unless
and until 360 days have elapsed since the effectiveness of the immediately prior
Payment Blockage Notice. No nonpayment default that existed or was continuing on
the date of delivery of any Payment Blockage Notice to the Trustee shall be, or
be made, the basis for a subsequent Payment Blockage Notice unless such
nonpayment default shall have been waived for a period of not less than 90 days
(it being acknowledged that any subsequent action, or any breach of any
financial covenants for a period commencing after the date of delivery of any
Payment Blockage Notice, which, in either case, would give rise to a default
pursuant to any provision under which a default previously existed or was
continuing shall constitute a new default for this purpose).
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SECTION 10.4. Acceleration of Payment of Securities. If
payment of the Securities is accelerated because of an Event of Default, the
Company, the Subsidiary Guarantors or the Trustee shall promptly notify the
holders or the Representative of such holders of the Designated Senior
Indebtedness of the acceleration. If any Designated Senior Indebtedness is
outstanding, such acceleration shall not be effective until the earlier of (i)
an acceleration of any such Designated Senior Indebtedness and (ii) five
Business Days after the holder or Representatives of such Designated Senior
Indebtedness and the Company receive written notice of such acceleration.
SECTION 10.5. When Distribution Must Be Paid Over. If a
distribution is made to Securityholders that because of this Article X should
not have been made to them, the Securityholders who receive the distribution
shall hold it in trust for holders of Senior Indebtedness and Guarantor Senior
Indebtedness and promptly pay and turn it over to them as their respective
interests may appear.
In the event that any Securityholder receives any payments
pursuant to this Indenture and the amount or total amount of such payment or
payments exceeds the amount, if any, that such Securityholder would be entitled
to receive upon the proper application of the subordination provisions of this
Article X, the payment of such excess amount shall be deemed null and void, and
the Securityholder agrees that it will be obliged to return the amount of the
excess payment to the Company, as instructed in a written notice of such excess
payment, within ten days of receiving such notice.
SECTION 10.6. Subrogation. After all Senior Indebtedness and
Guarantor Senior Indebtedness is paid in full in cash and until the Securities
are paid in full, Securityholders shall be subrogated to the rights of holders
of Senior Indebtedness and Guarantor Senior Indebtedness to receive
distributions applicable to Senior Indebtedness and Guarantor Senior
Indebtedness. A distribution made under this Article X to holders of Senior
Indebtedness or Guarantor Senior Indebtedness which otherwise would have been
made to Securityholders is not, as between the Company and Securityholders, a
payment by the Company of Senior Indebtedness or, as between a Subsidiary
Guarantor and Securityholders, a payment by such Subsidiary Guarantor of
Guarantor Senior Indebtedness.
SECTION 10.7. Relative Rights. This Article X defines
the relative rights of Securityholders and holders of Senior
Indebtedness and Guarantor Senior Indebtedness. Nothing in this
Indenture shall:
(1) impair, as between the Company or the Subsidiary
Guarantors, as the case may be, and Securityholders, the obligation of
the Company or the Subsidiary Guarantors, as the case may be, which is
absolute and unconditional, to pay
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principal of, interest on, and Liquidated Damages, if any,
with respect to, the Securities in accordance with their
terms; or
(2) prevent the Trustee or any Securityholder from exercising
its available remedies upon a Default or Event of Default, subject to
the rights of holders of Senior Indebtedness and Guarantor Senior
Indebtedness to receive distributions otherwise payable to
Securityholders.
SECTION 10.8. Subordination May Not Be Impaired by Company or
the Subsidiary Guarantors. No right of any holder of Senior Indebtedness or
Guarantor Senior Indebtedness to enforce the subordination of the Indebtedness
evidenced by the Securities or the related Subsidiary Guarantee shall be
impaired by any act or failure to act by the Company or any Subsidiary Guarantor
or by the failure of any of them to comply with this Indenture.
SECTION 10.9. Rights of Trustee and Paying Agent.
Notwithstanding Section 10.3, the Trustee or Paying Agent may continue to make
payments on the Securities and shall not be charged with knowledge of the
existence of facts that would prohibit the making of any such payments unless,
not less than two Business Days prior to the date of such payment, a Trust
Officer of the Trustee receives notice satisfactory to it that payments may not
be made under this Article X. The Company, the Registrar or co-registrar, the
Paying Agent, a Representative or a holder of Senior Indebtedness or Guarantor
Senior Indebtedness may give the notice; provided, however, that, if an issue of
Senior Indebtedness or Guarantor Senior Indebtedness has a Representative, only
the Representative may give the notice.
The Trustee in its individual or any other capacity may hold
Senior Indebtedness or Guarantor Senior Indebtedness with the same rights it
would have if it were not Trustee. The Registrar and co-registrar and the Paying
Agent may do the same with like rights. The Trustee shall be entitled to all the
rights set forth in this Article X with respect to any Senior Indebtedness or
Guarantor Senior Indebtedness which may at any time be held by it, to the same
extent as any other holder of Senior Indebtedness or Guarantor Senior
Indebtedness; and nothing in Article VII shall deprive the Trustee of any of its
rights as such holder. Nothing in this Article X shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 7.7.
SECTION 10.10. Distribution or Notice to Representatives.
Whenever a distribution is to be made or a notice given to holders of Senior
Indebtedness or Guarantor Senior Indebtedness, the distribution may be made and
the notice given to their Representatives (if any).
SECTION 10.11. Article X Not To Prevent Events of
Default or Limit Right To Accelerate. The failure to make a
payment in respect of the Securities, whether directly or
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84
pursuant to the Subsidiary Guarantee, by reason of any provision in this Article
X shall not be construed as preventing the occurrence of a Default or Event of
Default. Nothing in this Article X shall have any effect on the right of the
Securityholders or the Trustee to accelerate the maturity of the Securities or
to make a claim for payment under the Subsidiary Guarantee.
SECTION 10.12. Trust Moneys Not Subordinated. Notwithstanding
anything contained herein to the contrary, payments from money or the proceeds
of U.S. Government Obligations held in trust under Article VIII by the Trustee
for the payment of principal of and interest on the Securities shall not be
subordinated to the prior payment of any Senior Indebtedness or Guarantor Senior
Indebtedness or subject to the restrictions set forth in this Article X, and
none of the Securityholders shall be obligated to pay or turn over any such
amount to the Company, any Subsidiary Guarantor, any holder of Senior
Indebtedness of the Company, any holder of Guarantor Senior Indebtedness or any
other creditor of the Company or any Subsidiary Guarantor.
SECTION 10.13. Trustee Entitled To Rely. Upon any payment or
distribution pursuant to this Article X, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section 10.2
are pending, (ii) upon a certificate of the liquidating trustee or agent or
other Person making such payment or distribution to the Trustee or to the
Securityholders or (iii) upon the Representatives for the holders of Senior
Indebtedness or Guarantor Senior Indebtedness for the purpose of ascertaining
the Persons entitled to participate in such payment or distribution, the holders
of Senior Indebtedness, Guarantor Senior Indebtedness and other Indebtedness of
the Company or the Subsidiary Guarantors, the amount thereof or payable thereon,
the amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article X. In the event that the Trustee determines, in good
faith, that evidence is required with respect to the right of any Person as a
holder of Senior Indebtedness or Guarantor Senior Indebtedness to participate in
any payment or distribution pursuant to this Article X, the Trustee may request
such Person to furnish evidence to the reasonable satisfaction of the Trustee as
to the amount of Senior Indebtedness or Guarantor Senior Indebtedness held by
such Person, the extent to which such Person is entitled to participate in such
payment or distribution and other facts pertinent to the rights of such Person
under this Article X, and, if such evidence is not furnished, the Trustee may
defer any payment to such Person pending judicial determination as to the right
of such Person to receive such payment. The provisions of Sections 7.1 and 7.2
shall be applicable to all actions or omissions of actions by the Trustee
pursuant to this Article X.
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85
SECTION 10.14. Trustee To Effectuate Subordination. Each
Securityholder by accepting a Security authorizes and directs the Trustee on his
behalf to take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination between the Securityholders and the holders of
Senior Indebtedness and Guarantor Senior Indebtedness as provided in this
Article X and appoints the Trustee as attorney-in-fact for any and all such
purposes.
SECTION 10.15. Trustee Not Fiduciary for Holders of Senior
Indebtedness and Guarantor Senior Indebtedness. The Trustee shall not be deemed
to owe any fiduciary duty to the holders of Senior Indebtedness or Guarantor
Senior Indebtedness and shall not be liable to any such holders if it shall
mistakenly pay over or distribute to Securityholders or the Company, the
Subsidiary Guarantors or any other Person, money or assets to which any holders
of Senior Indebtedness or Guarantor Senior Indebtedness shall be entitled by
virtue of this Article X or otherwise.
SECTION 10.16. Reliance by Holders of Senior Indebtedness and
Guarantor Senior Indebtedness on Subordination Provisions. Each Securityholder
by accepting a Security acknowledges and agrees that the foregoing subordination
provisions are, and are intended to be, an inducement and a consideration to
each holder of any Senior Indebtedness or Guarantor Senior Indebtedness, whether
such Senior Indebtedness or Guarantor Senior Indebtedness was created or
acquired before or after the issuance of the Securities, to acquire and continue
to hold, or to continue to hold, such Senior Indebtedness or Guarantor Senior
Indebtedness and such holder of Senior Indebtedness or Guarantor Senior
Indebtedness shall be deemed conclusively to have relied on such subordination
provisions in acquiring and continuing to hold, or in continuing to hold, such
Senior Indebtedness or Guarantor Senior Indebtedness.
ARTICLE XI
Subsidiary Guarantee
SECTION 11.1. Subsidiary Guarantee. Subject to the
subordination provisions contained in Article X, the Subsidiary Guarantors
hereby, jointly and severally, unconditionally and irrevocably, Guarantee to
each Holder and to the Trustee and its successors and assigns (a) the full and
punctual payment of principal of, interest on and Liquidated Damages, if any,
with respect to the Securities when due, whether at maturity, by acceleration,
by redemption or otherwise, and all other monetary obligations of the Company
under this Indenture (including obligations to the Trustee) and the Securities
and (b) the full and punctual performance within applicable grace periods of all
other obligations of the Company under this Indenture and the Securities (all
the foregoing being hereinafter collectively
<PAGE>
86
called the "Obligations"). The Subsidiary Guarantors further agree that the
Obligations may be extended or renewed, in whole or in part, without notice or
further assent from the Subsidiary Guarantors, and that the Subsidiary
Guarantors will remain bound under this Article XI notwithstanding any extension
or renewal of any Obligation.
The Subsidiary Guarantors waive presentation to, demand of,
payment from and protest to the Company of any of the Obligations and also waive
notice of protest for nonpayment. The Subsidiary Guarantors waive notice of any
default under the Securities or the Obligations. The obligations of the
Subsidiary Guarantors hereunder shall not be affected by (a) the failure of any
Holder or the Trustee to assert any claim or demand or to enforce any right or
remedy against the Company or any other Person under this Indenture, the
Securities or any other agreement or otherwise; (b) any extension or renewal of
any Obligation; (c) any rescission, waiver, amendment, modification or
supplement of any of the terms or provisions of this Indenture (other than this
Article XI), the Securities or any other agreement; (d) the release of any
security held by any Holder or the Trustee for the Obligations or any of them;
(e) the failure of any Holder or Trustee to exercise any right or remedy against
any other guarantor of the Obligations; or (f) any change in the ownership of
the Company.
The Subsidiary Guarantors further agree that their Guarantees
herein constitute a guarantee of payment, performance and compliance when due
(and not a guarantee of collection) and waive any right to require that any
resort be had by any Holder or the Trustee to any security held for payment of
the Obligations.
The obligations of the Subsidiary Guarantors hereunder shall
not be subject to any reduction, limitation, impairment or termination for any
reason, including any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to any defense, setoff, counterclaim,
recoupment or termination whatsoever or by reason of the invalidity, illegality
or unenforceability of the Obligations or otherwise. Without limiting the
generality of the foregoing, the obligations of the Subsidiary Guarantors herein
shall not be discharged or impaired or otherwise affected by the failure of any
Holder or the Trustee to assert any claim or demand or to enforce any remedy
under this Indenture, the Securities or any other agreement, by any waiver or
modification of any thereof, by any default, failure or delay, willful or
otherwise, in the performance of the Obligations, or by any other act or thing
or omission or delay to do any other act or thing which may or might in any
manner or to any extent vary the risk of the Subsidiary Guarantors or would
otherwise operate as a discharge of the Subsidiary Guarantors as a matter of law
or equity.
<PAGE>
87
The Subsidiary Guarantors further agree that their Guarantees
herein shall continue to be effective or be reinstated, as the case may be, if
at any time payment, or any part thereof, of any Obligation is rescinded or must
otherwise be restored by any Holder or the Trustee upon the bankruptcy or
reorganization of the Company or otherwise.
In furtherance of the foregoing and not in limitation of any
other right which any Holder or the Trustee has at law or in equity against the
Subsidiary Guarantors by virtue hereof, upon the failure of the Company to pay
any Obligation when and as the same shall become due, whether at maturity, by
acceleration, by redemption or otherwise, or to perform or comply with any other
Obligation, the Subsidiary Guarantors hereby promise to and will, upon receipt
of written demand by the Trustee, forthwith pay, or cause to be paid, in cash,
to the Holders or the Trustee an amount equal to the sum of (i) the unpaid
principal amount of such Obligations, (ii) accrued and unpaid interest on such
Obligations (but only to the extent not prohibited by law) and (iii) all other
monetary Obligations of the Company to the Holders and the Trustee.
The Subsidiary Guarantors agree that, as between the
Subsidiary Guarantors, on the one hand, and the Holders and the Trustee, on the
other hand, (x) the maturity of the Obligations guaranteed hereby may be
accelerated as provided in Article VI for the purposes of the Guarantee herein,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the Obligations guaranteed hereby, and (y) in the
event of any declaration of acceleration of such Obligations as provided in
Article VI, such Obligations (whether or not due and payable) shall forthwith
become due and payable by the Subsidiary Guarantors for the purposes of this
Section.
The Subsidiary Guarantors also agree to pay any and all costs
and expenses (including reasonable attorneys' fees) incurred by the Trustee or
any Holder in enforcing any rights under this Section.
SECTION 11.2. Limitation on Liability. Any term or provision
of this Indenture to the contrary notwithstanding, the obligations of each
Subsidiary Guarantor are limited to the maximum amount as will result in the
obligations of such Subsidiary Guarantor under the Subsidiary Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law.
SECTION 11.3. Successors and Assigns. This Article XI shall be
binding upon the Subsidiary Guarantors and their successors and assigns and
shall enure to the benefit of the successors and assigns of the Trustee and the
Holders and, in the event of any transfer or assignment of rights by any Holder
or the Trustee, the rights and privileges conferred upon that party in this
Indenture and in the Securities shall automatically
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88
extend to and be vested in such transferee or assignee, all subject to the terms
and conditions of this Indenture.
SECTION 11.4. No Waiver. Neither a failure nor a delay on the
part of either the Trustee or the Holders in exercising any right, power or
privilege under this Article XI shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further exercise of any
right, power or privilege. The rights, remedies and benefits of the Trustee and
the Holders herein expressly specified are cumulative and not exclusive of any
other rights, remedies or benefits which either may have under this Article XI
at law, in equity, by statute or otherwise.
SECTION 11.5. Right of Contribution. Each Subsidiary Guarantor
hereby agrees that to the extent that a Subsidiary Guarantor shall have paid
more than its proportionate share of any payment made hereunder, such Subsidiary
Guarantor shall be entitled to seek and receive contribution from and against
any other Subsidiary Guarantor hereunder who has not paid its proportionate
share of such payment. Each Subsidiary Guarantor's right of contribution shall
be subject to the terms and conditions of Section 11.6. The provisions of this
Section shall in no respect limit the obligations and liabilities of any
Subsidiary Guarantor to the Trustee and the Securityholders and each Subsidiary
Guarantor shall remain liable to the Trustee and the Securityholders for the
full amount guaranteed by such Subsidiary Guarantor hereunder.
SECTION 11.6. No Subrogation. Notwithstanding any payment or
payments made by any of the Subsidiary Guarantors hereunder, no Subsidiary
Guarantor shall be entitled to be subrogated to any of the rights of the Trustee
or any Securityholder against the Company or any other Subsidiary Guarantor or
any collateral security or guarantee or right of offset held by the Trustee or
any Securityholder for the payment of the Obligations, nor shall any Subsidiary
Guarantor seek or be entitled to seek any contribution or reimbursement from the
Company or any other Subsidiary Guarantor in respect of payments made by such
Subsidiary Guarantor hereunder, until all amounts owing to the Trustee and the
Securityholders by the Company on account of the Obligations are paid in full.
If any amount shall be paid to any Subsidiary Guarantor on account of such
subrogation rights at any time when all of the Obligations shall not have been
paid in full, such amount shall be held by such Subsidiary Guarantor in trust
for the Trustee and the Securityholders, segregated from other funds of such
Subsidiary Guarantor, and shall, forthwith upon receipt by such Subsidiary
Guarantor, be turned over to the Trustee in the exact form received by such
Subsidiary Guarantor (duly indorsed by such Subsidiary Guarantor to the Trustee,
if required), to be applied against the Obligations.
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89
SECTION 11.7. Additional Subsidiary Guarantors. Concurrently
with the creation or acquisition by the Company of any Subsidiary having either
net assets or stockholders' equity in excess of $50,000 (other than a foreign
Subsidiary or an Unrestricted Subsidiary), the Company, such Subsidiary and the
Trustee shall execute and deliver a supplement to this Indenture providing that
such Subsidiary will be a Subsidiary Guarantor hereunder. Each such supplement
shall be substantially in the form of Exhibit D attached hereto, and reasonably
satisfactory to the Trustee.
SECTION 11.8. Modification. No modification, amendment or
waiver of any provision of this Article XI, nor the consent to any departure by
the Subsidiary Guarantors therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Trustee, and then such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given. No notice to or demand on the Subsidiary Guarantors in any case
shall entitle the Subsidiary Guarantors to any other or further notice or demand
in the same, similar or other circumstances.
SECTION 11.9. Release of Subsidiary Guarantor. Upon (i) the
release by the lenders under the New Credit Facility, related documents and
future refinancings thereof of all guarantees of a Subsidiary Guarantor and all
Liens on the property and assets of such Subsidiary Guarantor relating to such
guarantees, or (ii) the sale or other disposition of all of the assets of any
Subsidiary Guarantor, by way of merger, consolidation or otherwise, or a sale or
other disposition of all of the Capital Stock of any Subsidiary Guarantor, in
each case in accordance with the terms of the Indenture, then such Subsidiary
Guarantor (in the event of a sale or other disposition, by way of such a merger,
consolidation or otherwise, of all the Capital Stock of such Subsidiary
Guarantor) or the corporation acquiring the property (in the event of a sale or
other disposition of all or substantially all of the assets of such Subsidiary
Guarantor) shall be deemed released from all of its obligations under the
Indenture and the Subsidiary Guarantee; provided that the Net Available Cash
from such sale or other disposition is applied in accordance with Section 4.6 of
this Indenture.
SECTION 11.10. Subordination of Subsidiary Guarantees. The
obligations of each Subsidiary Guarantor under its Subsidiary Guarantee pursuant
to this Article 11 shall be subordinated to the prior payment in full in cash of
all Obligations in respect of Guarantor Senior Indebtedness of such Subsidiary
Guarantor, whether outstanding on the date hereof or thereafter incurred
(including amounts for which the Subsidiary Guarantors will be liable for under
the Subsidiary Guarantees issued from time to time with respect to Guarantor
Senior Indebtedness of such Subsidiary Guarantor or the Company) on the same
basis as the Notes are subordinated to Senior Indebtedness. For the purposes of
the foregoing sentence, the Trustee and the Holders shall have
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90
the right to receive and/or retain payments by any of the Subsidiary Guarantors
only at such times as they may receive and/or retain payments in respect of the
Notes pursuant to this Indenture, including Article X hereof.
ARTICLE XII
Miscellaneous
SECTION 12.1. Trust Indenture Act Controls. If any provision
of this Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the provision required by
the TIA shall control.
SECTION 12.2. Notices. Any notice or communication
shall be in writing and delivered in person or mailed by first-class
mail addressed as follows:
if to the Company:
Stellex Industries, Inc.
3333 Hillview Avenue
Palo Alto, California 94304-1223
Attention: President
if to the Subsidiary Guarantors:
c/o Stellex Industries, Inc.
3333 Hillview Avenue
Palo Alto, California 94304-1223
Attention: President
if to the Trustee:
Marine Midland Bank
140 Broadway - Level A
New York, New York 10003
Attention of Corporate Trust Administration
The Company, any of the Subsidiary Guarantors, or the Trustee
by notice to the others may designate additional or different addresses for
subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall
be mailed to the Securityholder at the Securityholder's address as it appears on
the registration books of the Registrar and shall be sufficiently given if so
mailed within the time prescribed.
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91
Failure to mail a notice or communication to a Securityholder
or any defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 12.3. Communication by Holders with other Holders.
Securityholders may communicate pursuant to TIA ss. 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA ss. 312(c).
SECTION 12.4. Certificate and Opinion as to Conditions
Precedent. Upon any request or application by the Company to the Trustee to take
or refrain from taking any action under this Indenture, the Company shall
furnish to the Trustee:
(i) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(ii) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 12.5. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a covenant or
condition provided for in this Indenture shall include:
(i) a statement that the individual making such
certificate or opinion has read such covenant or condition;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(iv) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 12.6. When Securities Disregarded. In
determining whether the Holders of the required principal amount
of Securities have concurred in any direction, waiver or consent,
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92
Securities owned by the Company or by any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company shall be disregarded and deemed not to be outstanding, except that, for
the purpose of determining whether the Trustee shall be protected in relying on
any such direction, waiver or consent, only Securities which a Trust Officer of
the Trustee knows are so owned shall be so disregarded. Also, subject to the
foregoing, only Securities outstanding at the time shall be considered in any
such determination.
SECTION 12.7. Rules by Trustee, Paying Agent and Registrar.
The Trustee may make reasonable rules for action by or a meeting of
Securityholders. The Registrar and the Paying Agent may make reasonable rules
for their functions.
SECTION 12.8. Legal Holidays. A "Legal Holiday" is a Saturday,
a Sunday or a day on which banking institutions are not required to be open in
the State of New York. If a payment date is a Legal Holiday, payment shall be
made on the next succeeding day that is not a Legal Holiday, and no interest
shall accrue on such payment for the intervening period. If a regular record
date is a Legal Holiday, the record date shall not be affected.
SECTION 12.9. Governing Law. This Indenture and the Securities
shall be governed by, and construed in accordance with, the laws of the State of
New York but without giving effect to applicable principles of conflicts of law
to the extent that the application of the laws of another jurisdiction would be
required thereby.
SECTION 12.10. No Recourse Against Others. A director,
officer, employee or stockholder, as such, of the Company shall not have any
liability for any obligations of the Company under the Securities or this
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting a Security, each Securityholder
shall waive and release all such liability. The waiver and release shall be part
of the consideration for the issue of the Securities.
SECTION 12.11. Successors. All agreements of the
Company and the Subsidiary Guarantors in this Indenture and the
Securities shall bind their respective successors. All
agreements of the Trustee in this Indenture shall bind its
successors.
SECTION 12.12. Multiple Originals. The parties may
sign any number of copies of this Indenture. Each signed copy
shall be an original, but all of them together represent the same
agreement. One signed copy is enough to prove this Indenture.
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93
SECTION 12.13. Variable Provisions. The Company
initially appoints the Trustee as Paying Agent and Registrar and
custodian with respect to any Global Securities.
SECTION 12.14. Qualification of Indenture. The Company shall
qualify this Indenture under the TIA in accordance with the terms and conditions
of the Registration Rights Agreement and shall pay all reasonable costs and
expenses (including attorneys' fees for the Company, the Trustee and the
Holders) incurred in connection therewith, including, but not limited to, costs
and expenses of qualification of this Indenture and the Securities and printing
this Indenture and the Securities. The Trustee shall be entitled to receive from
the Company any such Officers' Certificates, Opinions of Counsel or other
documentation as it may reasonably request in connection with any such
qualification of this Indenture under the TIA.
SECTION 12.15. Table of Contents; Headings. The table of
contents, cross-reference sheet and headings of the Articles and Sections of
this Indenture have been inserted for convenience of reference only, are not
intended to be considered a part hereof and shall not modify or restrict any of
the terms or provisions hereof.
<PAGE>
94
IN WITNESS WHEREOF, the parties have caused this Indenture to
be duly executed as of the date first written above.
STELLEX INDUSTRIES, INC.
By: /s/ William L. Remley
Name: William L. Remley
Title: Vice Chairman
MARINE MIDLAND BANK, as Trustee
By: /s/ Robert A. Conrad
Name: Robert A. Conrad
Title: Vice President
KII HOLDING CORP.
By: /s/ William L. Remley
Name: William L. Remley
Title: Vice Chairman
KII ACQUISITION CORP.
By: /s/ William L. Remley
Name: William L. Remley
Title: Vice Chairman
STELLEX AEROSPACE
By: /s/ William L. Remley
Name: William L. Remley
Title: Vice Chairman
BANDY MACHINING INTERNATIONAL
By: /s/ William L. Remley
Name: William L. Remley
Title: Vice Chairman
<PAGE>
95
PARAGON PRECISION PRODUCTS
By: /s/ William L. Remley
Name: William L. Remley
Title: Vice Chairman
SCANNING ELECTRON ANALYSIS
LABORATORIES, INC.
By: /s/ William L. Remley
Name: William L. Remley
Title: Vice Chairman
GENERAL INSPECTION
LABORATORIES, INC.
By: /s/ William L. Remley
Name: William L. Remley
Title: Vice Chairman
TSMD ACQUISITION CORP.
By: /s/ William L. Remley
Name: William L. Remley
Title: President
STELLEX MICROWAVE SYSTEMS, INC.
By: /s/ William L. Remley
Name: William L. Remley
Title: Vice Chairman
<PAGE>
1
EXHIBIT A
[FORM OF FACE OF INITIAL NOTE]
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN THIS INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED,
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER, OR ANY
AFFILIATE OF THE ISSUER, WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
SUCH SECURITY), ONLY (A) TO THE ISSUER, (B) PURSUANT TO A REGISTRATION STATEMENT
THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS
THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, (E) TO AN INSTITUTIONAL ACCREDITED INVESTOR
<PAGE>
2
WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT
THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH
AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT
OF THE SECURITIES OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR
FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUER'S AND THE
TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES
(D), (E) AND (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION
AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN THE CASE OF THE
FOREGOING CLAUSE (E), A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE
OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
ISSUER AND THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE
HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
<PAGE>
1
STELLEX INDUSTRIES, INC.
No. __ Principal Amount $_____________
CUSIP NO. _________
___% Senior Subordinated Note due 2007
Stellex Industries, Inc., a Delaware corporation, promises to
pay to __________, or registered assigns, the principal sum of
___________________________ Dollars on November 1, 2007.
Interest Payment Dates: May 1 and November 1.
Record Dates: April 15 and October 15.
Additional provisions of this Security are set forth on the
other side of this Security.
Dated: __________ STELLEX INDUSTRIES, INC.
by
by
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
MARINE MIDLAND BANK
as Trustee, certifies
that this is one of the
Securities referred
to in this Indenture.
by
Authorized Signatory
<PAGE>
1
(Reverse of Security)
9 1/2% Senior Subordinated Note due 2007
1. Interest
Stellex Industries, Inc., a Delaware corporation (such
corporation, and its successors and assigns under this Indenture hereinafter
referred to, being herein called the "Company"), promises to pay interest on the
principal amount of this Security at the rate per annum shown above.
The Company will pay interest semiannually on May 1 and
November 1 of each year, commencing May 1, 1998. Interest on the Securities will
accrue from the most recent date to which interest has been paid on the
Securities or, if no interest has been paid, from October 31, 1997. The Company
shall pay interest on overdue principal or premium, if any, at the rate borne by
the Securities to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. Method of Payment
By at least 11:00 a.m. (New York City time) on the date on
which any principal of or interest on any Security is due and payable, the
Company shall irrevocably deposit with the Trustee or the Paying Agent money
sufficient to pay such principal, premium, if any, and/or interest. The Company
will pay interest (except defaulted interest) to the Persons who are registered
Holders of Securities at the close of business on the April 15 or October 15
next preceding the interest payment date even if Securities are cancelled,
repurchased or redeemed after the record date and on or before the interest
payment date. Holders must surrender Securities to a Paying Agent to collect
principal payments. The Company will pay principal and interest in money of the
United States that at the time of payment is legal tender for payment of public
and private debts. However, the Company may pay principal and interest by check
payable in such money. It may mail an interest check to a Holder's registered
address.
3. Paying Agent and Registrar
Initially, Marine Midland Bank, a New York banking corporation
(the "Trustee"), will act as Paying Agent and Registrar. The Company may appoint
and change any Paying Agent, Registrar or co-registrar without notice to any
Securityholder. The Company or any of its domestically incorporated Wholly Owned
Subsidiaries may act as Paying Agent, Registrar or co-registrar.
<PAGE>
2
4. Indenture
The Company issued the Securities under an Indenture dated as
of October 31, 1997 (as it may be amended or supplemented from time to time in
accordance with the terms thereof, the "Indenture"), among the Company, the
Subsidiary Guarantors named therein (the "Subsidiary Guarantors") and the
Trustee. The terms of the Securities include those stated in this Indenture and
those made part of this Indenture by reference to the Trust Indenture Act of
1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of this Indenture
(the "Act"). Capitalized terms used herein and not defined herein have the
meanings ascribed thereto in this Indenture. The Securities are subject to all
such terms, and Securityholders are referred to this Indenture and the Act for a
statement of those terms.
The Securities are unsecured senior subordinated obligations
of the Company limited to $100 million aggregate principal amount (subject to
Section 2.7 of the Indenture). The Security is one of the Initial Notes referred
to in the Indenture. The Securities include the Initial Notes and any Exchange
Notes issued in exchange for the Initial Notes pursuant to the Indenture and the
Registration Rights Agreement. The Initial Notes and the Exchange Notes are
treated as a single class of securities under the Indenture. The Indenture
imposes certain limitations on the Incurrence of Indebtedness by the Company and
its Restricted Subsidiaries, the payment of dividends and other distributions on
the Capital Stock of the Company and its Restricted Subsidiaries, the purchase
or redemption of Capital Stock of the Company and Capital Stock of such
Restricted Subsidiaries, certain purchases or redemptions of Subordinated
Obligations, the sale or transfer of assets and Capital Stock of Restricted
Subsidiaries, the issuance or sale of Capital Stock of Restricted Subsidiaries,
the investments of the Company and its Subsidiaries and transactions with
Affiliates. In addition, the Indenture limits the ability of the Company and its
Restricted Subsidiaries to restrict distributions and dividends from Restricted
Subsidiaries.
To guarantee the due and punctual payment of the principal and
interest, if any, on the Securities and all other amounts payable by the Company
under the Indenture and the Securities when and as the same shall be due and
payable, whether at maturity, by acceleration or otherwise, according to the
terms of the Securities and the Indenture, the Subsidiary Guarantors have,
jointly and severally, unconditionally guaranteed such obligations on a senior
subordinated basis pursuant to the terms of the Indenture.
5. Optional Redemption
Except as set forth in this paragraph 5, the Securities
will not be redeemable at the option of the Company prior to
<PAGE>
3
November 1, 2002. On and after such date, the Securities will be redeemable, at
the Company's option, in whole or in part, upon not less than 30 nor more than
60 days' prior notice mailed by first class mail to each Holder's registered
address, at the following redemption prices (expressed as percentages of
principal amount) plus accrued and unpaid interest and Liquidated Damages, if
any, to the redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date):
If redeemed during the 12-month period commencing on November
1 of the years set forth below:
Year Redemption Price
2002.......................................... 104.750%
2003.......................................... 103.167%
2004.......................................... 101.583%
2005 and thereafter........................... 100.000%
Notwithstanding the foregoing, at any time or from time to
time prior to November 1, 2000, the Company may redeem in the aggregate up to
35% of the aggregate principal amount of the Securities originally issued with
the proceeds of one or more Equity Offerings by the Company, at a redemption
price (expressed as a percentage of principal amount thereof) of 109.50% plus
accrued and unpaid interest to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date); provided, however, that after giving effect to
such redemption, at least 65% of the aggregate principal amount of the
Securities remain outstanding.
In addition, at any time prior to November 1, 2002, the
Company may, at its option, redeem the Securities, in whole but not in part, at
a redemption price equal to 100% of the principal amount thereof plus the
applicable Make-Whole Premium.
6. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not
more than 60 days before the redemption date to each Holder of Securities to be
redeemed at his registered address. Securities in denominations of principal
amount larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000. If money sufficient to pay the redemption price of and accrued and
unpaid interest on all Securities (or portions thereof) to be redeemed on the
redemption date is deposited with the Paying Agent on or before the redemption
date and certain other conditions are satisfied, on and after such date interest
ceases to accrue on such Securities (or such portions thereof) called for
redemption.
<PAGE>
4
7. Put Provisions
Upon a Change of Control, any Holder of Securities will have
the right to cause the Company to repurchase all or any part of the Securities
of such Holder at a repurchase price equal to 101% of the principal amount
thereof plus accrued interest to the date of repurchase as provided in, and
subject to the terms of, the Indenture.
8. Subordination
The Securities are subordinated to Senior Indebtedness, as
defined in the Indenture, and the obligations of each Subsidiary Guarantor under
the Subsidiary Guarantee contained in Article XI of the Indenture are
subordinated to Guarantor Senior Indebtedness, as defined in the Indenture of
such Subsidiary Guarantor. To the extent provided in the Indenture, Senior
Indebtedness must be paid before the Securities may be paid and Guarantor Senior
Indebtedness of a Subsidiary Guarantor must be paid before such Subsidiary
Guarantor may make payments under the Subsidiary Guarantee. The Company agrees,
and each Securityholder by accepting a Security agrees, to the subordination
provisions contained in the Indenture and authorizes the Trustee to give them
effect and appoints the Trustee as attorney-in-fact for such purpose.
9. Registration Rights
The Company is party to an Exchange and Registration Rights
Agreement, dated as of October 31, 1997, among the Company, the Subsidiary
Guarantors, Societe Generale Securities Corporation, BT Alex. Brown Incorporated
and Jefferies & Company, Inc. pursuant to which it is obligated to pay
Liquidated Damages (as defined therein) upon the occurrence of certain
Registration Defaults (as defined therein).
10. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of principal amount of $1,000 and whole multiples of $1,000. A
Holder may register transfer or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements or transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar need not register
the transfer of or exchange (i) any Securities selected for redemption (except,
in the case of a Security to be redeemed in part, the portion of the Security
not to be redeemed) for a period beginning 15 days before a selection of
Securities to be redeemed and ending on the date of such selection or (ii)
<PAGE>
5
any Securities for a period beginning 15 days before an interest payment date
and ending on such interest payment date.
11. Persons Deemed Owners
The registered holder of this Security may be treated as the
owner of it for all purposes.
12. Unclaimed Money
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall pay the money back to
the Company at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.
13. Defeasance
Subject to certain conditions set forth in the Indenture, the
Company at any time may terminate some or all of its obligations under the
Securities and the Indenture if the Company deposits with the Trustee money or
U.S. Government Obligations for the payment of principal of and interest on the
Securities to redemption or maturity, as the case may be.
14. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i)
the Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount of the outstanding Securities
and (ii) any default or noncompliance with any provision may be waived with the
written consent of the Holders of a majority in principal amount of the
outstanding Securities. Subject to certain exceptions set forth in the
Indenture, without the consent of any Securityholder, the Company, the
Subsidiary Guarantors and the Trustee may amend the Indenture or the Securities
to cure any ambiguity, omission, defect or inconsistency, or to comply with
Article 5 of the Indenture, or to provide for uncertificated Securities in
addition to or in place of certificated Securities, or to add guarantees with
respect to the Securities or to secure the Securities, or to add additional
covenants or surrender rights and powers conferred on the Company, or to comply
with any request of the SEC in connection with qualifying the Indenture under
the Act, or to make any change that does not adversely affect the rights of any
Securityholder, or to provide for the issuance of Exchange Notes.
<PAGE>
6
15. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for
30 days in payment of interest or Liquidated Damages, if any, on the Securities;
(ii) default in payment of principal on the Securities at maturity, upon
redemption pursuant to paragraph 5 of the Securities, upon required repurchase,
upon declaration or otherwise; (iii) failure by the Company to comply with other
agreements in the Indenture or the Securities, in certain cases subject to
notice and lapse of time; (iv) certain accelerations (including failure to pay
within any grace period after final maturity) of other indebtedness of the
Company or its Restricted Subsidiaries if the amount accelerated (or so unpaid)
exceeds $10 million; (v) certain events of bankruptcy or insolvency with respect
to the Company or any Significant Subsidiary; (vi) certain final, non-appealable
judgments or decrees for the payment of money in excess of $10 million against
the Company or any Significant Subsidiary; and (vii) any Subsidiary Guarantee by
a Significant Subsidiary ceases to be in full force and effect (except as
contemplated by the terms of this Indenture) or any Subsidiary Guarantor that is
a Significant Subsidiary denies or disaffirms its obligations under this
Indenture or its Subsidiary Guarantee and such default continues for 10 days. If
an Event of Default occurs and is continuing, the Trustee or the Holders of at
least 25% in aggregate principal amount of the Securities may declare all the
Securities to be due and payable immediately. Certain events of bankruptcy or
insolvency are Events of Default which will result in the Securities being due
and payable immediately upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may refuse to
enforce the Indenture or the Securities unless it receives reasonable indemnity
or security. Subject to certain limitations, Holders of a majority in principal
amount of the Securities may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Securityholders notice of any continuing
Default or Event of Default (except a Default or Event of Default in payment of
principal or interest) if it determines that withholding notice is in their
interest.
16. Trustee Dealings with the Company
Subject to certain limitations set forth in this Indenture,
the Trustee under the Indenture, in its individual or any other capacity, may
become the owner or pledgee of Securities and may otherwise deal with and
collect obligations owed to it by the Company or its Affiliates and may
otherwise deal with the Company or its Affiliates with the same rights it would
have if it were not Trustee.
<PAGE>
7
17. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the
Company or any Subsidiary Guarantor shall not have any liability for any
obligations of the Company or any Subsidiary Guarantor under the Securities or
this Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting a Security, each Securityholder
waives and releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
18. Authentication
This Security shall not be valid until an authorized signatory
of the Trustee (or an authenticating agent acting on its behalf) manually signs
the certificate of authentication on the other side of this Security.
19. Abbreviations
Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT
(=tenants by the entirety), JT TEN (=joint tenants with rights of survivorship
and not as tenants in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to
Minors Act).
20. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures the Company has caused CUSIP numbers
to be printed on the Securities and has directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
21. Governing Law
This Security shall be governed by, and construed in
accordance with, the laws of the State of New York but without giving effect to
applicable principles of conflicts of law to the extent that the application of
the laws of another jurisdiction would be required thereby.
The Company will furnish to any Securityholder upon written
request and without charge to the Securityholder a copy of the Indenture which
has in it the text of this Security in
<PAGE>
8
larger type. Requests may be made to: Stellex Industries, Inc., 3333 Hillview
Avenue, Palo Alto, California 94304-1223, Attention: General Counsel.
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer
this Security on the books of the Company. The agent may
substitute another to act for him.
Date: ____________________ Your Signature: ___________________
Signature Guarantee: ______________________________
(Signature must be guaranteed)
Sign exactly as your name appears on the other side of this Security.
In connection with any transfer or exchange of any of the Securities evidenced
by this certificate occurring prior to the date that is two years after the
later of the date of original issuance of such Securities and the last date, if
any, on which such Securities were owned by the Company or any Affiliate of the
Company, the undersigned confirms that such Securities are being:
CHECK ONE BOX BELOW:
1 / / acquired for the undersigned's own account,
without transfer (in satisfaction of Section
2.6(a)(ii)(A) or Section 2.6(d)(i)(A) of the
Indenture); or
2 / / transferred to the Company; or
3 / / transferred pursuant to and in compliance with
Rule 144A under the Securities Act of 1933; or
4 / / transferred pursuant to an effective registration
statement under the Securities Act; or
5 / / transferred pursuant to and in compliance with
Regulation S under the Securities Act of 1933; or
6 / / transferred to an institutional "accredited investor"
(as defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act of 1933), that has furnished to
the Trustee a signed letter
<PAGE>
2
containing certain representations and agreements
(the form of which letter appears as Exhibit C to
the Indenture); or
7 / / transferred pursuant to another available
exemption from the registration requirements
of the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any Person other
than the registered holder thereof; provided, however, that if box (5), (6) or
(7) is checked, the Trustee or the Company may require, prior to registering any
such transfer of the Securities, in their sole discretion, such legal opinions,
certifications and other information as the Trustee or the Company may
reasonably request to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, such as the exemption provided by
Rule 144 under such Act.
------------------------------
Signature
Signature Guarantee:
- ------------------------- ------------------------------
Signature
(Signature must be guaranteed)
- ------------------------------------------------------------
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.6 or 4.8 of the Indenture, check the box:
/ /
If you want to elect to have only part of this Security
purchased by the Company pursuant to Section 4.6 or 4.8 of the Indenture, state
the amount in principal amount (must be integral multiple of $1,000): $
Date: __________ Your Signature ____________________________
(Sign exactly as your name appears on the
other side of the Security)
Signature Guarantee: _______________________________________
(Signature must be guaranteed)
<PAGE>
1
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security
have been made:
<TABLE>
<CAPTION>
Amount of decrease Amount of increase Principal Amount of Signature of
in Principal Amount in Principal Amount this Global Security authorized officer
Date of of this Global of this Global following such of Trustee or
Exchange Security Security decrease or increase Securities Custodian
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT B
[FORM OF FACE OF EXCHANGE NOTE]
STELLEX INDUSTRIES, INC.
No. __ Principal Amount $_____________
CUSIP NO. _________
9 1/2% Senior Subordinated Note due 2007
Stellex Industries, Inc., a Delaware corporation, promises to
pay to __________, or registered assigns, the principal sum of
___________________________ Dollars on November 1, 2007.
Interest Payment Dates: May 1 and November 1.
Record Dates: April 15 and October 15.
Additional provisions of this Security are set forth on the
other side of this Security.
Dated: __________ STELLEX INDUSTRIES, INC.
by
by
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
MARINE MIDLAND BANK
as Trustee, certifies
that this is one of
the Securities referred
to in this Indenture.
by
Authorized Signatory
<PAGE>
(Reverse of Security)
9 1/2% Senior Subordinated Note due 2007
1. Interest
Stellex Industries, Inc., a Delaware corporation (such
corporation, and its successors and assigns under this Indenture hereinafter
referred to, being herein called the "Company"), promises to pay interest on the
principal amount of this Security at the rate per annum shown above.
The Company will pay interest semiannually on May 1 and
November 1 of each year, commencing May 1, 1998 Interest on the Securities will
accrue from the most recent date to which interest has been paid on the
Securities or, if no interest has been paid, from October 31, 1997 The Company
shall pay interest on overdue principal or premium, if any, at the rate borne by
the Securities to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. Method of Payment
By at least 11:00 a.m. (New York City time) on the date on
which any principal of or interest on any Security is due and payable, the
Company shall irrevocably deposit with the Trustee or the Paying Agent money
sufficient to pay such principal, premium, if any, and/or interest. The Company
will pay interest (except defaulted interest) to the Persons who are registered
Holders of Securities at the close of business on the April 15 or October 15
next preceding the interest payment date even if Securities are cancelled,
repurchased or redeemed after the record date and on or before the interest
payment date. Holders must surrender Securities to a Paying Agent to collect
principal payments. The Company will pay principal and interest in money of the
United States that at the time of payment is legal tender for payment of public
and private debts. However, the Company may pay principal and interest by check
payable in such money. It may mail an interest check to a Holder's registered
address.
3. Paying Agent and Registrar
Initially, Marine Midland Bank, a New York banking corporation
(the "Trustee"), will act as Paying Agent and Registrar. The Company may appoint
and change any Paying Agent, Registrar or co-registrar without notice to any
Securityholder. The Company or any of its domestically incorporated Wholly Owned
Subsidiaries may act as Paying Agent, Registrar or co-registrar.
<PAGE>
2
4. Indenture
The Company issued the Securities under an Indenture dated as
of October 31, 1997 (as it may be amended or supplemented from time to time in
accordance with the terms thereof, the "Indenture"), among the Company, the
Subsidiary Guarantors named therein (the "Subsidiary Guarantors") and the
Trustee. The terms of the Securities include those stated in this Indenture and
those made part of this Indenture by reference to the Trust Indenture Act of
1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of this Indenture
(the "Act"). Capitalized terms used herein and not defined herein have the
meanings ascribed thereto in this Indenture. The Securities are subject to all
such terms, and Securityholders are referred to this Indenture and the Act for a
statement of those terms.
The Securities are unsecured senior subordinated obligations
of the Company limited to $100 million aggregate principal amount (subject to
Section 2.7 of the Indenture). The Security is one of the Exchange Notes
referred to in the Indenture. The Securities include the Initial Notes and any
Exchange Notes issued in exchange for the Initial Notes pursuant to the
Indenture and the Registration Rights Agreement. The Initial Notes and the
Exchange Notes are treated as a single class of securities under the Indenture.
The Indenture imposes certain limitations on the Incurrence of Indebtedness by
the Company and its Restricted Subsidiaries, the payment of dividends and other
distributions on the Capital Stock of the Company and its Restricted
Subsidiaries, the purchase or redemption of Capital Stock of the Company and
Capital Stock of such Restricted Subsidiaries, certain purchases or redemptions
of Subordinated Obligations, the sale or transfer of assets and Capital Stock of
Restricted Subsidiaries, the issuance or sale of Capital Stock of Restricted
Subsidiaries, the investments of the Company and its Subsidiaries and
transactions with Affiliates. In addition, the Indenture limits the ability of
the Company and its Restricted Subsidiaries to restrict distributions and
dividends from Restricted Subsidiaries.
To guarantee the due and punctual payment of the principal and
interest, if any, on the Securities and all other amounts payable by the Company
under the Indenture and the Securities when and as the same shall be due and
payable, whether at maturity, by acceleration or otherwise, according to the
terms of the Securities and the Indenture, the Subsidiary Guarantors have,
jointly and severally, unconditionally guaranteed such obligations on a senior
subordinated basis pursuant to the terms of the Indenture.
5. Optional Redemption
Except as set forth in this paragraph 5, the Securities
will not be redeemable at the option of the Company prior to
<PAGE>
3
November 1, 2002. On and after such date, the Securities will be redeemable, at
the Company's option, in whole or in part, upon not less than 30 nor more than
60 days' prior notice mailed by first class mail to each Holder's registered
address, at the following redemption prices (expressed as percentages of
principal amount) plus accrued and unpaid interest and Liquidated Damages, if
any, to the redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date):
If redeemed during the 12-month period commencing on November
1 of the years set forth below:
<TABLE>
<CAPTION>
Year Redemption Price
<S> <C>
2002.................................................... 104.750%
2003.................................................... 103.167%
2004.................................................... 101.583%
2005 and thereafter..................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time or from time to
time prior to November 1, 2000, the Company may redeem in the aggregate up to
35% of the aggregate principal amount of the Securities originally issued with
the proceeds of one or more Equity Offerings by the Company, at a redemption
price (expressed as a percentage of principal amount thereof) of 109.50% plus
accrued and unpaid interest to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date); provided, however, that after giving effect to
such redemption, at least 65% of the aggregate principal million principal
amount of the Securities remain outstanding.
In addition, at any time prior to November 1, 2002, the
Company may, at its option, redeem the Securities, in whole but not in part, at
a redemption price equal to 100% of the principal amount thereof plus the
applicable Make-Whole Premium.
6. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not
more than 60 days before the redemption date to each Holder of Securities to be
redeemed at his registered address. Securities in denominations of principal
amount larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000. If money sufficient to pay the redemption price of and accrued and
unpaid interest on all Securities (or portions thereof) to be redeemed on the
redemption date is deposited with the Paying Agent on or before the redemption
date and certain other conditions are satisfied, on and after such date interest
ceases to accrue on such Securities (or such portions thereof) called for
redemption.
<PAGE>
4
7. Put Provisions
Upon a Change of Control, any Holder of Securities will have
the right to cause the Company to repurchase all or any part of the Securities
of such Holder at a repurchase price equal to 101% of the principal amount
thereof plus accrued interest to the date of repurchase as provided in, and
subject to the terms of, the Indenture.
8. Subordination
The Securities are subordinated to Senior Indebtedness, as
defined in the Indenture, and the obligations of each Subsidiary Guarantor under
the Subsidiary Guarantee contained in Article XI of the Indenture are
subordinated to Guarantor Senior Indebtedness, as defined in the Indenture of
such Subsidiary Guarantor. To the extent provided in the Indenture, Senior
Indebtedness must be paid before the Securities may be paid and Guarantor Senior
Indebtedness of a Subsidiary Guarantor must be paid before such Subsidiary
Guarantor may make payments under the Subsidiary Guarantee. The Company agrees,
and each Securityholder by accepting a Security agrees, to the subordination
provisions contained in the Indenture and authorizes the Trustee to give them
effect and appoints the Trustee as attorney-in-fact for such purpose.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of principal amount of $1,000 and whole multiples of $1,000. A
Holder may register transfer or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements or transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar need not register
the transfer of or exchange (i) any Securities selected for redemption (except,
in the case of a Security to be redeemed in part, the portion of the Security
not to be redeemed) for a period beginning 15 days before a selection of
Securities to be redeemed and ending on the date of such selection or (ii) any
Securities for a period beginning 15 days before an interest payment date and
ending on such interest payment date.
10. Persons Deemed Owners
The registered holder of this Security may be treated as the
owner of it for all purposes.
<PAGE>
5
11. Unclaimed Money
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall pay the money back to
the Company at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.
12. Defeasance
Subject to certain conditions set forth in the Indenture, the
Company at any time may terminate some or all of its obligations under the
Securities and the Indenture if the Company deposits with the Trustee money or
U.S. Government Obligations for the payment of principal of and interest on the
Securities to redemption or maturity, as the case may be.
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i)
the Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount of the outstanding Securities
and (ii) any default or noncompliance with any provision may be waived with the
written consent of the Holders of a majority in principal amount of the
outstanding Securities. Subject to certain exceptions set forth in the
Indenture, without the consent of any Securityholder, the Company, the
Subsidiary Guarantors and the Trustee may amend the Indenture or the Securities
to cure any ambiguity, omission, defect or inconsistency, or to comply with
Article 5 of the Indenture, or to provide for uncertificated Securities in
addition to or in place of certificated Securities, or to add guarantees with
respect to the Securities or to secure the Securities, or to add additional
covenants or surrender rights and powers conferred on the Company, or to comply
with any request of the SEC in connection with qualifying the Indenture under
the Act, or to make any change that does not adversely affect the rights of any
Securityholder, or to provide for the issuance of Exchange Notes.
14. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for
30 days in payment of interest or Liquidated Damages, if any, on the Securities;
(ii) default in payment of principal on the Securities at maturity, upon
redemption pursuant to paragraph 5 of the Securities, upon required repurchase,
upon declaration or otherwise; (iii) failure by the Company to comply with other
agreements in the Indenture or the Securities, in certain cases subject to
notice and lapse of time; (iv) certain
<PAGE>
6
accelerations (including failure to pay within any grace period after final
maturity) of other indebtedness of the Company or its Restricted Subsidiaries if
the amount accelerated (or so unpaid) exceeds $10 million; (v) certain events of
bankruptcy or insolvency with respect to the Company or any Significant
Subsidiary; (vi) certain final, non-appealable judgments or decrees for the
payment of money in excess of $10 million against the Company or any Significant
Subsidiary; and (vii) any Subsidiary Guarantee by a Significant Subsidiary
ceases to be in full force and effect (except as contemplated by the terms of
this Indenture) or any Subsidiary Guarantor that is a Significant Subsidiary
denies or disaffirms its obligations under this Indenture or its Subsidiary
Guarantee and such default continues for 10 days. If an Event of Default occurs
and is continuing, the Trustee or the Holders of at least 25% in aggregate
principal amount of the Securities may declare all the Securities to be due and
payable immediately. Certain events of bankruptcy or insolvency are Events of
Default which will result in the Securities being due and payable immediately
upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may refuse to
enforce the Indenture or the Securities unless it receives reasonable indemnity
or security. Subject to certain limitations, Holders of a majority in principal
amount of the Securities may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Securityholders notice of any continuing
Default or Event of Default (except a Default or Event of Default in payment of
principal or interest) if it determines that withholding notice is in their
interest.
15. Trustee Dealings with the Company
Subject to certain limitations set forth in this Indenture,
the Trustee under the Indenture, in its individual or any other capacity, may
become the owner or pledgee of Securities and may otherwise deal with and
collect obligations owed to it by the Company or its Affiliates and may
otherwise deal with the Company or its Affiliates with the same rights it would
have if it were not Trustee.
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the
Company or any Subsidiary Guarantor shall not have any liability for any
obligations of the Company or any Subsidiary Guarantor under the Securities or
this Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting a Security, each Securityholder
waives and releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
<PAGE>
7
17. Authentication
This Security shall not be valid until an authorized signatory
of the Trustee (or an authenticating agent acting on its behalf) manually signs
the certificate of authentication on the other side of this Security.
18. Abbreviations
Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT
(=tenants by the entirety), JT TEN (=joint tenants with rights of survivorship
and not as tenants in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to
Minors Act).
19. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures the Company has caused CUSIP numbers
to be printed on the Securities and has directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
20. Governing Law
This Security shall be governed by, and construed in
accordance with, the laws of the State of New York but without giving effect to
applicable principles of conflicts of law to the extent that the application of
the laws of another jurisdiction would be required thereby.
The Company will furnish to any Securityholder upon written
request and without charge to the Securityholder a copy of the Indenture which
has in it the text of this Security in larger type. Requests may be made to:
Stellex Industries, Inc., 3333 Hillview Avenue, Palo Alto, California
94304-1223, Attention: General Counsel.
<PAGE>
1
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer
this Security on the books of the Company. The agent may
substitute another to act for him.
Date: ____________________ Your Signature: ___________________
Signature Guarantee: ______________________________
(Signature must be guaranteed)
Sign exactly as your name appears on the other side of this Security.
<PAGE>
1
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.6 or 4.8 of the Indenture, check the box:
/ /
If you want to elect to have only part of this Security
purchased by the Company pursuant to Section 4.6 or 4.8 of the Indenture, state
the amount in principal amount (must be integral multiple of $1,000): $
Date: __________ Your Signature ____________________________
(Sign exactly as your name appears on the
other side of the Security)
Signature Guarantee: _______________________________________
(Signature must be guaranteed)
<PAGE>
EXHIBIT C
Transferee Letter of Representation
Stellex Industries, Inc.
c/o Marine Midland Bank
1250 Broadway, 12th Floor
New York, New York 10001
Attention: Corporate Trust
Administration
Dear Sirs:
This certificate is delivered to request a transfer of $
principal amount of the 9 1/2% Senior Subordinated Notes due 2007 (the "Notes")
of Stellex Industries, Inc. (the "Company").
Upon transfer, the Notes would be registered in the name of
the new beneficial owner as follows:
Name: ___________________________________
Address: ________________________________
Taxpayer ID Number: _____________________
The undersigned represents and warrants to you that:
1. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933 (the
"Securities Act")) purchasing for our own account or for the account of such an
institutional "accredited investor," at least $250,000 principal amount of the
Notes, and we are acquiring the Notes not with a view to, or for offer or sale
in connection with, any distribution in violation of the Securities Act. We have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risk of our investment in the Notes and invest in
or purchase securities similar to the Notes in the normal course of our
business. We and any accounts for which we are acting are each able to bear the
economic risk of our or its investment.
2. We understand that the Notes have not been registered under
the Securities Act and, unless so registered, may not be sold except as
permitted in the following sentence. We agree on our own behalf and on behalf of
any investor account for which we are purchasing Notes to offer, sell or
otherwise transfer such Notes prior to the date which is two years after the
later of the date of original issue and the last date on which the Company or
any Affiliate of the Company was the owner of such Notes (or any predecessor
thereto) (the "Resale Restriction Termination Date") only (a) to the Company,
(b)
<PAGE>
2
pursuant to a registration statement which has been declared effective under the
Securities Act, (c) in a transaction complying with the requirements of Rule
144A under the Securities Act, to a person we reasonably believe is a qualified
institutional buyer under Rule 144A (a "QIB") that purchases for its own account
or for the account of a QIB and to whom notice is given that the transfer is
being made in reliance on Rule 144A, (d) pursuant to offers and sales that occur
outside the United States within the meaning of Regulation S under the
Securities Act, (e) to an institutional "accredited investor" within the meaning
of Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is purchasing
for its own account or for the account of such an institutional "accredited
investor", in each case in a minimum principal amount of Notes of $250,000 or
(f) pursuant to any other available exemption from the registration requirements
of the Securities Act, subject in each of the foregoing cases to any requirement
of law that the disposition of our property or the property of such investor
account or accounts be at all times within our or their control and in
compliance with any applicable state securities laws. The foregoing restrictions
on resale will not apply subsequent to the Resale Restriction Termination Date.
If any resale or other transfer of the Notes is proposed to be made pursuant to
clause (e) above prior to the Resale Restriction Termination Date, the
transferor shall deliver a letter from the transferee substantially in the form
of this letter to the Company and the Trustee, which shall provide, among other
things, that the transferee is an institutional "accredited investor" within the
meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act and that it
is acquiring such Notes for investment purposes and not for distribution in
violation of the Securities Act. Each purchaser acknowledges that the Company
and the Trustee reserve the right prior to any offer, sale or other transfer
prior to the Resale Termination Date of the Notes pursuant to clauses (d), (e)
or (f) above to require the delivery of an opinion of counsel, certifications
and/or other information satisfactory to the Company and the Trustee.
3. We agree on our own behalf and on behalf of any investor
account for which we are purchasing the Notes that (i) if it is an insurance
company the funds to be used to purchase the Notes by it constitute (A) assets
of an insurance company general account maintained by it and the acquisition and
holding of each such Note by such account is exempt under United States
Department of Labor Prohibited Transaction Class Exemption ("PTCE") 95-60 or (B)
assets of an insurance company pooled separate account and the acquisition and
holding of each such Note by such account is exempt under PTCE 90-1, and (ii) if
it is not an insurance company, no part of the funds to be used to purchase the
Notes to be purchased by it constitute assets of any plan or employee benefit
plan such that the use of such assets constitutes a non-exempt prohibited
transaction under ERISA or the Code. The representation is made in reliance upon
the list furnished to the purchaser by the Company, if requested by the
purchaser, of the plans and employee benefit plans with respect
<PAGE>
3
to which the Company is a party in interest or a disqualified person and is
based upon the purchaser's determination that a statutory or administrative
exemption is applicable or that the Company and its Affiliates are not parties
in interest or disqualified persons with respect to the purchaser or holder plan
or employee benefit plan. As used in this paragraph, the terms "employee benefit
plan" and "party in interest" shall have the meanings assigned to such terms in
Section 3 of ERISA, the term "Affiliate" shall have the meaning assigned to such
term in Section 407(d)(7) of ERISA and the terms "disqualified person" and
"plan" shall have the meanings assigned to such terms in Section 4975 of the
Code.
TRANSFEREE:_____________________
BY______________________________
<PAGE>
EXHIBIT D
[FORM OF SUPPLEMENTAL INDENTURE]
SUPPLEMENTAL INDENTURE, dated as of __________ __, 199_, among
STELLEX INDUSTRIES, INC. a Delaware corporation (the "Company"), [list
additional Subsidiary Guarantors], [NEW SUBSIDIARY GUARANTOR], a __________
corporation (the "New Subsidiary Guarantor") and MARINE MIDLAND BANK, a New York
banking corporation and trust company association, as trustee (the "Trustee") to
the Indenture dated as of October __, 1997 (the "Indenture") among the Company,
[list Subsidiary Guarantors] and the Trustee.
W I T N E S S E T H :
WHEREAS, Section 9.1 of the Indenture provides that the
Company and the Trustee may, among other things, amend the Indenture or the
Securities without notice to or consent of any Securityholder to add Guarantees
with respect to the Securities or to secure the Securities;
WHEREAS, Section 11.7 of the Indenture provides that any newly
created or acquired Subsidiary of the Company having either net assets or
stockholders' equity in excess of $50,000 (other than a Foreign Subsidiary or an
Unrestricted Subsidiary) must execute and deliver to the Trustee this
Supplemental Indenture pursuant to which such Subsidiary shall agree to be bound
by the provisions of Article XI of the Indenture; and
WHEREAS, the New Subsidiary Guarantor shall execute and
deliver to the Trustee this Supplemental Indenture.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used and not
defined herein shall have the meaning specified in or pursuant to the Indenture.
2. Guarantee. The New Subsidiary Guarantor hereby
agrees to unconditionally assume all the obligations of a Subsidiary Guarantor
under the Indenture as described therein.
3. Trustee. The Trustee accepts the modification of the
Indenture effected by this Supplemental Indenture, but only upon the terms and
conditions set forth in the Indenture. Without limiting the generality of the
foregoing, the Trustee assumes no responsibility for the correctness of the
recitals herein contained, which shall be taken as the statements of the
Company. The Trustee makes no representation and shall have no responsibility as
to the validity and sufficiency of this Supplemental Indenture.
<PAGE>
1
4. Effect on Indenture. As supplemented by this
Supplemental Indenture, the Indenture is hereby ratified and confirmed in all
aspects.
5. Counterparts. This Supplemental Indenture may be
executed in counterparts, each of which when so executed shall be deemed to be
an original, but all such counterparts shall together constitute but one and the
same instrument.
6. Governing Law. This Supplemental Indenture shall be
governed by and construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed as of the day and year first above
written.
[NEW SUBSIDIARY GUARANTOR]
By:______________________________
Name:
Title:
MARINE MIDLAND BANK, as Trustee
By:______________________________
Name:
Title:
STELLEX INDUSTRIES, INC.
By:___________________________
Name:
Title:
[SUBSIDIARY GUARANTORS]
By:______________________________
Name:
Title:
<PAGE>
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
October 31, 1997
SOCIETE GENERALE SECURITIES CORPORATION
BT ALEX. BROWN INCORPORATED
JEFFERIES & COMPANY, INC.
c/o Societe Generale Securities Corporation
1221 Avenue of the Americas
New York, New York 10020
Dear Sirs:
STELLEX INDUSTRIES, INC., a Delaware corporation (the "Company"),
proposes to issue and sell to you (the "Initial Purchasers"), upon the terms set
forth in a purchase agreement dated October 23, 1997 (the "Purchase Agreement"),
$100,000,000 principal amount of its 9 1/2% Senior Subordinated Notes due 2007
(the "Securities"). Payment of principal and interest on the Securities will be
unconditionally guaranteed, jointly and severally, on a senior subordinated
basis by the Guarantors. Capitalized terms used but not specifically defined
herein have the respective meanings ascribed thereto in the Purchase Agreement.
As an inducement to the Initial Purchasers to enter into the Purchase Agreement
and in satisfaction of a condition to your obligations thereunder, the Company
agrees with you, for the benefit of the holders (including the Initial
Purchasers) of the Securities (collectively, the "Holders"), as follows:
1. Registered Exchange Offer. The Company shall prepare and, not later
than 45 days following the Issue Date (as hereinafter defined), the Company and
the Guarantors (i) shall file with the Commission a registration statement (the
"Exchange Offer Registration Statement") on an appropriate form under the
Securities Act with respect to a proposed offer (the "Registered Exchange
Offer") to the Holders to issue and deliver to such Holders, in exchange for the
Securities, a like aggregate principal amount of senior subordinated notes of
the Company (the "Exchange Securities") substantially identical to the
Securities, except for the transfer restrictions relating to the Securities,
(ii) shall use their reasonable best efforts to cause the Exchange Offer
Registration Statement to become effective under the Securities Act no later
than 120 days after the Issue Date and to be consummated no later than 165 days
after the Issue Date and (iii) shall keep the Registered Exchange Offer open for
a period of not less than 20 business days (or longer, if required by applicable
law) (such period being called the "Exchange Offer Registration Period"). The
Exchange Securities will be issued under the Indenture or an indenture (the
"Exchange Securities Indenture") between the Company, the Guarantors and the
Trustee or such other bank or trust company reasonably satisfactory to you, as
trustee (the "Exchange Securities Trustee"), such indenture to be substantially
identical to the Indenture except for the transfer restrictions relating to the
Securities (as described above).
<PAGE>
2
Upon the effectiveness of the Exchange Offer Registration Statement,
the Company shall promptly commence the Registered Exchange Offer, it being the
objective of such Registered Exchange Offer to enable each Holder electing to
exchange Securities for Exchange Securities (assuming that such Holder (a) is
not (i) an affiliate of the Company within the meaning of the Securities Act or
(ii) an Exchanging Dealer (as defined below) not complying with the requirements
of the next sentence, (b) acquires the Exchange Securities in the ordinary
course of such Holder's business and (c) has no arrangements or understandings
with any person to participate in the distribution of the Exchange Securities)
to trade such Exchange Securities from and after their receipt without any
limitations or restrictions under the Securities Act and without material
restrictions under the securities laws of the several states of the United
States. The Company, the Initial Purchasers and each Exchanging Dealer (as
defined below) acknowledge that, pursuant to current interpretations by the
Commission's staff of Section 5 of the Securities Act, each Holder which is a
broker-dealer electing to exchange Securities, acquired for its own account as a
result of market making activities or other trading activities, for Exchange
Securities (an "Exchanging Dealer"), is required to deliver a prospectus
containing the information set forth in Annex A hereto on the cover, in Annex B
hereto in the "Exchange Offer Procedures" section and the "Purpose of the
Exchange Offer" section, and in Annex C hereto in the "Plan of Distribution"
section of such prospectus in connection with a sale of any such Exchange
Securities received by such Exchanging Dealer pursuant to the Registered
Exchange Offer.
In connection with the Registered Exchange Offer, the Company shall:
(a) mail to each Holder a copy of the prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(b) keep the Registered Exchange offer open for not less than 20
business days (or longer if required by applicable law);
(c) utilize the services of an Exchange Agent for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City of New
York;
(d) permit Holders to withdraw tendered Securities at any time prior to
the close of business, New York time, on the last business day on which the
Registered Exchange Offer shall remain open; and
(e) otherwise comply in all respects with all laws applicable to the
Registered Exchange Offer.
Promptly after the close of the Registered Exchange Offer, the Company
shall:
(a) accept for exchange all Securities tendered and not validly
withdrawn pursuant to the Registered Exchange Offer;
<PAGE>
3
(b) deliver to the Trustee for cancellation all Securities so accepted
for exchange; and
(c) cause the Trustee or the Exchange Securities Trustee, as the case
may be, promptly to authenticate and deliver to each Holder of Securities,
Exchange Securities equal in principal amount to the Securities of such
Holder so accepted for exchange.
The Company and the Guarantors shall use their reasonable best efforts
to keep the Exchange Offer Registration Statement effective and to amend and
supplement the prospectus contained therein in order to permit such prospectus
to be used by all persons subject to the prospectus delivery requirements of the
Securities Act for such period of time as such persons must comply with such
requirements in order to resell the Exchange Securities; provided that (i) in
the case where such prospectus and any amendment or supplement thereto must be
delivered by an Exchanging Dealer, such period shall be the lesser of 90 days
and the date on which all Exchanging Dealers have sold all Exchange Securities
held by them and (ii) the Company shall make such prospectus and any amendment
or supplement thereto available to any broker-dealer for use in connection with
any resale of any Exchange Securities for a period of not less than 90 days
after the consummation of the Registered Exchange Offer.
The Indenture or the Exchange Securities Indenture, as the case may be,
shall provide that the Securities and the Exchange Securities shall vote and
consent together on all matters as one class and that none of the Securities or
the Exchange Securities will have the right to vote or consent as a separate
class on any matter.
Interest on each Exchange Security issued pursuant to the Registered
Exchange Offer will accrue from the last interest payment date on which interest
was paid on the Securities surrendered in exchange therefor or, if no interest
has been paid on the Securities, from the date of original issue of the
Securities.
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Company and the Guarantors that at the time of the
consummation of the Registered Exchange Offer (i) any Exchange Securities
received by such Holder will be acquired in the ordinary course of business,
(ii) such Holder is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a distribution
of the Securities or the Exchange Securities within the meaning of the
Securities Act, (iii) such Holder is not an affiliate of the Company within the
meaning of the Securities Act, or if it is an affiliate, it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable and (iv) such Holder is not acting on behalf of any person who
could not make the foregoing representations. Such Holder shall also make such
other representations as may be required to comply with applicable law or
Commission policy with respect to the Registered Exchange Offer.
<PAGE>
4
Notwithstanding any other provisions hereof, the Company will ensure
that (i) any Exchange Offer Registration Statement and any amendment thereto and
any prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations
thereunder, (ii) any Exchange Offer Registration Statement and any amendment
thereto does not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any prospectus
forming part of any Exchange Offer Registration Statement, and any supplement to
such prospectus, does not include, as of the consummation of the Registered
Exchange Offer, an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
2. Shelf Registration. If (i) because of any change in law or
applicable interpretations thereof by the Commission the Company is not
permitted to effect the Registered Exchange Offer as contemplated by Section 1
hereof, or (ii) any Holder (A) notifies the Company on or prior to the
consummation of the Registered Exchange Offer that is not eligible to
participate in the Registered Exchange Offer, (B) participates in the Registered
Exchange Offer and does not receive freely transferable Exchange Securities in
exchange for tendered Securities or (C) is a broker-dealer that holds Securities
acquired directly from the Company or one of its affiliates, then the following
provisions shall apply:
(a) (x) The Company and the Guarantors shall use their reasonable best
efforts to cause to be filed with the Commission a Shelf Registration Statement
pursuant to Rule 415 under the Securities Act, which may be an amendment to the
Exchange Offer Registration Statement (a "Shelf Registration Statement," and
together with any Exchange Offer Registration Statement a "Registration
Statement"), on or prior to the earliest to occur of (1) the 30th day after the
Company determines that it is not permitted to effect the Registered Exchange
Offer or (2) the 30th day after the date on which the Company receives notice
from a Holder of Transfer Restricted Securities as contemplated by clause (ii)
above (such earliest date being the "Shelf Filing Deadline") which Shelf
Registration Statement shall provide for resales of Transfer Restricted
Securities; and
(y) The Company and the Guarantors shall use their reasonable best
efforts to cause such Shelf Registration Statement to be declared effective by
the Commission on or prior to the 60th day after the Shelf Filing Deadline.
Notwithstanding the foregoing, the Company shall not be required to file a Shelf
Registration Statement with respect to Securities or Exchange Securities of any
Holder (other than Securities of the Initial Purchasers) on account of such
Holder not being able to make the representations contained in Section 1 in
connection with the Registered Exchange Offer.
(b) The Company and the Guarantors shall use their reasonable best
efforts to keep the Shelf Registration Statement continuously effective in order
to permit the prospectus forming part thereof to be usable by Holders for a
period of two years from the Issue Date or such shorter period that will
terminate when all the Securities and Exchange Securities covered by the Shelf
Registration Statement have been sold pursuant to the Shelf
<PAGE>
5
Registration Statement (in any such case, such period being called the "Shelf
Registration Period"). The Company and the Guarantors shall not be deemed to
have breached its obligations pursuant to the preceding sentence if it shall be
required to amend the Shelf Registration Statement or the effectiveness of the
Shelf Registration Statement shall be suspended, or the prospectus contained in
the Shelf Registration Statement shall not be usable, as a result of a corporate
transaction involving the Company that is not adequately reflected in the Shelf
Registration Statement; provided that the failure to keep the Shelf Registration
Statement effective and usable for such reasons shall last no longer than 45
days in any 12-month period (whereafter Liquidated Damages pursuant to Section 3
shall accrue). Any such period during which the Company and the Guarantors fail
to keep the Shelf Registration Statement effective and usable is referred to as
a "Suspension Period." A Suspension Period shall commence on and include the
date that the Company gives notice that the Shelf Registration Statement is no
longer effective or the prospectus included therein is no longer usable and
shall end on the earlier to occur of (i) the date when each seller of Transfer
Restricted Securities covered by such Shelf Registration Statement either
receives copies of the supplemented or amended prospectus or is advised in
writing by the Company that the use of the prospectus may be resumed and (ii)
the expiration of the 30 days in any 12-month period during which one or more
Suspension Periods has been in effect; provided that the period during which the
Shelf Registration Statement is required to be kept continuously effective shall
be increased by the total number of days of all such Suspension Periods.
(c) Notwithstanding any other provisions hereof, the Company and the
Guarantors will ensure that (i) any Shelf Registration Statement and any
amendment thereto and any prospectus forming part thereof and any supplement
thereto complies in all material respects with the Securities Act and the rules
and regulations thereunder, (ii) any Shelf Registration Statement and any
amendment thereto (in either case, other than with respect to information
included therein in reliance upon or in conformity with written information
furnished to the Company by or on behalf of any Holder specifically for use
therein (the "Holders' Information")) does not, when it becomes effective,
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (iii) any prospectus forming part of any Shelf Registration
Statement, and any supplement to such prospectus (in either case, other than
with respect to Holders' Information), does not include an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
3. Liquidated Damages. (a) The parties hereto agree that the Holders of
Securities will suffer damages if the Company and the Guarantors fail to fulfill
their obligations under Section 1 or Section 2, as applicable, and that it would
not be feasible to ascertain the extent of such damages. Accordingly, if (i) the
applicable Registration Statement is not filed with the Commission on or prior
to the date specified for such filing in this Agreement, (ii) the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case may be,
is not declared effective on or prior to the date specified for such
effectiveness in this Agreement, (iii) the Registered Exchange Offer is not
consummated
<PAGE>
6
on or prior to 165 days after the Issue Date, or (iv) the Shelf Registration
Statement is filed and declared effective on or prior to the date specified for
such effectiveness in this Agreement but shall thereafter cease to be effective
(at any time that the Company is obligated to maintain the effectiveness
thereof) without being succeeded within 45 days by an amendment to the
Registration Statement or an additional Shelf Registration Statement filed and
declared effective (each such event referred to in clauses (i) through (iv), a
"Registration Default"), the Company will generally be obligated to pay
liquidated damages ("Liquidated Damages") to each Holder of Transfer Restricted
Securities (as defined below), with respect to the first 90-day period
immediately following the occurrence of such Registration Default, in an amount
equal to $0.05 per week per $1,000 principal amount of the Securities
constituting Transfer Restricted Securities held by such Holder for each week or
portion thereof that the Registration Default continues. The amount of the
Liquidated Damages will increase by an additional $.05 per week per $1,000
principal amount of Securities constituting Transfer Restricted Securities with
respect to each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of Liquidated Damages of $.20 per week per
$1,000 principal amount of Transfer Restricted Securities. Following the cure of
all Registration Defaults, the accrual of Liquidated Damages will cease.
"Transfer Restricted Securities" means each Security until the earliest to occur
of (i) the date on which such Security has been exchanged for a freely
transferrable Exchange Security in the Registered Exchange Offer, (ii) the date
on which such Security has been effectively registered under the Securities Act
and disposed of in accordance with the Shelf Registration Statement or (iii) the
date on which such Security is distributed to the public pursuant to Rule 144
under the Securities Act (or any successor provision) or is salable pursuant to
Rule 144(k) (or any successor provision) under the Securities Act.
Notwithstanding anything to the contrary in this Section 3(a), the Company shall
not be required to pay Liquidated Damages to the Holder of Transfer Restricted
Securities if such Holder: (a) failed to comply with its obligations to make the
representations in the second to last paragraph of Section 1; or (b) failed to
provide the information required to be provided by it, if any, pursuant to
Section 4(m).
(b) The Company shall notify the Trustee and the Paying Agent under the
Indenture promptly upon the happening of each and every Registration Default.
The Company shall pay the Liquidated Damages due on the Transfer Restricted
Securities by depositing with the Paying Agent (which may not be the Company for
these purposes), in trust, for the benefit of the Holders thereof, prior to
10:00 a.m., New York City time on the next interest payment date specified by
the Indenture and the Securities, sums sufficient to pay the Liquidated Damages
then due. The Liquidated Damages due shall be payable on each interest payment
date specified by the Indenture to the record holder entitled to receive the
interest payment to be made on such date. Each obligation to pay Liquidated
Damages shall be deemed to accrue from and including the applicable Registration
Default.
(c) The parties hereto agree that the Liquidated Damages provided for
in this Section 3 constitute a reasonable estimate of and are intended to
constitute the sole damages that will be suffered by Holders of Transfer
Restricted Securities by reason of the failure of (i) the Shelf Registration
Statement or the Exchange Offer Registration Statement,
<PAGE>
7
as the case may be, to be filed, (ii) the Exchange Offer Registration Statement
to be declared effective and the Registered Exchange Offer to be consummated,
(iii) the Shelf Registration Statement to be declared effective or (iv) the
Shelf Registration Statement to again become effective, in each case to the
extent required by this Agreement.
4. Registration Procedures. In connection with any Registration
Statement, the following provisions shall apply:
(a) The Company shall (i) use its reasonable best efforts to furnish to
Societe Generale Securities Corporation ("SGSC") and its counsel, prior to the
filing thereof with the Commission, a copy of the Registration Statement and
each amendment thereof and each supplement, if any, to the prospectus included
therein and shall use reasonable best efforts to consult with SGSC regarding
such comments as SGSC or its counsel reasonably may propose; and (ii) include
the information (or information substantially to the same effect) set forth in
Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer
Procedures" section and the "Purpose of the Exchange Offer" section and in Annex
C hereto in the "Plan of Distribution" section of the prospectus forming a part
of the Exchange Offer Registration Statement, and include the information (or
information substantially to the same effect) set forth in Annex D hereto in the
Letter of Transmittal delivered pursuant to the Registered Exchange Offer (in
each case, to the extent such information is required by applicable law or the
Commission's rules and/or interpretations);
(b) The Company shall advise you, each Exchanging Dealer and the
Holders (if applicable) and, if requested by such person, confirm such advice in
writing (which advice pursuant to clauses (iii)-(iv) hereof shall be accompanied
by an instruction to suspend the use of the prospectus until the requisite
changes have been made):
(i) when any Registration Statement and any amendment thereto has been
filed with the Commission and when such Registration Statement or any
post-effective amendment thereto has become effective;
(ii) prior to the effectiveness of any Registration Statement, of the
receipt of any comment letter or request for information from the
Commission;
(iii) following the effectiveness of any Registration Statement, of any
request by the Commission for amendments or supplements to such Registration
Statement or the prospectus included therein or for additional information;
(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of any Registration Statement or the initiation of any
proceeding for that purpose;
(v) following the effectiveness of any Registration Statement, of the
receipt by the Company of any notification with respect to the suspension of
the qualification
<PAGE>
8
of the Securities or the Exchange Securities for sale in any jurisdiction or
the initiation or threatening of any proceeding for such purpose; and
(vi) of the happening of any event that requires the making of any
changes in any Registration Statement or the prospectus so that, as of such
date, the statements therein are not misleading in any material respect and
do not omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in any material
respect.
The Company will make every reasonable effort to obtain the withdrawal
at the earliest possible time of any order suspending the effectiveness of any
Registration Statement.
(c) The Company will furnish to each Holder of Transfer Restricted
Securities specifically named in any Shelf Registration Statement, without
charge, at least one copy of such Shelf Registration Statement and any
post-effective amendment thereto, including financial statements and schedules,
and, if the Holder so requests in writing, all exhibits (including those
incorporated by reference).
(d) The Company will, during the Shelf Registration Period, promptly
deliver to each Holder of Transfer Restricted Securities specifically named in
any Shelf Registration Statement, without charge, as many copies of the
prospectus (including each preliminary prospectus) included in such Shelf
Registration Statement and any amendment or supplement thereto as such Holder
may reasonably request; and the Company consents to the use of the prospectus or
any amendment or supplement thereto by each of the selling Holders of Transfer
Restricted Securities in connection with the offering and sale of the Transfer
Restricted Securities covered by the prospectus or any amendment or supplement
thereto.
(e) The Company will furnish to each Exchanging Dealer and each Initial
Purchaser and to any other Holder who so requests, without charge, at least one
copy of the Exchange Offer Registration Statement and any post-effective
amendment thereto, including financial statements and schedules, and, if the
Exchanging Dealer, Initial Purchaser or any such Holder so requests in writing,
all exhibits (including those incorporated by reference).
(f) The Company will, during the Exchange Offer Registration Period,
promptly deliver to each Exchanging Dealer or the Initial Purchasers, as
applicable, without charge, as many copies of the prospectus included within the
coverage of Exchange Offer Registration Statement and any amendment or
supplement thereto as such Exchanging Dealer or the Initial Purchasers, as
applicable, may reasonably request for delivery by such Exchanging Dealer in
connection with a sale of Exchange Securities received by it pursuant to the
Registered Exchange Offer; and the Company consents to the use of the prospectus
or any amendment or supplement thereto by any such Exchanging Dealer as
aforesaid.
(g) To the extent required by applicable law, prior to any public
offering of Securities or Exchange Securities pursuant to any Registration
Statement, the Company will
<PAGE>
9
use its reasonable best efforts to register or qualify or cooperate with the
Holders of Securities included therein and its counsel in connection with the
registration or qualification of such securities for offer and sale under the
state securities or blue sky laws of such United States jurisdictions as any
such Holder reasonably requests in writing and do any and all other acts or
things necessary or advisable to enable the offer and sale in such jurisdictions
of the Securities or Exchange Securities covered by such Registration Statement;
provided, however, that neither the Company nor any Guarantor shall be required
to qualify as a foreign corporation where it is not now so qualified or to take
any action that would subject it to service of process in suits or to taxation
in any jurisdiction where it is not now so subject.
(h) The Company will cooperate with the Holders of Securities or
Exchange Securities to facilitate the timely preparation and delivery of
certificates representing Securities or Exchange Securities to be sold pursuant
to any Registration Statement free of any restrictive legends and in such
denominations and registered in such names as Holders may request in writing
prior to sales of Securities or Exchange Securities pursuant to such
Registration Statement.
(i) If any event contemplated by paragraphs (b)(iii) through (v) above
occurs during the period in which the Company is required to maintain an
effective Registration Statement, the Company will use its reasonable best
efforts to promptly prepare a post-effective amendment to the Registration
Statement or a supplement to the related prospectus or file any other required
document so that, as thereafter delivered to purchasers of the Securities or
purchasers of Exchange Securities from a Holder, the prospectus will not include
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(j) Not later than the effective date of the applicable Registration
Statement, the Company will provide a CUSIP number for the Exchange Securities
and provide the applicable trustee with certificates for the Securities or
Exchange Securities, as the case may be, in a form eligible for deposit with The
Depository Trust Company; and upon consummation of the Registered Exchange
Offer, the Company shall deliver to the Trustee, on behalf of the Holders of the
Exchange Securities, a legal opinion to the effect that the Exchange Securities,
when issued, will constitute valid and legally binding obligations of the
Company, entitled to the benefits of the Indenture, and enforceable against the
Company in accordance with their terms (subject to customary qualifications for
opinions of this type).
(k) The Company and the Guarantors will comply with all applicable
rules and regulations of the Commission and will make generally available to the
Company's security holders as soon as practicable after the effective date of
the applicable Registration Statement an earnings statement satisfying the
provisions of Section 11(a) of the Securities Act; provided that in no event
shall such earnings statement be delivered later than 45 days after the end of a
12-month period (or 90 days, if such period is a fiscal year) beginning with
<PAGE>
10
the first month of the Company's first fiscal quarter commencing after the
effective date of the applicable Registration Statement, which statements shall
cover such 12-month period.
(l) The Company will cause the Indenture or the Exchange Securities
Indenture, as the case may be, to be qualified under the Trust Indenture Act as
required by applicable law in a timely manner.
(m) The Company may require each Holder of Transfer Restricted
Securities to be sold pursuant to any Shelf Registration Statement to furnish to
the Company such information regarding the Holder and the distribution of such
Transfer Restricted Securities as the Company may from time to time reasonably
require for inclusion in such Registration Statement, and the Company may
exclude from such registration the Transfer Restricted Securities of any Holder
that unreasonably fails to furnish such information within a reasonable time
after receiving such request.
(n) In the case of a Shelf Registration Statement, each Holder of
Transfer Restricted Securities to be registered pursuant thereto agrees by
acquisition of such Transfer Restricted Securities that, upon receipt of any
notice from the Company pursuant to Section 4(b)(iii) through (v) hereof, such
Holder will discontinue disposition of such Transfer Restricted Securities until
such Holder's receipt of copies of the supplemental or amended prospectus
contemplated by Section 4(i) hereof, or until advised in writing (the "Advice")
by the Company that the use of the applicable prospectus may be resumed. If the
Company shall give any notice under Section 4(b)(iii) through (v) during the
period that the Company is required to maintain an effective Registration
Statement (the "Effectiveness Period"), such Effectiveness Period shall be
extended by the number of days during such period from and including the date of
the giving of such notice to and including the date when each seller of Transfer
Restricted Securities covered by such Registration Statement shall have received
(x) the copies of the supplemental or amended prospectus contemplated by Section
4(i) (if an amended or supplemental prospectus is required) or (y) the Advice
(if no amended or supplemental prospectus is required).
(o) In the case of a Shelf Registration Statement, the Company shall
enter into such customary agreements (including, if requested, an underwriting
agreement in customary form) and take all such other action, if any, as Holders
of a majority in aggregate principal amount of the Securities and Exchange
Securities being sold or the managing underwriters (if any) shall reasonably
request in order to facilitate any disposition of Securities or Exchange
Securities pursuant to such Shelf Registration Statement; provided, however,
that the Company shall not be obligated to enter into an underwriting agreement
or to facilitate such disposition in an underwritten offering pursuant to any
Shelf Registration Statement unless Holders of a majority in aggregate principal
amount of such Transfer Restricted Securities elect to dispose of such Transfer
Restated Securities in such an underwritten offering.
(p) In the case of a Shelf Registration Statement, the Company shall
(i) make reasonably available for inspection by a representative of, and Special
Counsel (as
<PAGE>
11
defined below) acting for, Holders of a majority in aggregate principal amount
of the Securities and Exchange Securities being sold and any managing
underwriter participating in any disposition of Securities or Exchange
Securities pursuant to such Shelf Registration Statement, all relevant financial
and other records, pertinent corporate documents and properties of the Company
and its subsidiaries and (ii) use its reasonable best efforts to have its
officers, directors, employees, accountants and counsel supply all relevant
information reasonably requested by such representative, Special Counsel or any
such managing underwriter (an "Inspector") in connection with such Shelf
Registration Statement; provided, however, that the Company need not make
available or supply any information pursuant to this paragraph (p) to the extent
such information may not be disclosed pursuant to any confidentiality agreement
to which the Company or any of its Subsidiaries is a party or such disclosure
would jeopardize any applicable attorney-client, work product or other
privilege.
(q) In the case of a Shelf Registration Statement, the Company shall,
if requested by Holders of a majority in aggregate principal amount of the
Securities and Exchange Securities being sold, their Special Counsel or the
managing underwriters (if any) in connection with such Shelf Registration
Statement, use its reasonable best efforts to cause (i) its counsel to deliver
an opinion relating to the Shelf Registration Statement and the Securities or
Exchange Securities, as applicable, in customary form, (ii) its officers to
execute and deliver all customary documents and certificates reasonably
requested by Holders of a majority in aggregate principal amount of the
Securities and Exchange Securities being sold, their Special Counsel or the
managing underwriters (if any) and (iii) its independent public accountants to
provide a comfort letter in customary form, subject to receipt of appropriate
documentation as contemplated, and only if permitted, by Statement of Auditing
Standards No. 72.
5. Registration Expenses. The Company and the Guarantors will bear all
expenses incurred in connection with the performance of their obligations under
Sections 1, 2, 3 and 4 hereof and the Company and the Guarantors will reimburse
the Initial Purchasers and the Holders for the reasonable fees and disbursements
(up to an aggregate amount of $50,000) of one firm of attorneys chosen by the
Holders of a majority in aggregate principal amount of the Securities and the
Exchange Securities to be sold pursuant to a Shelf Registration Statement (the
"Special Counsel") acting for the Initial Purchasers or Holders in connection
therewith. The Company and the Guarantors shall not have any obligation to pay
any underwriting fees, discounts or commissions attributable to the sale of any
Securities or Exchange Securities pursuant to this Agreement.
6. Indemnification. (a) Indemnification of Holders. The Company and
each Guarantor, jointly and severally, shall indemnify and hold harmless each
Holder (including, without limitation, any such Initial Purchaser or Exchanging
Dealer), their respective directors, officers, representatives and agents and
each person, if any, who controls such Holder within the meaning of Section 15
of the Securities Act (collectively referred to for the purposes of this Section
6 as a Holder) against any loss, claim, damage or liability, joint or several,
or any action in respect thereof (including, without limitation, any loss,
claim, damage, liability or action relating to purchases and sales of Securities
or
<PAGE>
12
Exchange Securities), to which that Holder may become subject, under the
Securities Act or otherwise, insofar as such loss, claim, damage, liability or
action arises out of or is based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in any such Registration Statement or any
preliminary or final prospectus forming part thereof or in any amendment or
supplement thereto or (ii) the omission or alleged omission to state in any such
Registration Statement or any preliminary or final prospectus forming part
thereof or in any amendment or supplement thereto a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
shall reimburse each Holder for any legal or other expenses reasonably incurred
by that Holder in connection with investigating or preparing to defend or
defending against or appearing as a third party witness in connection with any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the foregoing indemnification agreement with respect to
any preliminary prospectus shall not inure to the benefit of any Holder from
whom the person asserting any such loss, claim, damage or liability purchased
Securities or Exchange Securities, if (i) a copy of the preliminary prospectus
(as then amended or supplemented) was delivered to such person at or prior to
the written confirmation of the sale of Securities or Exchange Securities to
such person, (ii) a copy of the final prospectus (as then amended or
supplemented) was not sent or given to such person by or on behalf of such
Holder and (iii) the final prospectus (as so amended or supplemented) would have
cured the defect giving rise to such loss, claim, damage or liability; and
further provided, however, that the Company and the Guarantors shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement in or omission or alleged omission from any preliminary
prospectus or Registration Statement or any such amendment or supplement in
reliance upon and in conformity with any Holders' Information.
(b) Indemnification of Company, Guarantors, Directors and Officers.
Each Holder, severally and not jointly, agrees to indemnify and hold harmless
the Company and each Guarantor, their respective directors, officers,
representatives and agents, and each person, if any, who controls them or any of
them within the meaning of Section 15 of the Securities Act (collectively
referred to for the purposes of this Section 6 as the Company), against any
loss, claim, damage or liability, joint or several, or any action in respect
thereof, to which they or any of them may become subject, under the Securities
Act or otherwise, insofar as such loss, claim, damage, liability or action
arises out of or is based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in a preliminary or final prospectus or
such Registration Statement or in any amendment or supplement thereto or (ii)
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, but
in each case only to the extent that the untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with any Holders' Information furnished to the Company by or on
behalf of that Holder specifically for use therein, and shall reimburse the
indemnified party for any legal or other expenses reasonably incurred by the
indemnified party in connection with investigating or preparing to defend or
defending against or appearing as third party witness in connection with any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that no such Holder
<PAGE>
13
shall be liable for any indemnity claims hereunder in excess of the amount of
net proceeds received by such Holder from the sale of Securities or Exchange
Securities pursuant to such Shelf Registration Statement.
(c) Actions; Notification. Promptly after receipt by an indemnified
party under this Section 6 of notice of any claim or the commencement of any
action, the indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under this Section 6, notify the indemnifying
party in writing of the claim or the commencement of that action; provided,
however, that the failure to notify the indemnifying party shall not relieve it
from any liability which it may have under this Section 6 except to the extent
it has been materially prejudiced by such failure; and, provided, further, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have to an indemnified party otherwise than under this
Section 6. If any such claim or action shall be brought against an indemnified
party, and it shall notify the indemnifying party thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it
wishes, jointly with any other similarly notified indemnifying party, to assume
the defense thereof with counsel reasonably satisfactory to the indemnified
party. After notice from the indemnifying party to the indemnified party of its
election to assume the defense of such claim or action, the indemnifying party
shall not be liable to the indemnified party under this Section 6 for any legal
or other expenses subsequently incurred by the indemnified party in connection
with the defense thereof; provided, however, that any indemnified party shall
have the right to employ separate counsel in any such action and to participate
in the defense thereof but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the employment thereof has been
specifically authorized by the indemnifying party in writing, (ii) such
indemnified party shall have been advised by such counsel that there may be one
or more legal defenses available to it which are different from or additional to
those available to the indemnifying party and in the reasonable judgment of such
counsel it is advisable for such indemnified party to employ separate counsel or
(ii) the indemnifying party has failed to assume the defense of such action and
employ counsel reasonably satisfactory to the indemnified party, in which case,
if such indemnified party notifies the indemnifying party in writing that it
elects to employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
on behalf of such indemnified party, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for all such indemnified parties, which firm shall be designated in writing
by the Holders of a majority in aggregate principal amount of the Securities or
Exchange Securities, as the case may be, if the indemnified parties under this
Section 6 consist of any Holder or any of their respective officers, employees
or controlling persons, or by the Company, if the indemnified parties under this
Section 6 consist of the Company or a Guarantor or any of their respective
directors, officers, employees or controlling persons. Each indemnified party,
as a condition of the indemnity agreements contained in Sections 6(a) and 6(b),
shall use all reasonable efforts to cooperate with the indemnifying party in the
defense of any such action or claim. Subject to the provisions of
<PAGE>
14
Section 6(d) below, no indemnifying party shall be liable for any settlement of
any such action effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with its written consent or if there be a
final judgment for the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against any
loss or liability by reason of such settlement or judgment.
(d) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested that an indemnifying party reimburse
the indemnified party for fees and expenses of counsel payable in accordance
with this Section 6, such indemnifying party agrees that it shall be liable for
any settlement of the nature contemplated by this Section 6 effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the request for reimbursement, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
(e) Contribution. If the indemnification provided for in this Section 6
is unavailable or insufficient to hold harmless an indemnified party under
Section 6(a) or (b), then each indemnifying party shall, in lieu of indemnifying
such indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate to
reflect the relative benefits received by the Company and the Guarantors on the
one hand and a Holder with respect to the sale by such Holder of Securities or
Exchange Securities on the other or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Guarantors on the one
hand and such Holder on the other with respect to the statements or omissions
which resulted in such loss, claim, damage or liability, or action in respect
thereof, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Guarantors on the one hand and a Holder
on the other with respect to such offering shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Securities or
Exchange Securities (before deducting expenses) received by the Company and the
Guarantors as set forth on the cover of the Offering Memorandum bear to the
total proceeds received by such Holder with respect to its sale of Securities or
Exchange Securities. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company and the Guarantors on the one hand or to any
Holders' Information supplied by such Holder on the other, the intent of the
parties and their relative knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company and the
Holders agree that it would not be just and equitable if contributions pursuant
to this Section 6(e) were to be determined by pro rata allocation (even if the
Holders were treated as one entity for such purpose) or by any other method of
allocation which does not take into
<PAGE>
15
account the equitable considerations referred to herein. The amount paid or
payable by an indemnified party as a result of the loss, claim, damage or
liability, or action in respect thereof, referred to above in this Section 6(e)
shall be deemed to include, for purposes of this Section 6(e), any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 6(e), no Holder shall be required to contribute any
amount in excess of the amount by which the total price at which the Securities
or Exchange Securities sold by such Holder to any purchaser exceeds the amount
of any damages which such Holder has otherwise paid or become liable to pay by
reason of any untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
Any Holder's obligations to contribute as provided in this Section 6(e)
are several and not joint.
The obligations of the Company, the Guarantors and the Holders in this
Section 6 are in addition to any other liability which the Company, the
Guarantors or the Holders as the case may be, may otherwise have.
7. Rule 144A. Unless the Company is then subject to Section 13 or 15(d)
of the Exchange Act, the Company hereby agrees with each Holder, for so long as
any Transfer Restricted Securities remain outstanding, to make available, upon
request, to any Holder or beneficial owner of Transfer Restricted Securities in
connection with any sale thereof and any prospective purchaser of such Transfer
Restricted Securities from such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A. Notwithstanding the
foregoing, nothing in this Section 7 shall be deemed to require the Company to
register any of its securities pursuant to the Exchange Act.
8. Underwritten Registrations. If any of the Transfer Restricted
Securities covered by any Shelf Registration Statement are to be sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the Holders of
a majority in aggregate principal amount of such Transfer Restricted Securities
included in such offering, subject to the consent of the Company (which shall
not be unreasonably withheld or delayed), and such Holders shall be responsible
for all underwriting commissions and discounts in connection therewith.
9. Miscellaneous. (a) Amendments and Waivers. The provisions of this
Agreement may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given, unless the Company
has obtained the written consent of Holders of a majority in aggregate principal
amount of the Securities and the Exchange Securities, taken as a single class.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of the
Holders of Securities or Exchange Securities whose Securities
<PAGE>
16
or Exchange Securities are being sold or exchanged pursuant to a Registration
Statement and that does not directly or indirectly affect the rights of other
Holders may be given by Holders of a majority in aggregate principal amount of
the Securities or Exchange Securities being sold or exchanged by such Holders
pursuant to such Registration Statement.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telecopier, or air courier guaranteeing overnight delivery:
(1) if to a Holder, at the most current address given by such Holder to
the Company in accordance with the provisions of this Section 9(b), which
address initially is, with respect to each Holder, the address of such
Holder maintained by the Registrar under the Indenture, with a copy in like
manner to Societe Generale Securities Corporation;
(2) if to you, initially at your address set forth in the Purchase
Agreement; and
(3) if to the Company or the Guarantors, initially at the address of
the Company set forth in the Purchase Agreement, or with a copy to Winston &
Strawn, 200 Park Avenue, New York, New York 10016, Attention: Robert W.
Ericson.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; one business day after
being delivered to a next-day air courier; five business days after being
deposited in the mail; and when receipt is acknowledged by the recipient's
telecopier machine, if telecopied.
(c) Successors and Assigns. This Agreement shall be binding upon the
successors and assigns of each of the parties; provided, however, that this
Agreement shall not inure to the benefit of or be binding upon a successor or
assign of a Holder unless and to the extent such successor or assign acquired
Transfer Restricted Securities from such Holder.
(d) Counterparts. This Agreement may be executed in any number of
counterparts (which may be delivered in original form or by telecopies) and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
(e) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(f) Governing Law; Submission to Jurisdiction.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
17
(g) No Inconsistent Agreements. The Company has not and shall not, on
or after the date of this Agreement, enter into any agreement that is
inconsistent with the rights granted to the holders of Transfer Restricted
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The Company has not previously entered into any agreement which remains in
effect granting any registration rights with respect to any of its debt
securities to any person, which agreement would allow any person other than the
Holders of Transfer Restricted Securities to require the Company to register any
such debt securities pursuant to a Registration Statement. Without limiting the
generality of the foregoing, without the written consent of the holders of a
majority in aggregate principal amount of the then outstanding Transfer
Restricted Securities, the Company shall not grant to any person the right to
request the Company to register any debt securities of the Company under the
Securities Act pursuant to a Registration Statement unless the rights so granted
are not in conflict or inconsistent with the provisions of the Agreement.
(h) No Piggyback on Registrations. Neither the Company, nor any of its
security holders (other than the holders of Transfer Restricted Securities in
such capacity) shall have the right to include any securities of the Company in
any Shelf Registration or Registered Exchange Offer other than Transfer
Restricted Securities.
(i) Severability. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction.
(j) Remedies. In the event of a breach by the Company or any Guarantor,
or by any holder of Transfer Restricted Securities, of any of their obligations
under this Agreement, each holder of Transfer Restricted Securities or the
Company and the Guarantors, as the case may be, in addition to being entitled to
exercise all rights granted by law, including recovery of damages (other than
the recovery of damages for a breach by the Company of its obligations under
Sections 1 or 2 hereof for which Liquidated Damages have been paid pursuant to
Section 3 hereof), will be entitled to specific performance of its rights under
this Agreement. Except as provided in Section 3, the Company, the Guarantors and
each holder of Transfer Restricted Securities agree that monetary damages would
not be adequate compensation for any loss incurred by reason of a breach by it
of any of the provisions of this Agreement and hereby further agree that, in the
event of any action for specific performance in respect of such breach, it shall
waive the defense that a remedy at law would be adequate.
<PAGE>
18
Please confirm that the foregoing correctly sets forth the agreement
among the Company and you.
Very truly yours,
STELLEX INDUSTRIES, INC.
By: /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: Vice Chairman
KII HOLDING CORP.
By: /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: Vice Chairman
KII ACQUISITION CORP.
By: /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: Vice Chairman
STELLEX AEROSPACE
By: /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: Vice Chairman
BANDY MACHINING INTERNATIONAL
By: /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: Vice Chairman
<PAGE>
19
PARAGON PRECISION PRODUCTS
By: /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: Vice Chairman
SCANNING ELECTION ANALYSIS
LABORATORIES, INC.
By: /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: Vice Chairman
GENERAL INSPECTION LABORATORIES, INC.
By: /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: Vice Chairman
TSMD ACQUISITION CORP.
By: /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: President
STELLEX MICROWAVE SYSTEMS, INC.
By: /s/ William L. Remley
------------------------------------
Name: William L. Remley
Title: Vice Chairman
<PAGE>
20
Accepted in New York, New York
SOCIETE GENERALE SECURITIES CORPORATION
By: /s/ Bradford C. Yates
-----------------------------------
Name: Bradford C. Yates
Title: Managing Director
BT ALEX. BROWN INCORPORATED
By: /s/ Chris Kinslow
-----------------------------------
Name: Chris Kinslow
Title: Vice President
JEFFERIES & COMPANY, INC.
By: /s/ Andrew Whittaker
-----------------------------------
Name: Andrew Whittaker
Title: Executive Vice President
<PAGE>
ANNEX A
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Registered Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Securities.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Securities received in exchange for
Securities where such Securities were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 90 days after the Expiration Date (as defined herein), it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Securities for its own
account in exchange for Securities, where such Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Securities. See "Plan of Distribution."
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Registered Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Securities.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Securities
received in exchange for Securities where such Securities were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that, for a period of 90 days after the Expiration Date, it will make
this Prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale. In addition, until _______________,
199_, all dealers effecting transactions in the Exchange Securities may be
required to deliver a prospectus.1/
The Company will not receive any proceeds from any sale of Exchange
Securities by broker-dealers. Exchange Securities received by broker-dealers for
their own account pursuant to the Registered Exchange Offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange
Securities or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer or the
purchasers of any such Exchange Securities. Any broker-dealer that resells
Exchange Securities that were received by it for its own account pursuant to the
Registered Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Securities may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
Exchange Securities and any commission or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that, by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Registered Exchange Offer other than commissions or concessions
of any broker-dealers and will indemnify the Holders of the Securities
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
- --------
1/ In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover page of the Exchange Offer prospectus.
<PAGE>
ANNEX D
|_| CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name: _______________________________________
Address: _______________________________________
_______________________________________
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Securities. If the undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Securities that were acquired as
a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
<PAGE>
EXECUTION COPY
CREDIT AGREEMENT
This CREDIT AGREEMENT dated as of October 31, 1997 (as
amended, supplemented or modified from time to time, the "Agreement") is
entered into among STELLEX INDUSTRIES, INC., a Delaware corporation ("Stellex"),
KII HOLDING CORP., a Delaware corporation ("Holding"), TSMD ACQUISITION CORP., a
Delaware corporation ("TSMD Acquisition"), KII ACQUISITION CORP., a Delaware
corporation ("KII Acquisition"), STELLEX MICROWAVE SYSTEMS, INC., a California
corporation ("MICROWAVE"), STELLEX AEROSPACE, a California corporation, PARAGON
PRECISION PRODUCTS, a California corporation, BANDY MACHINING INTERNATIONAL, a
California corporation, SCANNING ELECTRON ANALYSIS LABORATORIES, INC., a
California corporation, and GENERAL INSPECTION LABORATORIES, INC., a California
corporation (collectively, the "Borrowers", and individually, a "Borrower"), the
financial institutions from time to time parties hereto, whether by execution of
this Agreement or an Assignment and Acceptance (the "Lenders"), SOCIETE GENERALE
("SocGen"), in its capacity as administrative agent for the Lenders (in such
capacity, the "Administrative Agent"), and FIRST UNION COMMERCIAL CORPORATION
("First Union"), in its capacity as syndication agent for the Lenders (in such
capacity, the "Syndication Agent") and in its capacity as collateral agent for
the Lenders (in such capacity, the "Collateral Agent").
ARTICLE I
DEFINITIONS
1.01. Certain Defined Terms. The following terms used in this
Agreement shall have the following meanings, applicable both to the singular and
the plural forms of the terms defined:
"Accommodation Obligation" means any Contractual Obligation,
contingent or otherwise, of any Person with respect to any Indebtedness,
obligation or liability of another, if the primary purpose or intent thereof by
the Person incurring the Accommodation Obligation is to provide assurance to the
obligee of such Indebtedness, obligation or liability of another Person that
such Indebtedness, obligation or liability will be paid or discharged, or that
any agreements relating thereto will be complied with, or that the holders
thereof will be protected (in whole or in part) against loss in respect thereof
including, without limitation, direct and indirect guarantees, endorsements
(except for collection or deposit in the ordinary course of business), notes
co-made or discounted, recourse agreements, take-or-pay agreements, keep-well
agreements, agreements to purchase or repurchase such Indebtedness, obligation
or liability or any security therefor or to provide funds for the payment or
discharge thereof, agreements to maintain solvency, assets, level of
<PAGE>
income, or other financial condition, and agreements to make payment other than
for value received.
"Acquisitions" means, collectively, the Kleinert
Acquisition and the Watkins-Johnson Acquisition.
"Acquisition Agreements" means, collectively, the
Kleinert Acquisition Agreement and the Watkins-Johnson
Acquisition Agreement.
"Acquisition Documents" means, collectively, the
Kleinert Acquisition Documents and the Watkins-Johnson
Acquisition Documents.
"Administrative Agent" has the meaning ascribed to such
term in the preamble hereto.
"Administrative Agent's Account" means SocGen's account,
account number 9042229 (re: Stellex), maintained at the office of Societe
Generale, New York, New York, ABA #026004226, or such other account as the
Administrative Agent may from time to time specify in writing to the Borrowers
and the Lenders.
"Aerospace" means Stellex Aerospace, a California
corporation (formerly known as Kleinert Industries Inc.).
"Affiliate" means, as applied to any specified Person, any
other Person that directly or indirectly controls, is controlled by, or is under
common control with, such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling",
"controlled by" and "under common control with"), as applied to any specified
Person, means the possession, directly or indirectly, of the power to vote ten
percent (10%) or more of the Securities having voting power for the election of
directors of such specified Person or otherwise to direct or cause the direction
of the management and policies of such specified Person, whether through the
ownership of voting Securities or by contract or otherwise.
"Agents" means, collectively, the Administrative Agent,
the Collateral Agent and the Syndication Agent.
"Agreement" has the meaning ascribed to such term in
the preamble hereto.
"Applicable Revolving Loan Base Rate Margin" means initially a
rate equal to 1.00% per annum during the period from the Closing Date until the
first day of the third fiscal quarter of 1998. Thereafter, such rate will
fluctuate quarterly on the first day of each fiscal quarter, commencing with the
third fiscal quarter of 1998, based upon the Leverage Ratio for the preceding
twelve-month period, calculated as of the last day of such preceding
twelve-month period, as set forth below:
-2-
<PAGE>
If the Leverage Applicable Revolving Loan
Ratio is: Base Rate Margin
--------------- -------------------------
Equal to or greater
than 5.0 1.000%
Less than 5.0 but equal to
or greater than 4.5 0.875%
Less than 4.5 but equal to
or greater than 4.0 0.750%
Less than 4.0 but equal to
or greater than 3.5 0.625%
Less than 3.5 but equal to
or greater than 3.0 0.500%
Less than 3.0 0.375%
"Applicable Term Loan Base Rate Margin" means initially a rate
equal to 1.25% per annum during the period from the Closing Date until the first
day of the third fiscal quarter of 1998. Thereafter, such rate will fluctuate
quarterly on the first day of each fiscal quarter, commencing with the third
fiscal quarter of 1998, based upon the Leverage Ratio for the preceding
twelve-month period, calculated as of the last day of such preceding
twelve-month period, as set forth below:
If the Leverage Applicable Term Loan
Ratio is: Base Rate Margin
--------------- --------------------
Equal to or greater
than 5.0 1.250%
Less than 5.0 but equal to
or greater than 4.5 1.250%
Less than 4.5 but equal to
or greater than 4.0 1.150%
Less than 4.0 but equal to
or greater than 3.5 1.000%
Less than 3.5 but equal to
or greater than 3.0 0.750%
Less than 3.0 0.625%
"Applicable Revolving Loan Eurodollar Rate Margin" means
initially a rate equal to 2.00% per annum during the period from the Closing
Date until the first day of the third fiscal quarter of 1998. Thereafter, such
rate will fluctuate quarterly on the first day of each fiscal quarter,
commencing with the third fiscal quarter of 1998, based upon the Leverage Ratio
for the preceding twelve-month period, calculated as of the last day of such
preceding twelve-month period, as set forth below:
If the Leverage Applicable Revolving Loan
Ratio is: Eurodollar Rate Margin
--------------- -------------------------
Equal to or greater
than 5.0 2.000%
-3-
<PAGE>
Less than 5.0 but equal to
or greater than 4.5 1.875%
Less than 4.5 but equal to
or greater than 4.0 1.750%
Less than 4.0 but equal to
or greater than 3.5 1.625%
Less than 3.5 but equal to
or greater than 3.0 1.500%
Less than 3.0 1.375%
"Applicable Term Loan Eurodollar Rate Margin" means initially
a rate equal to 2.25% per annum during the period from the Closing Date until
the first day of the third fiscal quarter of 1998. Thereafter, such rate will
fluctuate quarterly on the first day of each fiscal quarter, commencing with the
third fiscal quarter of 1998, based upon the Leverage Ratio for the preceding
twelve-month period, calculated as of the last day of such preceding
twelve-month period, as set forth below:
If the Leverage Applicable Term Loan
Ratio is: Eurodollar Rate Margin
--------------- ----------------------
Equal to or greater
than 5.0 2.250%
Less than 5.0 but equal to
or greater than 4.5 2.250%
Less than 4.5 but equal to
or greater than 4.0 2.150%
Less than 4.0 but equal to
or greater than 3.5 2.000%
Less than 3.5 but equal to
or greater than 3.0 1.750%
Less than 3.0 1.625%
"Applicable Lending Office" means, with respect to a
particular Lender, its Eurodollar Lending Office in respect of provisions
relating to Eurodollar Rate Loans and its Domestic Lending Office in respect of
provisions relating to Base Rate Loans.
"Asset Sale" means any sale, conveyance, transfer, lease or
other disposition of property of any Loan Party.
"Assignment and Acceptance" means an Assignment and Acceptance
substantially in the form of Exhibit A attached hereto and made a part hereof
(with blanks appropriately completed) delivered to the Administrative Agent in
connection with an assignment of a Lender's interest under this Agreement in
accordance with the provisions of Section 13.01.
"Availability" means, at any particular time, the amount by
which the Maximum Revolving Credit Amount at such time exceeds the Revolving
Credit Obligations at such time.
-4-
<PAGE>
"Base Rate" means, on any date, a fluctuating interest rate
per annum (rounded upward, if necessary, to the next highest 1/16 of 1%) equal
to the higher of:
(a) the rate of interest then most recently established by
SocGen in New York, New York as its base rate for Dollars loaned in the
United States, in effect on such date; and
(b) the Federal Funds Rate in effect on such date
plus 1/2 of 1%.
The Base Rate is not necessarily intended to be the lowest rate of interest
determined by SocGen in connection with extensions of credit.
"Base Rate Loans" means all Loans which bear interest at a
rate determined by reference to the Base Rate as provided in Section 4.01(a).
"Benefit Plan" means a defined benefit plan as defined in
Section 3(35) of ERISA (other than a Multiemployer Plan) which is subject to
Title IV of ERISA or Section 412 of the Code in respect of which any Loan Party
or any ERISA Affiliate is, or within the immediately preceding six (6) years
was, an "employer" as defined in Section 3(5) of ERISA.
"Board of Directors" means the board of directors or
equivalent governing body of a Person (or the general partner of such Person, as
the case may be,) or any committee thereof duly authorized to act on behalf of
such board of directors or equivalent governing body.
"Borrowers" has the meaning ascribed to such term in
the preamble hereto.
"Borrowing" means a borrowing consisting of Loans of the same
Type made on the same day by the Lenders.
"Borrowing Base" means, as of any date of determination, an
amount equal to the sum of (a) eighty-five percent (85%) of Eligible Receivables
less such reserves as the Administrative Agent reasonably deems appropriate plus
(B) fifty percent (50%) of Eligible Inventory less such reserves as the
Administrative Agent reasonably deems appropriate.
"Borrowing Base Certificate" means a certificate,
substantially in the form of Exhibit B attached hereto and made a part hereof.
"Business" means the businesses of Stellex and its
Subsidiaries on the date hereof and any business located in the
-5-
<PAGE>
United States or Canada related, ancillary or complementary thereto, or which is
an extension thereof.
"Business Day" means a day, in the applicable local time,
which is not a Saturday or Sunday or a legal holiday and on which banks are not
required or permitted by law or other governmental action to close (i) in New
York, New York or Los Angeles, California and (ii) in the case of Eurodollar
Rate Loans, in London, England.
"Capital Expenditures" means, for any period, the aggregate of
all expenditures (whether paid in cash or other assets or accrued as a liability
(but without duplication)) during such period that, in conformity with GAAP, are
required to be included in or reflected by a Loan Party's fixed asset account as
reflected in its balance sheets; provided, however, that Capital Expenditures
shall include, whether or not such a designation would be in conformity with
GAAP, (A) that portion of Capital Leases which is capitalized on the balance
sheet of such Loan Party and (B) expenditures for Equipment which is purchased
simultaneously with the trade-in of existing Equipment owned by such Loan Party
to the extent that the gross purchase price of the purchased Equipment exceeds
the book value of the Equipment being traded in at such time; provided, further,
that Capital Expenditures shall exclude, whether or not such a designation would
be in conformity with GAAP, (i) any expenditures made with the proceeds, damages
or awards under any policy of insurance with respect to any casualty or other
damage or defect or the proceeds of any taking by reason of any public
improvement or condemnation proceeding or transfer and (ii) any Permitted
Acquisition relating to an acquisition of assets.
"Capital Lease" means, as applied to any Person, any lease of
any property (whether real, personal or mixed) by that Person as lessee which,
in conformity with GAAP, is accounted for as a capital lease on the balance
sheet of that Person.
"Capital Stock" means, with respect to any Person, any capital
stock of such Person, regardless of class or designation, and all warrants,
options, purchase rights, conversion or exchange rights, voting rights, calls or
claims of any character with respect thereto.
"Cash Capital Expenditures" means, for any period, that
portion of Capital Expenditures which is paid in cash.
"Cash Collateral Account" means the account opened and
maintained at First Union National Bank which account shall be governed by the
terms of the Cash Collateral Pledge Agreement and shall be under the sole
dominion and control of the Collateral Agent.
-6-
<PAGE>
"Cash Collateral Pledge Agreement" means the Cash Collateral
Pledge and Assignment Agreement, substantially in the form of Exhibit K attached
hereto and made a part hereof, made by the Borrowers in favor of the Collateral
Agent for the benefit of the Agents and the Lenders, as such Pledge Agreement
may be amended, supplemented or otherwise modified from time to time.
"Cash Equivalents" means (i) marketable direct obligations
issued or unconditionally guaranteed by the United States Government or issued
by an agency thereof and backed by the full faith and credit of the United
States, in each case maturing within one (1) year after the date of acquisition
thereof; (ii) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any public
instrumentality thereof maturing within ninety (90) days after the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Corporation or Moody's
Investors Services, Inc. (or, if at any time neither Standard & Poor's
Corporation nor Moody's Investors Services, Inc. shall be rating such
obligations, then from such other nationally recognized rating services
reasonably acceptable to the Administrative Agent) and not listed in Credit
Watch published by Standard & Poor's Corporation; (iii) commercial paper, other
than commercial paper issued by any Loan Party or any of its Affiliates,
maturing no more than ninety (90) days after the date of creation thereof and,
at the time of acquisition, having a rating of at least A-1 or P-1 from either
Standard & Poor's Corporation or Moody's Investor's Service, Inc. (or, if at any
time neither Standard & Poor's Corporation nor Moody's Investors Service, Inc.
shall be rating such obligations, then the highest rating from such other
nationally recognized rating services reasonably acceptable to the
Administrative Agent); (iv) domestic and Eurodollar certificates of deposit or
time deposits or bankers' acceptances maturing within ninety (90) days after the
date of acquisition thereof issued by any commercial bank organized under the
laws of the United States of America or any state thereof or the District of
Columbia or Canada having combined capital and surplus of not less than
$250,000,000; (v) repurchase obligations of the type referred to in clauses (i)
through (iv) above; and (vi) money market and mutual funds substantially all of
whose assets are comprised of securities of the types described in clauses (i)
through (v) above.
"Cash Interest Expense" means, for any Financial Covenant
Period, total interest expense, whether paid or accrued (including the interest
component of Capital Leases, but excluding amortization of deferred financing
costs and interest paid on the Put/Call Promissory Notes) of Stellex and its
Subsidiaries on a consolidated basis, as determined in conformity with GAAP.
-7-
<PAGE>
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. Sections 9601 et seq., any
amendments thereto, any successor statutes, and any regulations promulgated
thereunder.
"Change of Control" means the occurrence of one or more
of the following events:
(a) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that
any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act), other than one or more Permitted Holders, is
or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5
under the Securities Exchange Act), directly or indirectly, of more
than 35% of the total voting power of the Voting Securities of Stellex;
(b) the Permitted Holders "beneficially own" (as defined in
Rules 13d-3 and 13d-5 under the Securities Exchange Act), directly or
indirectly, in the aggregate less than 51% of the total voting power of
the Voting Securities of Stellex or do not have the right or ability by
voting power, contract or otherwise to elect or designate for election
a majority of the Board of Directors of Stellex; or
(c) the first day on which a majority of the members
of the Board of Directors of Stellex are not Continuing
Directors.
"Chief Financial Officer" means the chief financial officer or
vice president of finance of Stellex.
"Claim" means any claim or demand, by any Person, of
whatsoever kind or nature for any alleged Liabilities and Costs, whether based
in contract, tort, implied or express warranty, strict liability, criminal or
civil statute, Permit, ordinance or regulation, common law or otherwise.
"Closing Date" means the date on which all of the conditions
precedent in Sections 5.01 and 5.02 have been satisfied.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor statute and any regulations or guidelines
promulgated thereunder.
"Collateral" means all property and interests in property now
owned or hereafter acquired by any Loan Party in or upon which a Lien is granted
under any of the Loan Documents.
"Collateral Agent" has the meaning ascribed to such
term in the preamble hereto.
-8-
<PAGE>
"Collateral Documents" means, collectively, the Security
Agreements, the Pledge Agreements, the Intellectual Property Security Agreement
and the Cash Collateral Pledge Agreement.
"Commission" means the Securities and Exchange Commission and
any Person succeeding to the functions thereof.
"Commitment" means, with respect to any Lender, such Lender's
Revolving Loan Commitment and Term Loan Commitment, and as modified from time to
time pursuant to the terms of this Agreement or to give effect to any applicable
Assignment and Acceptance, and "Commitments" means the aggregate principal
amount of the Commitments of all the Lenders, the maximum amount of which shall
not exceed $50,000,000.
"Commitment Adjustment" means, as of any date of
determination, the amount, if any, by which the the Commitments exceed the
product of two multiplied by the EBITDA of Stellex and its Subsidiaries on a
consolidated basis for the immediately preceding Financial Covenant Period (and
if such Financial Covenant Period ends prior to December 31, 1998, such EBITDA
shall be multiplied by a fraction the numerator of which is 12 and the
denominator of which is the number of months in such Financial Covenant Period).
The amount of the Commitment Adjustment shall adjust the Term Loan Commitment,
if outstanding, and then adjust the Revolving Loan Commitment.
"Commitment Termination Date" means the day which is the
earliest of (A) October 31, 2003, (B) the termination of the Commitments
pursuant to Section 11.02(a) and (C) the date of termination in whole of the
Revolving Credit Commitments pursuant to Section 3.01(a)(ii).
"Commitment Triggering Event" means the occurrence of any
payment of principal under or with respect to the Subordinated Notes or any
repurchurse by or on behalf of Stellex of the Subordinated Notes.
"Compliance Certificate" has the meaning ascribed to
such term in Section 7.01(c).
"Contaminant" means any waste, pollutant (as that term is
defined in 42 U.S.C. Section 9601(33) or in 33 U.S.C. Section 1362(13)),
hazardous substance (as that term is defined in 42 U.S.C. Section 9601(14)),
hazardous chemical (as that term is defined by 29 CFR Section 1910.1200(c)),
toxic substance, hazardous waste (as that term is defined in 42 U.S.C. Section
6903(5)), radioactive material, petroleum, including crude oil or any
petroleum-derived substance, waste, or breakdown or decomposition product
thereof, as defined under federal, state or local laws or regulations, or any
constituent of any such substance or waste, including, but not limited to
polychlorinated biphenyls ("PCBs"), and asbestos.
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"Contractual Obligation" means, as applied to any Person, any
provision of any Securities issued by that Person or any indenture, mortgage,
deed of trust, security agreement, pledge agreement, guaranty, contract,
undertaking, agreement or instrument to which that Person is a party or by which
it or any of its properties is bound, or to which it or any of its properties is
subject.
"Continuing Directors" means, as of any date of determination,
any member of the Board of Directors of Stellex who (i) was a member of such
Board of Directors on the Closing Date or (ii) was nominated by Richard L.
Kramer or William L. Remley to serve on such Board of Directors.
"Contribution Agreement" means the Contribution Agreement
dated as of the date hereof among the Loan Parties, as such agreement may be
further amended, supplemented or otherwise modified from time to time.
"Current Assets" means, as at any date of determination, the
total assets of Stellex and its Subsidiaries on a consolidated basis which may
properly be classified as current assets in conformity with GAAP.
"Current Liabilities" means, as at any date of determination,
the current liabilities of Stellex and its Subsidiaries on a consolidated basis
which may properly be classified as current liabilities in conformity with GAAP.
"Customary Permitted Liens" means
(i) Liens (other than Environmental Liens and Liens in favor
of the PBGC) with respect to the payment of taxes, assessments or
governmental charges or claims, in all cases which are not yet due or
are being contested in good faith by appropriate proceedings and with
respect to which adequate reserves or other appropriate provisions are
being maintained in accordance with GAAP;
(ii) statutory Liens of landlords and Liens of suppliers,
mechanics, carriers, materialmen, warehousemen or workmen and other
Liens imposed by law created in the ordinary course of business in all
cases for amounts which are not yet due or are being contested in good
faith by appropriate proceedings and with respect to which adequate
reserves or other appropriate provisions are being maintained in
accordance with GAAP;
(iii) Liens (other than any Lien in favor of the PBGC)
incurred or deposits made in the ordinary course of business in
connection with worker's compensation, unemployment insurance or other
types of social security benefits or to secure the performance of bids,
tenders, sales, leases,
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contracts (other than for the repayment of borrowed money), surety,
appeal and performance bonds, in all cases for amounts not yet due or
which are being contested in good faith by appropriate proceedings and
with respect to which adequate reserves or other appropriate provisions
are being maintained in accordance with GAAP; and
(iv) zoning restrictions, easements, licenses, reservations,
covenants, rights-of-way, utility easements, building restrictions and
other similar charges or encumbrances on the use of Real Property
which do not materially interfere with the ordinary conduct of the
business of the Loan Parties and which do not materially adversely
affect the value of the Real Property.
"Debt" means, as applied to any Person at any time and without
duplication, all indebtedness, obligations or other liabilities of such Person
(i) for borrowed money or evidenced by debt securities, debentures, acceptances,
notes or other similar instruments (other than the Put/Call Promissory Notes),
(ii) under profit payment agreements or in respect of obligations to redeem,
repurchase or exchange any Securities of such Person or to pay dividends in
respect of any stock (other than the Put/Call Preferred Stock and management
investor agreements of the type referred to in the definition of "Management
Equity Interests" provided that such indebtedness, obligations or other
liabilities thereunder are only permitted to be paid if permitted under this
Agreement), (iii) with respect to letters of credit issued for such Person's
account (to the extent not accounted for in clause (i) above), (iv) to pay the
deferred purchase price of property or services, except accounts payable and
accrued expenses arising in the ordinary course of business, or (v) in respect
of Capital Leases.
"Default" means an event which, with the giving of notice or
the lapse of time, or both, would constitute an Event of Default.
"Default Rate" has the meaning ascribed to such term in
Section 4.01(d).
"DOL" means the United States Department of Labor and any
Person succeeding to the functions thereof.
"Dollars" and "$" mean the lawful money of the United States.
"Domestic Lending Office" means, with respect to any Lender,
such Lender's office, located in the United States, specified as the "Domestic
Lending Office" under its name on the signature pages hereof or on the
Assignment and Acceptance by which it became a Lender or such other United
States office of
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such Lender as it may from time to time specify by written notice to the
Borrowers and the Administrative Agent.
"EBITDA" means, for any Financial Covenant Period, (i) the Net
Income, determined on a consolidated basis for Stellex and its Subsidiaries, for
such Financial Covenant Period plus the following amounts (without duplication)
for such Financial Covenant Period to the extent deducted in calculating such
Net Income: (A) depreciation and amortization expense, (B) interest expense, (C)
federal, state, local and foreign income taxes, (D) extraordinary or unusual
losses, (E) non-cash portion of nonrecurring losses and charges, (F) non-cash
management compensation expense, (G) amounts paid with respect to the "Retention
Plan Payments" as defined in the Watkins-Johnson Acquisition Agreement and (H)
any increase in cost of sales resulting from the write-up of inventory in
accordance with Accounting Principles Board Opinion No. 16 (or successor
provision); minus (ii) the amount of extraordinary gains, each item in clauses
(i) and (ii) calculated pursuant to GAAP for such period.
"Eligible Assignee" means (i) a Lender or (ii) a commercial
bank, lending institution, finance company, insurance company, other financial
institution or fund reasonably acceptable to the Administrative Agent and
Stellex (which acceptance shall not be unreasonably withheld).
"Eligible Inventory" means Inventory that is reflected on the
balance sheet of a Borrower as inventory, and unbilled receivables that are
reflected on the balance sheet of a Borrower as unbilled receivables (but only
to the extent such unbilled receivables do not exceed $1,000,000), and each
valued in accordance with GAAP, with respect to which, when scheduled on a
Borrowing Base Certificate and at all times thereafter, the Collateral Agent has
a valid and perfected first priority security interest and there is no violation
of the negative or affirmative covenants or other provisions of this Agreement
or any other Loan Document specifically applicable to Inventory. No Inventory of
a Borrower shall be Eligible Inventory if such Inventory is located, stored,
used or held at the premises of a third party unless either (i) (A) the
Administrative Agent shall have received a bailee's or similar letter from such
third party in form and substance satisfactory to the Administrative Agent and
(B) an appropriate UCC-1 financing statement shall have been executed with
respect to such location or (ii) the Administrative Agent shall have otherwise
consented in writing.
"Eligible Receivables" means those Receivables, that are
reflected on the balance sheet of a Borrower and valued in accordance with GAAP,
with respect to which, when scheduled on a Borrowing Base Certificate and at all
times thereafter, the Collateral Agent has a valid and perfected first priority
security interest (but not including compliance with the
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Assignment of Claims Act of 1940 , as amended, with respect to Receivables where
the account debtor is the United States of America or any department, agency or
instrumentality thereof) and there is no violation of the negative or
affirmative covenants or other provisions of this Agreement or any other Loan
Document specifically applicable to Receivables. No Receivable of a Borrower
shall be an Eligible Receivable if:
(i) the Receivable is a non-dated Receivable which remains due
or unpaid more than one hundred twenty (120) days after the date of
original invoice issued by such Borrower with respect to the sale
giving rise thereto; or the Receivable is a dated Receivable which
remains due or unpaid more than one hundred twenty (120) days after the
date of the original invoice issued by such Borrower with respect to
the sale giving rise thereto; or
(ii) the Receivable arises out of a sale not made in the
ordinary course of such Borrower's business or is to a Person which is
an Affiliate or Subsidiary of such Borrower or controlled by an
Affiliate or Subsidiary of such Borrower; or
(iii) that portion of the Receivable that is in dispute or is
subject to any asserted claim of setoff; or
(iv) any warranty contained in this Agreement or any Loan
Document with respect to Eligible Receivables or such Receivable has
been breached; or
(v) the account debtor has filed a petition for bankruptcy or
any other petition for relief under the Bankruptcy Code, made an
assignment for the benefit of creditors, or if any petition or other
application for relief under the Bankruptcy Code has been filed against
the account debtor, or if the account debtor has failed, suspended its
business operations, become insolvent, or suffered a receiver or a
trustee to be appointed for all or a material portion of its assets or
affairs; or
(vi) the sale is to an account debtor located outside the
continental United States, unless such sale is on letter of credit or
acceptance terms acceptable to the Administrative Agent (which letter
of credit or acceptance has been assigned to the Collateral Agent in a
manner satisfactory to the Administrative Agent); or
(vii) the sale to such customer is on guaranteed sale, sale
and return, sale on approval, consignment or any other repurchase or
return basis (other than a repurchase or return pursuant to a
warranty); or
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(viii) the goods giving rise to such Receivable have not been
shipped or delivered to the account debtor or the services giving rise
to such Receivable have not been performed by such Borrower; or
(ix) any document or agreement executed or delivered in
connection with any Receivable, or any procedure used in connection
with any such document or agreement, fails in any respect to comply
with any requirements of applicable law, and such failure would, in the
reasonable determination of the Administrative Agent, (a) have a
material adverse effect upon the collectability of such Receivable or
(b) subject payments with respect to such Receivable to any claim for
recovery thereof after receipt by the Administrative Agent or the
Lenders.
In addition to the foregoing, no Receivables owing by a particular account
debtor shall be Eligible Receivables if twenty five percent (25%) or more of the
Receivables owing from such account debtor are ineligible for any reason.
"Environmental, Health or Safety Requirement of Law" means
Requirements of Law relating to or addressing the indoor or outdoor environment,
health or safety, including but not limited to any law, regulation, or order
relating to the use, handling, or disposal of any Contaminant, any law,
regulation, or order relating to Remedial Action, and any law, regulation, or
order relating to workplace or worker safety and health.
"Environmental Lien" means a Lien in favor of any Governmental
Authority for (i) any liability under federal or state environmental laws or
regulations, or (ii) damages arising from, or costs incurred by such
Governmental Authority in response to, a Release or threatened Release of a
Contaminant into the environment.
"Equipment" means all of each Loan Party's present and future
owned (i) equipment and fixtures, including, without limitation, machinery,
manufacturing, distribution, selling, computer system, data processing and
office equipment, assembly systems, tools, molds, dies, fixtures, appliances,
furniture, furnishings, vehicles, vessels, aircraft, aircraft engines, and trade
fixtures, (ii) other tangible personal property, and (iii) any and all
accessions, parts and appurtenances attached to any of the foregoing or used in
connection therewith, and any substitutions therefor and replacements, products
and proceeds thereof.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor statute.
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"ERISA Affiliate" means any (i) corporation which is a member
of the same controlled group of corporations (within the meaning of Section
414(b) of the Code) as any Loan Party, (ii) partnership, trade or business
(whether or not incorporated) which is under common control (within the meaning
of Section 414(c) of the Code) with a Loan Party and (iii) entity which is a
member of an "affiliated service group" (as defined in Section 414(m) of the
Code) with any other Loan Party.
"Eurodollar Affiliate" means, with respect to each Lender, the
Affiliate of such Lender (if any) set forth below such Lender's name under the
heading "Eurodollar Affiliate" on the signature pages hereof or on the
Assignment and Acceptance by which it became a Lender or such Affiliate of a
Lender as it may from time to time specify by written notice to the Borrowers
and the Administrative Agent.
"Eurodollar Interest Payment Date" means (i) with respect to
any Eurodollar Rate Loan, the last day of each Eurodollar Interest Period
applicable to such Loan and (ii) with respect to any Eurodollar Rate Loan having
a Eurodollar Interest Period in excess of three (3) calendar months, the last
day of each calendar quarter during such Eurodollar Interest Period.
"Eurodollar Interest Period" has the meaning set forth
in Section 4.02(b).
"Eurodollar Lending Office" means, with respect to any Lender,
the office or offices of such Lender (if any) set forth below such Lender's name
under the heading "Eurodollar Lending Office" on the signature pages hereof or
on the Assignment and Acceptance by which it became a Lender or such office or
offices of such Lender as it may from time to time specify by written notice to
the Borrowers and the Administrative Agent.
"Eurodollar Rate" means, with respect to any Eurodollar
Interest Period applicable to a Borrowing of Eurodollar Rate Loans, an interest
rate per annum obtained by dividing (i) the rate of interest per annum specified
by notice to the Administrative Agent by SocGen as the rate per annum at which
deposits in Dollars are offered by SocGen in London, England to major banks in
the London interbank market at approximately 11:00 a.m. (London time) on the
Interest Rate Determination Date for such Eurodollar Interest Period for a
period equal to such Eurodollar Interest Period and in an amount substantially
equal to the amount of the Eurodollar Rate Loan to be made by SocGen to be
outstanding during such Eurodollar Interest Period, by (ii) a percentage equal
to 100% minus the Eurodollar Reserve Percentage. The Eurodollar Rate shall be
adjusted automatically on and as of the effective date of any change in the
Eurodollar Reserve Percentage.
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"Eurodollar Rate Loans" means those Loans outstanding which
bear interest at a rate determined by reference to the Eurodollar Rate as
provided in Section 4.01(a).
"Eurodollar Reserve Percentage" means, for any day, that
percentage which is in effect on such day, as prescribed by the Federal Reserve
Board for determining the maximum reserve requirement (including, without
limitation, any emergency, supplemental or other marginal reserve requirement)
for a member bank of the Federal Reserve System in New York, New York with
respect to "Eurocurrency Liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Eurodollar Rate Loans is determined or any category of extensions of credit or
other assets which includes loans by a non-United States office of any bank to
United States residents).
"Event of Default" means any of the occurrences set forth in
Section 11.01 after the expiration of any applicable grace period and the giving
of any applicable notice, in each case as expressly provided in Section 11.01.
"Excess Cash Flow" means, for any Fiscal Year, EBITDA for such
Fiscal Year, minus cash interest paid during such Fiscal Year, minus Capital
Expenditures made during such Fiscal Year, minus principal payments made on
Funded Debt (excluding Revolving Loans) during such Fiscal Year, minus taxes
paid in cash during such Fiscal Year, plus the decrease or minus the increase in
Working Capital during such Fiscal Year.
"Excluded Proceeds" means (i) Net Cash Proceeds that are used
by a Loan Party within one year from the receipt of such Net Cash Proceeds by
such Loan Party on account of an Asset Sale to replace the asset with respect to
such Asset Sale or to consummate a Permitted Acquisition, provided that such Net
Cash Proceeds are deposited into the Cash Collateral Account upon receipt of
such Net Cash Proceeds by such Loan Party until the earlier of (A) such time as
such Loan Party replaces such asset or consummates the Permitted Acquisition or
(B) the first annual anniversary of the date such Net Cash Proceeds were
deposited into the Cash Collateral Account, (ii) Net Cash Proceeds on account of
one or more Asset Sales so long as such Net Cash Proceeds do not exceed $500,000
in the aggregate in any twelve month period, (iii) proceeds from the sales of
Inventory in the ordinary course of business, (iv) proceeds from the disposition
of Equipment if such Equipment is obsolete or no longer useful in the ordinary
course of such Loan Party's business and (v) proceeds received by a Wholly Owned
Subsidiary of a Loan Party as a result of an assignment, transfer, conveyance or
other disposition permitted pursuant to Section 9.02(v).
"Excluded Securities" means, with respect to any Loan Party,
(i) common or preferred stock issued by such Loan Party to
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a seller in connection with a Permitted Acquisition or management personnel in
connection with management compensation arrangements or a Permitted Acquisition,
(ii) Series B Preferred Stock issued by Holding having an aggregate liquidation
preference not to exceed $200,000 and (iii) any Securities issued by any
Subsidiary of Stellex to Stellex or another Subsidiary of Stellex, provided that
such Securities referred to in this clause (iii) are pledged to the Collateral
Agent, on terms and conditions, and pursuant to documentation, reasonably
satisfactory to the Administrative Agent, in a manner whereby the Collateral
Agent has a valid, perfected and first priority Lien therein.
"Farm Bureau" means Farm Bureau Life Insurance Company.
"Farm Bureau Consent" means a consent of Farm Bureau to the
Collateral Agent's Liens in the Collateral granted by Paragon Precision Products
and by Aerospace pursuant to the Loan Documents (including, without limitation,
a pledge by Aerospace of the Paragon Precision Products stock pursuant to the
Pledge Agreement executed and delivered by Aerospace), which consent shall be in
form and substance satisfactory to the Administrative Agent and shall have been
executed and delivered by Farm Bureau to the Administrative Agent.
"Farm Bureau Deed of Trust" means the Deed of Trust with
Assignment of Rents and Fixture Filing dated as of September 6, 1991 made by
Paragon Precision Products in favor of Farm Bureau, as such Deed of Trust may be
amended, supplemented and modified from time to time.
"Farm Bureau Guaranty" means the Guaranty dated as of
September 6, 1991 by and between Farm Bureau and Aerospace.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published for such
day (or, if such day is not a Business Day in New York, New York, for the next
preceding Business Day) in New York, New York by the Federal Reserve Bank of New
York, or if such rate is not so published for any day which is a Business Day in
New York, New York, the average of the quotations for such day on such
transactions received by the Administrative Agent from three federal funds
brokers of recognized standing selected by the Administrative Agent.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System or any Governmental Authority succeeding to its
functions.
"Fee Letters" means, collectively, the Fee Letters between
Stellex and each of the Agents.
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"Financial Covenant Period" means: (i) with respect to the
first fiscal quarter of 1998, the period commencing on the Closing Date and
ending on the last day of such fiscal quarter; (ii) with respect to the second
fiscal quarter of 1998, the period commencing on January 1, 1998 and ending on
the last day of such fiscal quarter; (iii) with respect to the third fiscal
quarter of 1998, the period commencing on January 1, 1998 and ending on the last
day of such fiscal quarter; (iv) with respect to the fourth fiscal quarter of
1998, the period commencing on January 1, 1998 and ending on the last day of
such fiscal quarter; and (v) with respect to each fiscal quarter thereafter, the
immediately preceding four fiscal quarter period.
"Fiscal Year" means the fiscal year of Stellex and its
Subsidiaries ending on December 31 of each calendar year.
"Fixed Charge Coverage Ratio" means, for any Financial
Covenant Period, the ratio of (i) EBITDA less Cash Capital Expenditures made
during such period to (ii) Cash Interest Expense plus the regularly scheduled
installments of Funded Debt payable during such period.
"Forfeiture Proceeding" means any action, proceeding or
investigation affecting any of the Loan Parties before any court, governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, or the receipt of notice by any such party that any of them is a
subject of any governmental inquiry or investigation, which may result in an
indictment of any of them or the seizure or forfeiture of any of their property.
"Funded Debt" means Debt which matures more than one year from
the date of its creation or matures within one year from such date but is
renewable or extendible, at the option of the debtor, to a date more than one
year from such date or arises under a revolving credit or similar agreement
which obligates the lender or lenders to extend credit during a period of more
than one year from such date including, without limitation, all amounts of
Funded Debt required to be paid or prepaid within one year from the date of
determination.
"Funding Date" means the date of the funding of a Loan.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants Standards Board or in
such other statements by such other entity as may be in general use by
significant segments of the accounting profession as in effect on the date
hereof.
"General Intangibles" means all of each Loan Party's present
and future choses in action, causes of action and all other intangible personal
property of every kind and nature
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(other than Receivables), including without limitation general intangibles,
contracts, corporate or other business records, designs, patents, patent
applications, trademarks, trademark applications, service marks, service mark
applications, trade names, tradestyles, trade secrets, operating certificates,
operating certificate applications, goodwill, registrations, copyrights,
licenses, franchises, permits, operating authorities, agent and owner/operator
contracts, certificates of public convenience, refunds or reversions from any
employee benefit plan or pension plan, covenants not to compete, blueprints and
other drawings, customer lists, tax refunds, tax refund claims, rights and
claims against carriers and shippers, and rights to indemnification.
"Governing Documents" means, with respect to any corporation,
(i) the articles/certificate of incorporation (or the equivalent organizational
documents) of such corporation, (ii) the by-laws (or the equivalent governing
documents) of the corporation and (iii) any document setting forth the
designation, amount and/or relative rights, limitations and preferences of any
class or series of such corporation's capital stock; and, with respect to any
general partnership, (i) the partnership agreement (or the equivalent
organizational documents) of such partnership and (ii) any document setting
forth the designation, amount and/or relative rights, limitations and
preferences of any of the partnership interests; and, with respect to any
limited partnership, (i) the partnership agreement (or the equivalent
organizational documents) of such partnership, (ii) a certificate of limited
partnership (or the equivalent organizational documents) and (iii) any document
setting forth the designation, amount and/or relative rights, limitations and
preferences of any of the partnership interests.
"Government" means the United States government or any
department, instrumentality or agency thereof, or any state government or any
department, instrumentality or agency thereof.
"Governmental Authority" means any nation or government, any
federal, state, local or other political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Government Contracts" means (i) written contracts between any
Borrower and the Government; and (ii) written subcontracts between any Borrower
and a prime contractor who is providing goods or services to the Government
pursuant to a written contract with the Government or its prime contractor, if
applicable (the "Prime Contract"), provided that the subcontract relates only to
goods or services being provided to the Government pursuant to the prime
contract.
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"Guarantors" means, collectively, the Borrowers and
each Subsidiary of Stellex.
"Guaranty" means the Guaranty, substantially in the form of
Exhibit J attached hereto and made a part hereof, referred to in the List of
Closing Documents set forth on Exhibit E attached hereto and made a part hereof.
"Holder" means any Person entitled to enforce any of the
Obligations, whether or not such Person holds any evidence of Indebtedness,
including, without limitation, each Agent and each Lender.
"Indebtedness" means, as applied to any Person at any time,
(a) all indebtedness, obligations or other liabilities of such Person (i) for
borrowed money or evidenced by debt securities, debentures, acceptances, notes
or other similar instruments, and any accrued interest, fees and charges
relating thereto, (ii) under profit payment agreements or in respect of
obligations to redeem, repurchase or exchange any Securities of such Person or
to pay dividends in respect of any stock, (iii) with respect to letters of
credit issued for such Person's account, (iv) to pay the deferred purchase price
of property or services, except accounts payable and accrued expenses arising in
the ordinary course of business, (v) in respect of Capital Leases or (vi) which
are Accommodation Obligations; (b) all indebtedness, obligations or other
liabilities of such Person or others secured by a Lien (other than a Customary
Permitted Lien) on any property of such Person, whether or not such
indebtedness, obligations or liabilities are assumed by such Person, all as of
such time; (c) all indebtedness, obligations or other liabilities of such Person
in respect of Interest Rate Contracts and foreign exchange contracts, net of
liabilities owed to such Person by the counterparties thereon; (d) all preferred
stock subject (upon the occurrence of any contingency or otherwise) to mandatory
redemption; and (e) all contingent Contractual Obligations with respect to any
of the foregoing.
"Indemnified Matters" has the meaning ascribed to such
term in Section 13.05.
"Indemnitees" has the meaning ascribed to such term in
Section 13.05.
"Information Package" means, with respect to each Permitted
Acquisition, an information package consisting of (i) a description of the
Business being acquired, (ii) historical financial statements (which may be
unaudited) for the respective Business for at least the two full fiscal years
most recently ended and the latest twelve-month period ended with the last day
of the fiscal quarter last ended, (iii) projections for the five years after the
respective Permitted Acquisition, (iv) an officer's certificate for the
twelve-month period ended on the
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date of the most recent delivery of quarterly financial statements pursuant to
Section 7.01(a) hereof indicating the compliance on a Pro Forma Basis with the
financial covenants contained in Schedule 5.03(B) hereof and (v) any other
information which Stellex in good faith determines should be furnished so that
the Information Package for the respective Business being acquired is, to the
best of Stellex's knowledge after reasonable investigation, true and correct in
all material respects and is not incomplete by omitting to state any fact
necessary to make the information (taken as a whole) contained therein not
misleading in any material respect.
"Intellectual Property Security Agreement" means the Patent
Security Agreement, substantially in the form of Exhibit N attached hereto and
made a part hereof, referred to in the List of Closing Documents set forth on
Exhibit E attached hereto and made a part hereof.
"Interest Coverage Ratio" means, with respect to any Financial
Covenant Period, the ratio of (i) EBITDA to (ii) Cash Interest Expense.
"Interest Rate Contracts" means interest rate exchange, swap,
collar, cap, hedging or similar agreements.
"Interest Rate Determination Date" has the meaning ascribed to
such term in Section 4.02(c).
"Inventory" means all of each Loan Party's present and future
(i) inventory, (ii) goods, merchandise and other personal property furnished or
to be furnished under any contract of service or intended for sale or lease, and
all goods consigned by such Loan Party to another Person and all other items
which have previously constituted Equipment but are then currently being held
for sale or lease in the ordinary course of such Loan Party's business, (iii)
raw materials, work-in-process and finished goods, (iv) materials and supplies
of any kind, nature or description used or consumed in such Loan Party's
business or in connection with the manufacture, production, packing, shipping,
advertising, finishing or sale of any of the property described in clauses (i)
through (iii) above, (v) goods in which such Loan Party has a joint or other
interest or right of any kind (including, without limitation, goods in which
such Loan Party has an interest or right as consignee), and (vi) goods which are
returned to or repossessed by such Loan Party; in each case whether in the
possession of such Loan Party, a bailee, a consignee, or any other Person for
sale, storage, transit, processing, use or otherwise, and any and all documents
for or relating to any of the foregoing.
"Investment" means, with respect to any Person, (i) any
purchase or other acquisition by that Person of Securities, or of a beneficial
interest in Securities, issued by any other Person,
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(ii) any purchase by that Person of all or substantially all of the assets of a
business conducted by another Person, and (iii) any direct or indirect loan,
advance (other than prepaid expenses, accounts receivable, advances to employees
and similar items made or incurred in the ordinary course of business as
presently conducted) or capital contribution by that Person to any other Person,
including all Indebtedness to such Person arising from a sale of property by
such Person other than in the ordinary course of its business. The amount of any
Investment shall be the original cost of such Investment, plus the cost of all
additions thereto less the amount of any return of capital or principal to the
extent such return is in cash with respect to such Investment without any
adjustments for increases or decreases in value or write-ups, write-downs or
write-offs with respect to such Investment.
"IRS" means the Internal Revenue Service and any Person
succeeding to the functions thereof.
"Kleinert Acquisition" means the transactions
contemplated by the Kleinert Acquisition Documents.
"Kleinert Acquisition Agreement" means the Stock Purchase
Agreement, dated as of May 23, 1997 by and among KII Acquisition as buyer,
Kleinert Industrie Holding AG, a Swiss corporation as seller, and Kleinert
Industries Inc.
"Kleinert Acquisition Documents" means, collectively, the
Kleinert Acquisition Agreement, the Seller Note, and all documents, instruments
and agreements delivered in connection therewith.
"Lender" has the meaning ascribed to such term in the
preamble hereto.
"Leverage Ratio" means, for any Financial Covenant Period, the
ratio of (i) the outstanding Funded Debt for Stellex and its Subsidiaries at the
end of such period, to (ii) EBITDA for such period, which EBITDA is multiplied
by a fraction the numerator of which is 12 and the denominator of which is the
number of months in such Financial Covenant Period.
"Liabilities and Costs" means all liabilities, obligations,
responsibilities, losses, damages, punitive damages, economic damages,
consequential damages, treble damages, costs and expenses (including, without
limitation, attorney, expert and consulting fees and costs of investigation,
feasibility or Remedial Action studies), fines, penalties and monetary
sanctions, interest, absolute or contingent, past, present or future.
"Lien" means any mortgage, deed of trust, pledge,
hypothecation, assignment, conditional sale agreement, deposit
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arrangement, security interest, encumbrance, lien (statutory or other),
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever in respect of any property of a Person, whether
granted voluntarily or imposed by law, and includes the interest of a lessor
under a Capital Lease or under any financing lease having substantially the same
economic effect as any of the foregoing and the filing of any financing
statement or similar notice (other than a financing statement filed by a "true"
lessor pursuant to Section 9-408 of the Uniform Commercial Code or with respect
to goods consigned to a Loan Party or inventory of a third person in the
possession of a Loan Party), naming the owner of such property as debtor, under
the Uniform Commercial Code or other comparable law of any jurisdiction.
"Loan Documents" means this Agreement, the Notes, the Fee
Letters, the Guaranties, the Contribution Agreement, the Collateral Documents,
any Interest Rate Contracts to which any Lender or any Affiliate of a Lender is
a party, any foreign exchange contracts to which any Lender or any Affiliate of
a Lender is a party, and all other instruments, agreements and written
Contractual Obligations between any Loan Party and any Agent or any Lender
delivered to either such Agent or such Lender pursuant to or in connection with
the transactions contemplated hereby.
"Loan Parties" means the Borrowers and the Guarantors.
"Loans" means the Revolving Loans and Term Loans.
"Management Agreement" means the Amended and Restated
Management Advisory Services Agreement dated November 1, 1997 among Mentmore
Holdings Corporation and the Loan Parties, as such agreement may be amended,
supplemented or modified from time to time.
"Management Equity Holder" means (i) a holder of a Put/Call
Promissory Note, (ii) the legal or beneficial owner of Put/Call Preferred Stock
or (iii) a holder of any Management Equity Interests.
"Management Equity Interests" means shares of Capital Stock of
Stellex or of a Subsidiary of Stellex, options, warrants or stock appreciation
or similar rights, in each case held, at the time of the issuance thereof, by
any then current or former officer, employee or other member of management (or
thereafter by their estates or beneficiaries under their estates) of Stellex or
of such Subsidiary pursuant to any management equity subscription agreement,
employment agreement, employee benefit plan, stockholder agreement, stock option
agreement or similar management investor agreement and which may be required to
be repurchased by Stellex or such Subsidiary, or which may be repurchased at the
option of Stellex or such Subsidiary, in each
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case pursuant to the terms of any such agreement under which such equity
interests were issued, including, without limitation, the Management
Participation Agreement.
"Management Participation Agreement" means that certain
Agreement dated as of July 1, 1997 by and among Holding, Greystoke Capital
Management Limited LDC, Bradley C. Call, Julius E. Hodge, Lawrence B. Smith,
Roland H. Marti, John Barriatua, Arun Kumar and Louis A. Brown, as such
agreement may be amended, supplemented and modified from time to time.
"Margin Stock" means "margin stock" as such term is defined in
Regulation U and Regulation G.
"Material Adverse Effect" means a material adverse effect upon
(i) the condition (financial or otherwise), operations, assets, business,
properties or performance of Stellex and its Subsidiaries, taken as a whole,
(ii) the ability of the Loan Parties to perform their respective obligations
under the Loan Documents, or (iii) the ability of the Lenders or any Agent to
enforce the Loan Documents.
"Material Contract" means any Government Contract in excess of
$1,000,000.
"Maturity Date" means October 31, 2003.
"Maximum Revolving Credit Amount" means, at any particular
time, the lesser of (i) the Revolving Loan Commitments at such time and (ii) the
Borrowing Base at such time.
"Multiemployer Plan" means an employee benefit plan as defined
in Section 4001(a)(3) of ERISA which is, or within the immediately preceding six
(6) years was, contributed to by either any Loan Party or any ERISA Affiliate.
"Net Cash Proceeds" means with respect to any Asset Sale or
issuance of Securities, an amount equal to the cash proceeds of such Asset Sale
or issuance, net of (i) reasonable attorneys' fees, accountants' fees,
brokerage, consultant and other customary fees, underwriting commissions and
other reasonable fees and expenses actually incurred in connection therewith,
(ii) taxes paid or reasonably estimated to be payable as a result thereof, (iii)
the amount of Indebtedness secured by a Lien on the asset being sold that has
been repaid with the proceeds of such Asset Sale and (iv) appropriate amounts
that must be set aside as reserves in accordance with GAAP.
"Net Income" means, for any period, the net earnings (or loss)
after taxes of Stellex and its Subsidiaries on a consolidated basis for such
period taken as a single accounting period determined in conformity with GAAP.
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"Net Worth" means the total assets of Stellex and its
Subsidiaries on a consolidated basis less total liabilities of Stellex and its
Subsidiaries on a consolidated basis (excluding liabilities with respect to the
Put/Call Promissory Notes, the Put/Call Preferred Stock and deferred
compensation arising in connection with management put/call rights), each
determined in accordance with GAAP, but without giving effect to the sale of
inventory written-up in accordance with Accounting Principles Board Opinion No.
16 (or successor provision).
"Notes" means the Revolving Loan Notes and the Term
Loan Notes.
"Notice of Borrowing" means a notice substantially in the form
of Exhibit C attached hereto and made a part hereof.
"Notice of Continuation/Conversion" means a notice
substantially in the form of Exhibit D attached hereto and made a part hereof.
"Obligations" means all Loans, advances, debts, liabilities,
obligations, covenants and duties owing by any Loan Party to any Agent, any
Lender, any Affiliate of any Agent or any Lender, or any Person entitled to
indemnification pursuant to Section 13.05 of this Agreement, of any kind or
nature, present or future, whether or not evidenced by any note, guaranty or
other instrument, whether arising under this Agreement, the Notes or any other
Loan Document, whether or not for the payment of money, whether arising by
reason of an extension of credit, loan, guaranty, indemnification, Interest Rate
Contract, foreign exchange contract or in any other manner, whether direct or
indirect (including those acquired by assignment), absolute or contingent, due
or to become due, now existing or hereafter arising and however acquired. The
term includes, without limitation, all interest, charges, expenses, fees,
attorneys' fees and disbursements and any other sum chargeable to any Loan Party
under this Agreement, the Notes or any other Loan Document.
"Officer's Certificate" means, with respect to any Person, a
certificate executed on behalf of such Person by (i) the chairman or
vice-chairman of such Person's board of directors or (ii) such Person's
president, any of its vice-presidents, its chief financial officer, vice
president of finance or its treasurer.
"Other Taxes" has the meaning ascribed to such term in
Section 3.03(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any
Person succeeding to the functions thereof.
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"Permits" means any permit, approval, authorization license,
variance, or permission required from a Governmental Authority under an
applicable Requirement of Law.
"Permitted Acquisition" means the acquisition by Stellex or
any of its corporate Subsidiaries of (i) assets constituting a business or
operation that is within the definition of Business and constitutes a line of
business of a Person (other than a Subsidiary of Stellex) or (ii) at least 75%
of the capital stock of a Person engaged in the Business; provided that such
acquisition is made in accordance with the provisions of this Agreement and the
conditions set forth in Section 5.03 have been satisfied (whether or not
proceeds from the Term Loans are being used with respect to such acquisition).
"Permitted Disposition" means an Asset Sale where (i) Stellex
or any Subsidiary receives consideration at the time of such Asset Sale at least
equal to the fair market value of the stock and/or assets subject to such Asset
Sale, as determined by (A) the Board of Directors of Stellex with respect to an
Asset Sale the value of which does not exceed $10,000,000 or (B) a fairness
opinion by an investment banking firm or valuation firm reasonably satisfactory
to the Administrative Agent with respect to an Asset Sale the value of which
equals or exceeds $10,000,000; (ii) at least 75% of the consideration thereof
received by Stellex or such Subsidiary is in the form of cash and 100% of the
Net Cash Proceeds from such Asset Sale is applied in accordance with Section
3.01(b)(i); and (iii) the consideration thereof that is not in the form of cash
is pledged to the Collateral Agent, on terms and conditions, and pursuant to
documentation, reasonably satisfactory to the Administrative Agent, in a manner
whereby the Collateral Agent has a valid, perfected and first priority Lien
therein.
"Permitted Existing Indebtedness" means the Indebtedness
identified as such on Schedule 1.01(A).
"Permitted Existing Liens" means the Liens on assets of any
Loan Party identified as such on Schedule 1.01(B).
"Permitted Holders" means (i) Richard L. Kramer and William L.
Remley, (ii) any spouse or immediate family member of any person named in clause
(i) hereof and any child or spouse of any spouse or immediate family member of
any such person, (iii) a trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding,
directly or indirectly, a controlling interest of which consist of any person
named in clause (i) hereof and/or such other Persons referred to in the
immediately preceding clause (ii) hereof, or (iv) the trustees of any trust
referred to in clause (iii) hereof.
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"Person" means any natural person, corporation, limited
partnership, general partnership, joint stock company, joint venture,
association, company, trust, bank, trust company, land trust, business trust,
limited liability company or other organization, whether or not a legal entity,
and any Governmental Authority.
"Plan" means an employee benefit plan defined in Section 3(3)
of ERISA (other than a Multiemployer Plan) in respect of which any Loan Party or
any ERISA Affiliate is, or within the immediately preceding six (6) years was,
an "employer" as defined in Section 3(5) of ERISA.
"Pledge Agreements" means, collectively, the Pledge
Agreements, substantially in the form of Exhibit M attached hereto and made a
part hereof, referred to in the List of Closing Documents set forth on Exhibit E
attached hereto and made a part hereof.
"Process Agent" has the meaning ascribed to such term in
Section 13.20(a).
"Pro Forma Basis" means, with respect to any Permitted
Acquisition, the calculation of the financial covenants set forth on Schedule
5.03(b) for Stellex and its Subsidiaries on a consolidated basis for the
immediately preceding twelve month period, and otherwise determined in
accordance with this Agreement, as if such Permitted Acquisition had been
effected on the first day of such twelve month period, provided that all such
calculations shall take into account the pro forma effect of all Permitted
Acquisitions that occur during such twelve month period and all Permitted
Acquisitions that occur after such twelve month period but on or prior to the
date of determination (including any Indebtedness assumed or acquired in
connection therewith and any Indebtedness incurred to finance such Permitted
Acquisition) as if they had occurred on the first day of such twelve month
period.
"Property" means any and all Real Property or personal
property, whether tangible or intangible, plant, building, facility, structure,
underground storage tank or unit, Equipment, Inventory, General Intangible,
Receivable, securities, account, deposit, claim, right or other asset owned, by
any Loan Party, as applicable, (including any surface water thereon and
subsurface matrix (including but not limited to soil, bedrock and groundwater)
thereunder).
"Pro Rata Share" means, with respect to any Lender, the
percentage obtained by dividing (i) such Lender's Commitment (or, if after the
Commitment Termination Date, the outstanding balances of such Lender's Loans) by
(ii) the aggregate amount of all Lenders' Commitments (or, if after the
Commitment Termination Date, the outstanding balances of all Loans).
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"Put/Call Preferred Stock" means preferred stock, having terms
and conditions satisfactory to the Requisite Lenders, which may be issued by
Stellex or a Subsidiary of Stellex to the holders of any Management Equity
Interests of Stellex or such Subsidiary in exchange for such Management Equity
Interests held by such holders; provided that such preferred stock provides that
any payment made pursuant to or in connection with the provisions of such
preferred stock or of the instrument governing such preferred stock, including
pursuant to any redemption, repurchase or default provision, and payments of
dividends on such preferred stock, in each case in cash, may be made only to the
extent Restricted Junior Payments would then be permitted to be made in
accordance with Section 9.06(iii) after giving effect to all other Restricted
Junior Payment made to any other Management Equity Holder prior to or
concurrently therewith.
"Put/Call Promissory Notes" means promissory notes, having
terms and conditions satisfactory to the Requisite Lenders, which may be issued
by Stellex or a Subsidiary of Stellex to the holders of any Management Equity
Interests of Stellex or such Subsidiary in exchange for such Management Equity
Interest held by such holders; provided that (a) such promissory notes are
expressly subordinated to the Notes, (b) such notes are not secured by any Lien
on any property or assets of Stellex or any of its Subsidiaries, (c) such
promissory notes provide that any payment that is to be made pursuant to or in
connection with the provisions of such promissory notes, including, without
limitation, payments of principal or interest on such notes, in each case in
cash, may be made only to the extent Restricted Junior Payments would then be
permitted to be made in accordance with Section 9.06(iii) after giving effect to
all other Restricted Junior Payment made to any other Management Equity Holder
prior to or concurrently therewith.
"Real Property" means all of each Loan Party's present and
future right, title and interest (including, without limitation, any leasehold
estate) in (i) any plots, pieces or parcels of land, (ii) any improvements,
buildings, structures and fixtures now or hereafter located or erected thereon
or attached thereto of every nature whatsoever (the rights and interests
described in clauses (i) and (ii) above being the "Premises"), (iii) all
easements, rights of way, gores of land or any lands occupied by streets, ways,
alleys, passages, sewer rights, water courses, water rights and powers, and
public places adjoining such land, and any other interests in property
constituting appurtenances to the Premises, or which hereafter shall in any way
belong, relate or be appurtenant thereto, (iv) all hereditaments, gas, oil,
minerals (with the right to extract, sever and remove such gas, oil and
minerals, and easements, of every nature whatsoever, located in or on the
Premises and (v) all other rights and privileges thereunto belonging or apper
taining and all extensions, additions, improvements, betterments,
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renewals, substitutions and replacements to or of any of the rights and
interests described in clauses (iii) and (iv) above.
"Receivables" means all of each Loan Party's present and
future (i) accounts, (ii) contract rights, chattel paper, instruments,
documents, deposit accounts, and other rights to payment of any kind, whether or
not arising out of or in connection with the sale or lease of goods or the
rendering of services, and whether or not earned by performance, (iii) any of
the foregoing which are not evidenced by instruments or chattel paper, (iv)
intercompany receivables, and any security documents executed in connection
therewith, (v) proceeds of any letters of credit or insurance policies on which
such Loan Party is named as beneficiary, (vi) claims against third parties for
advances and other financial accommodations and any other obligations whatsoever
owing to such Loan Party, (vii) rights in and to all security agreements,
leases, guarantees, instruments, securities, documents of title and other
contracts securing, evidencing, supporting or otherwise relating to any of the
foregoing, together with all rights in any goods, merchandise or Inventory which
any of the foregoing may represent, and (viii) rights in returned and
repossessed goods, merchandise and Inventory which any of the same may
represent, including, without limitation, any right of stoppage in transit.
"Register" has the meaning ascribed to such term in
Section 13.01(c).
"Regulation G" means Regulation G of the Federal Reserve Board
as in effect from time to time.
"Regulation U" means Regulation U of the Federal Reserve Board
as in effect from time to time.
"Regulation X" means Regulation X of the Federal Reserve Board
as in effect from time to time.
"Release" means release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment, including the movement of Contaminants
through or in the air, soil, surface water or groundwater.
"Remedial Action" means any action required to (i) clean up,
remove, treat or in any other way address Contaminants in the indoor or outdoor
environment; (ii) prevent the Release or threat of Release or minimize the
further Release of Contaminants so they do not migrate or endanger or threaten
to endanger public health or welfare or the indoor or outdoor environment; or
(iii) perform pre-remedial studies and investigations and post-remedial
monitoring and care.
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"Replacement Event" means, with respect to any Lender, the
appointment of, or the taking of possession by, a receiver, custodian,
conservator, trustee or liquidator of such Lender, or the declaration by the
appropriate regulatory authority that such Lender is insolvent.
"Replacement Lender" means a financial institution which is an
Eligible Assignee or is otherwise reasonably acceptable to the Administrative
Agent and Stellex (which acceptance shall not be unreasonably withheld) and
which is not a Loan Party or an Affiliate of a Loan Party.
"Reportable Event" has the meaning ascribed to such term in
Section 4043 of ERISA or regulations promulgated thereunder, other than an event
which is not subject to the thirty (30) day notice requirement of such
regulations.
"Requirements of Law" means, as to any Person, any law, rule
or regulation, or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is subject
including, without limitation, the Securities Act, the Securities Exchange Act,
Regulations G, U and X, ERISA, the Fair Labor Standards Act and any certificate
of occupancy, zoning ordinance, building, environmental or land use requirement
or any permit, approval, authorization license, variance, or permission required
from a Governmental Authority or any environmental, labor, employment,
occupational safety or health law, rule or regulation.
"Requisite Lenders" means at least two Lenders whose Pro Rata
Shares, in the aggregate, are greater than fifty-one percent (51%); provided,
however, that, in the event that the Commitments have been terminated pursuant
to the terms of this Agreement, "Requisite Lenders" means at least two Lenders
whose aggregate ratable shares (stated as a percentage) of the aggregate
outstanding amount of the Obligations are greater than fifty-one percent (51%).
"Restricted Junior Payment" means (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class of
capital stock of, partnership interest of or other equity interest of, a Loan
Party now or hereafter outstanding, except a dividend payable solely in shares
of that class of stock or in any junior class of stock to the holders of that
class, (ii) any redemption, retirement, sinking fund or similar payment,
purchase or other acquisition for value, direct or indirect, of any shares of
any class of capital stock of, partnership interest of or other equity interest
of, a Loan Party now or hereafter outstanding, (iii) any payment or prepayment
of principal of, premium, if any, or interest, fees or other charges on or with
respect to, and any redemption, purchase, retirement, defeasance, sinking fund
or similar payment and any claim for
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rescission with respect to, any permitted subordinated indebted ness and (iv)
any payment made to redeem, purchase, repurchase or retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of capital stock of, partnership interest of or other equity
interest of, a Loan Party now or hereafter outstanding.
"Revolving Credit Obligations" means, at any particular time,
the outstanding principal amount of the Revolving Loans at such time.
"Revolving Loan" has the meaning ascribed to such term
in Section 2.01(a).
"Revolving Loan Commitment" means, with respect to any Lender,
the obligation of such Lender to make Revolving Loans pursuant to the terms and
conditions of this Agreement, and which shall not exceed the principal amount
set forth opposite such Lender's name under the heading "Revolving Loan
Commitment" on the signature pages hereof or the signature page of the
Assignment and Acceptance by which it became (or becomes) a Lender, as modified
from time to time pursuant to the terms of this Agreement or to give effect to
any applicable Assignment and Acceptance, and "Revolving Loan Commitments" means
the aggregate principal amount of the Revolving Loan Commitments of all the
Lenders, the maximum amount of which shall not at any time exceed a principal
amount of $25,000,000; provided, however, that on and after a Commitment
Triggering Event, the maximum amount of such Revolving Loan Commitments shall be
adjusted on the date that such Commitment Triggering Event shall occur and on
the forty-fifth day following the last date of each Financial Covenant Period
thereafter, by an amount equal to the Commitment Adjustment but only after such
Commitment Adjustment has adjusted any outstanding Term Loan Commitments.
"Revolving Loan Notes" has the meaning assigned thereto
in Section 2.03(a).
"Securities" means any stock, shares, voting trust
certificates, bonds, debentures, notes or other evidences of indebtedness,
secured or unsecured, convertible, subordinated or otherwise, or any
certificates of interest, shares, or participations in temporary or interim
certificates for the purchase or acquisition of, or any right to subscribe to,
purchase or acquire any of the foregoing, but shall not include any evidence of
the Obligations.
"Securities Act" means the Securities Act of 1933, as amended
from time to time, and any successor statute.
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time, and any successor statute.
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"Security Agreements" means, collectively, the Security
Agreements, substantially in the form of Exhibit L attached hereto and made a
part hereof, referred to in the List of Closing Documents set forth on Exhibit E
attached hereto and made a part hereof.
"Seller Note" means the promissory note made by Holdings in
favor of Kleinert Industrie Holding AG in the principal amount of $1,750,000,
delivered pursuant to the Kleinert Acquisition Agreement.
"SocGen" has the meaning ascribed to such term in the
preamble hereto.
"Solvent", when used with respect to any Person, means that at
the time of determination:
(i) the fair value of its assets is in excess of the
total amount of its liabilities (including, without
limitation, contingent liabilities); and
(ii) the present fair saleable value of its assets is greater
than its probable liability on its existing debts as such debts become
absolute and matured; and
(iii) it is then able and expects to be able to pay its debts
(including, without limitation, contingent debts and other commitments)
as they mature; and
(iv) it has not conducted nor proposes to conduct a business
for which its assets would constitute unreasonably small capital.
"Subordinated Note Documents" means, collectively, the
Subordinated Note Indenture and all documents, instruments and agreements
delivered in connection therewith.
"Subordinated Note Indenture" means the Indenture dated as of
October 31, 1997 between Stellex and Marine Midland Bank, as Trustee, pursuant
to which the Subordinated Notes were issued.
"Subordinated Notes" means the 9 1/2% Senior Subordinated
Notes due 2007 issued pursuant to the Subordinated Note Indenture.
"Subsidiary" means any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at the time directly or indirectly owned or controlled by such Person, one
or more of the other subsidiaries of such Person or any combination thereof.
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"Syndication Agent" has the meaning ascribed to such
term in the preamble hereto.
"Taxes" has the meaning ascribed to such term in
Section 3.03(a).
"Term Loan Commitment" means, with respect to any Lender, the
obligation of such Lender to make Term Loans pursuant to the terms and
conditions of this Agreement, and which shall not exceed the principal amount
set forth opposite such Lender's name under the heading "Term Loan Commitment"
on the signature pages hereof or the signature page of the Assignment and
Acceptance by which it became (or becomes) a Lender, as modified from time to
time pursuant to the terms of this Agreement or to give effect to any applicable
Assignment and Acceptance, and "Term Loan Commitments" means the aggregate
principal amount of the Term Loan Commitments of all the Lenders, the maximum
amount of which shall not at any time exceed $25,000,000; provided, however,
that on and after a Commitment Triggering Event, the maximum amount of such Term
Loan Commitments shall be adjusted on the date that such Commitment Triggering
Event shall occur and on the forty-fifth day following the last date of each
Financial Covenant Period thereafter, by an amount equal to the Commitment
Adjustment.
"Term Loan Lender" means a Lender who has a Term Loan
Commitment.
"Term Loan Notes" has the meaning assigned thereto in
Section 2.03(b).
"Term Loans" has the meaning ascribed to such term in
Section 2.02(a)(i).
"Term Loan Termination Date" means the day which is the
earliest of (A) October 31, 1999, (B) the termination of the Commitments
pursuant to Section 11.02(a) and (C) the date of termination in whole of the
Commitments pursuant to Section 3.01(a)(ii).
"Termination Event" means (i) any Reportable Event with
respect to any Benefit Plan, (ii) the withdrawal of a Loan Party or an ERISA
Affiliate from a Benefit Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA, (iii) the occurrence of an
obligation arising under Section 4041 of ERISA of a Loan Party or an ERISA
Affiliate to provide affected parties with a written notice of an intent to
terminate a Benefit Plan in a distress termination described in Section 4041(c)
of ERISA, (iv) the institution by the PBGC of proceedings to terminate any
Benefit Plan, (v) any event or condition which constitutes grounds under Section
4042 of ERISA for the appointment of a Trustee to administer a Benefit
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Plan, or (vi) the partial or complete withdrawal of any Loan Party or any ERISA
Affiliate from a Multiemployer Plan.
"Transaction Documents" means, collectively, the Loan
Documents and the Acquisition Documents.
"Type" means, with respect to any Loan, its nature as a
Eurodollar Rate Loan or a Base Rate Loan.
"Uniform Commercial Code" means the Uniform Commercial Code as
enacted in the State of New York, as it may be amended from time to time.
"Unused Commitment Fee" has the meaning ascribed to
such term in Section 4.03(a).
"Voting Securities" means with respect to any Person,
Securities with respect to any class or classes of capital stock of such Person
entitling the holders thereof ordinarily to vote in the election of the members
of the board of directors of such Person.
"Watkins-Johnson Acquisition" means the transactions
contemplated by the Watkins-Johnson Acquisition Documents.
"Watkins-Johnson Acquisition Agreement" means the Stock
Purchase Agreement dated as of August 29, 1997 by and among TSMD Acquisition,
Watkins-Johnson Company and Microwave (formerly known as W-J TSMD, Inc.).
"Watkins-Johnson Acquisition Documents" means, collectively,
the Watkins-Johnson Acquisition Agreement and all documents, instruments and
agreements delivered in connection therewith.
"Wholly Owned Subsidiary" means a Subsidiary of Stellex all
the Capital Stock of which (other than directors' qualifying shares) is owned by
Stellex or another Wholly Owned Subsidiary.
"Working Capital" means, as at any date of determination, the
excess, if any, of Current Assets over Current Liabilities.
1.02. Computation of Time Periods. In this Agreement, in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding". Periods of days referred to in this Agreement shall be
counted in calendar days unless Business Days are expressly prescribed. Any
period determined hereunder by reference to a month or months or year or years
shall end on the day in the relevant calendar month in the relevant year, if
applicable, immediately preceding the date numerically corresponding to the
first day of such period,
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provided that if such period commences on the last day of a calendar month (or
on a day for which there is no numerically corresponding day in the calendar
month during which such period is to end), such period shall, unless otherwise
expressly required by the other provisions of this Agreement, end on the last
day of the calendar month.
1.03. Accounting Terms. For purposes of this Agreement, all
accounting terms not otherwise defined herein shall have the meanings assigned
to them in conformity with GAAP.
1.04. Other Terms. Terms not otherwise defined herein
which are defined in, or used in, Article 9 of the Uniform
Commercial Code shall have the respective meanings assigned to
such terms in Article 9 of the Uniform Commercial Code.
1.05 Knowledge. As used in this Agreement the phrases "to the
knowledge of," "known by" or phrases of similar import, when applied to any Loan
Party, shall mean that an individual holding any of the offices identified on
Schedule 1.05 attached hereto is actually aware of, or should be aware of in the
ordinary course of business, the fact or other matter.
ARTICLE II
AMOUNTS AND TERMS OF LOANS
2.01. Revolving Loan Facility.
(a) Availability. Subject to the terms and conditions set
forth in this Agreement, each Lender hereby severally agrees to make revolving
loans (each individually, a "Revolving Loan" and, collectively, the "Revolving
Loans") to the Borrowers from time to time during the period from the Closing
Date to the Business Day immediately preceding the Commitment Termination Date,
in an amount not to exceed such Lender's Pro Rata Share of the Availability at
such time; provided, however, that the initial Borrowing of Revolving Loans
shall not exceed $5,000,000. Each Base Rate Loan shall be for a minimum amount
of Two Hundred Thousand Dollars ($200,000) and in integral multiples of One
Hundred Thousand Dollars ($100,000) in excess of that amount. Each Eurodollar
Rate Loan shall be for a minimum amount of Five Hundred Thousand Dollars
($500,000) and in integral multiples of One Hundred Thousand Dollars ($100,000)
in excess of that amount. All Revolving Loans comprising the same Borrowing
under this Agreement shall be made by the Lenders simultaneously and
proportionately to their then respective Pro Rata Shares, it being understood
that no Lender shall be responsible for any failure by any other Lender to
perform its obligation to make a Revolving Loan hereunder nor shall the
Commitment of any Lender be increased or decreased as a result of any such
failure. Subject to the provisions of this Agreement, the Borrowers may repay
any outstanding Revolving Loan made to it on any day which
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is a Business Day and any amounts so repaid may be reborrowed in accordance with
the provisions of this Section 2.01(a).
(b) Notice of Borrowing. When the Borrowers desire to borrow
under this Section 2.01, the Borrowers shall deliver to each Lender a Notice of
Borrowing, signed by them, no later than 12:00 noon (New York time) (i) on the
proposed Funding Date, in the case of a Borrowing of Base Rate Loans, and (ii)
at least two (2) Business Days in advance of the proposed Funding Date, in the
case of a Borrowing of Eurodollar Rate Loans; provided that no Borrowing of
Eurodollar Rate Loans shall be made on the Closing Date. Such Notice of
Borrowing shall specify (i) the proposed Funding Date (which shall be a Business
Day), (ii) the amount of the proposed Borrowing, (iii) whether the proposed
Borrowing will be of Base Rate Loans or Eurodollar Rate Loans, and (iv) in the
case of Eurodollar Rate Loans, the requested Eurodollar Interest Period. In lieu
of delivering such a Notice of Borrowing, the Borrowers may give the
Administrative Agent telephonic notice of any proposed Borrowing by the time
required under this Section 2.01(b) if it confirms such notice by delivery of
the Notice of Borrowing to the Administrative Agent promptly, but in no event
later than 5:00 p.m. (New York time) on the same day. Any Notice of Borrowing
(or telephonic notice in lieu thereof) given pursuant to this Section 2.01(b)
shall be irrevocable.
(c) Making of Revolving Loans. (i) Each Lender shall deposit
an amount equal to its Pro Rata Share of the amount requested by the Borrowers
to be made as Revolving Loans in the Administrative Agent's Account at its
office in New York, New York, in immediately available funds, not later than
2:00 p.m. (New York time) on any Funding Date applicable thereto. Subject to the
fulfillment of the conditions precedent set forth in Sections 5.01 and 5.02, the
Administrative Agent shall make the proceeds of such amounts received by it
available to the Borrowers at the Administrative Agent's office in New York, New
York on such Funding Date (or on the date received if later than such Funding
Date). The failure of any Lender to deposit the amount described above with the
Administrative Agent on the applicable Funding Date shall not relieve any other
Lender of its obligations hereunder to make its Revolving Loan on such Funding
Date.
(ii) Unless the Administrative Agent shall have been notified
by any Lender no later than 1:00 p.m. (New York time) on the applicable Funding
Date in respect of any Borrowing of Revolving Loans that such Lender does not
intend to fund its Revolving Loan requested to be made on such Funding Date, the
Administrative Agent may assume that such Lender has funded its Revolving Loan
and is depositing the proceeds thereof with the Administrative Agent on the
Funding Date, and the Administrative Agent in its sole discretion may, but shall
not be obligated to, disburse a corresponding amount to the Borrowers on the
Funding Date. If the Revolving Loan proceeds corresponding to that
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amount are advanced to the Borrowers by the Administrative Agent but are not in
fact deposited with the Administrative Agent by such Lender on or prior to the
applicable Funding Date, such Lender agrees to pay, and in addition the
Borrowers agree to repay, to the Administrative Agent forthwith on demand such
corresponding amount, together with interest thereon, for each day from the date
such amount is disbursed to or for the benefit of the Borrowers until the date
such amount is paid or repaid to the Administrative Agent, (A) in the case of
the Borrowers, at the interest rate applicable to such Borrowing and (B) in the
case of such Lender, at the Federal Funds Rate for the first Business Day, and
thereafter at the interest rate applicable to such Borrowing. If such Lender
shall pay to the Administrative Agent the corresponding amount, the amount so
paid shall constitute such Lender's Revolving Loan, and if both such Lender and
the Borrowers shall pay and repay such corresponding amount, the Administrative
Agent shall promptly pay to the Borrowers such corresponding amount. This
Section 2.01(c)(ii) does not relieve any Lender of its obligation to make its
Revolving Loan on any Funding Date; nor does this Section relieve the Borrowers
of their obligation to pay or repay any Lender funding its Revolving Loan
pursuant to this Section interest on such Revolving Loan from such Funding Date
until the date on which such Revolving Loan is repaid in full.
(d) Repayment of Revolving Loans. The Revolving Loan
Commitments shall terminate, and all outstanding Revolving Loans
shall be paid in full, on the Commitment Termination Date.
2.02. Term Loan Facility.
(a) Amount of Loans. Subject to the terms and conditions set
forth in this Agreement, each Lender hereby severally agrees to make term loans
(each individually, a "Term Loan" and, collectively, the "Term Loans") to the
Borrowers from time to time during the period from the Closing Date to the
Business Day immediately preceding the Term Loan Termination Date in an amount
not to exceed such Lender's Pro Rata Share of the amount by which the Term Loan
Commitments exceed the outstanding Term Loans. Each Term Loan shall be a Base
Rate Loan on the Funding Date and be for a minimum amount of Two Million Five
Hundred Thousand Dollars ($2,500,000) and in integral multiples of One Hundred
Thousand Dollars ($100,000) in excess of that amount. All Term Loans shall be
made by the Lenders simultaneously and proportionately to their then respective
Pro Rata Shares, it being understood that no Lender shall be responsible for any
failure by any other Lender to perform its obligation to make a Term Loan
hereunder nor shall the Commitment of any Lender be increased or decreased as a
result of any such failure.
(b) Notice of Borrowing. When the Borrowers desire to borrow
under this Section 2.02, the Borrowers shall deliver to each Lender a Notice of
Borrowing, signed by them, no later than
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12:00 noon (New York time) at least one Business Day in advance of the proposed
Funding Date. Such Notice of Borrowing shall specify (i) the proposed Funding
Date (which shall be a Business Day) and (ii) the amount of the proposed
Borrowing with respect to the Term Loans. All Term Loans shall be Base Rate
Loans on the Closing Date but after the Closing Date may be converted to
Eurodollar Rate Loans pursuant to Section 4.01(c). Any Notice of Borrowing given
pursuant to this Section 2.02(b) shall be irrevocable.
(c) Making of Term Loans. (i) Each Lender shall deposit an
amount equal to its Pro Rata Share of the amount requested by the Borrowers
specified in such Notice of Borrowing to be made as Term Loans in the
Administrative Agent's Account at its office in New York, New York, in
immediately available funds, not later than 12:00 noon (New York time) on the
Funding Date. Subject to the fulfillment of the conditions precedent set forth
in Sections 5.01, 5.02 and 5.03, the Administrative Agent shall make the
proceeds of such amounts received by it available to the Borrowers at the
Administrative Agent's office in New York, New York on such Funding Date. The
failure of any Lender to deposit the amount described above with the
Administrative Agent on the Closing Date shall not relieve any other Lender of
its obligations hereunder to make its Term Loan on such Funding Date.
(ii) Unless the Administrative Agent shall have been notified
by any Lender no later than 1:00 p.m. (New York time) on the applicable Funding
Date in respect of any Borrowing of Term Loans that such Lender does not intend
to fund its Term Loan requested to be made on such Funding Date, the
Administrative Agent may assume that such Lender has funded its Term Loan and is
depositing the proceeds thereof with the Administrative Agent on the Funding
Date, and the Administrative Agent in its sole discretion may, but shall not be
obligated to, disburse a corresponding amount to the Borrowers on the Funding
Date. If the Term Loan proceeds corresponding to that amount are advanced to the
Borrowers by the Administrative Agent but are not in fact deposited with the
Administrative Agent by such Lender on or prior to the applicable Funding Date,
such Lender agrees to pay, and in addition the Borrowers agree to repay, to the
Administrative Agent forthwith on demand such corresponding amount, together
with interest thereon, for each day from the date such amount is disbursed to or
for the benefit of the Borrowers until the date such amount is paid or repaid to
the Administrative Agent, (A) in the case of the Borrowers, at the interest rate
applicable to such Borrowing and (B) in the case of such Lender, at the Federal
Funds Rate for the first Business Day, and thereafter at the interest rate
applicable to such Borrowing. If such Lender shall pay to the Administrative
Agent the corresponding amount, the amount so paid shall constitute such
Lender's Term Loan, and if both such Lender and the Borrowers shall pay such
corresponding amount, the Administrative Agent shall promptly pay to the
Borrowers such corresponding
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amount. This Section 2.02(c)(ii) does not relieve any Lender of its obligation
to make its Term Loan on any Funding Date; nor does this Section relieve the
Borrowers of their obligation to pay or repay any Lender funding its Term Loan
pursuant to this Section interest on such Term Loan from such Funding Date until
the date on which such Term Loan is repaid in full.
(d) Repayment of Term Loans. The principal amount of the Term
Loans outstanding on the Term Loan Termination Date (the "Outstanding Term Loan
Amount") shall be payable in fifteen (15) substantially equal consecutive
quarterly installments in the principal amount equal to 4.17% of the Outstanding
Term Loan Amount on the first day of February, May, August and November in each
year, commencing on February 1, 2000 through and including August 1, 2003 and
one (1) installment in the principal amount equal to 37.45% of the Outstanding
Term Loan Amount on the Maturity Date; provided, however, that the amount of the
last such installment shall be in the amount necessary to repay in full the
outstanding principal amount of the Term Loans.
2.03. Promise to Pay; Evidence of Debt. (a) The Borrowers
jointly and severally agree to pay when due the principal amount of each
Revolving Loan which is made to the Borrowers, and further agree to pay all
unpaid interest accrued thereon, in accordance with the terms of this Agreement
and the promissory notes evidencing the Revolving Loans owing to the Lenders.
The Borrowers shall execute and deliver to each Lender a promissory note to
evidence the Revolving Loans owing to such Lender and agrees to execute and
deliver to such Lender and any assignee of such Lender such promissory notes as
are necessary after giving effect to any assignment thereof pursuant to Section
13.01, each substantially in the form of Exhibit F-1 attached hereto and made a
part hereof (all such promissory notes and all amendments thereto, replacements
thereof and substitutions therefor being collectively referred to as the
"Revolving Loan Notes"; and "Revolving Loan Note" means any one of the Revolving
Loan Notes).
(b) The Borrowers jointly and severally agree to pay when due
the principal amount of each Term Loan which is made to the Borrowers, and
further agree to pay all unpaid interest accrued thereon, in accordance with the
terms of this Agreement and the promissory notes evidencing the Term Loans owing
to the Lenders. The Borrowers shall execute and deliver to each Lender a
promissory note to evidence the Term Loans owing to such Lender and agree to
execute and deliver to such Lender and any assignee of such Lender such
promissory notes as are necessary after giving effect to any assignment thereof
pursuant to Section 13.01, each substantially in the form of Exhibit F-2
attached hereto and made a part hereof (all such promissory notes and all
amendments thereto, replacements thereof and substitutions therefor being
collectively referred to as the "Term Loan Notes"; and "Term Loan Note" means
any one of the Term Loan Notes).
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2.04. Use of Proceeds of Loans. (a) The proceeds of the
Revolving Loans shall be used (i) to partially refinance certain existing
indebtedness of Aerospace and Microwave, (ii) to pay certain fees and expenses
incurred in connection with the Watkins-Johnson Acquisition and refinancing, and
(iii) to provide working capital in the ordinary course of business of Stellex
and its Subsidiaries and other general corporate purposes not prohibited
hereunder.
(b) The proceeds of the Term Loans shall be used to
fund Permitted Acquisitions.
2.05. Authorized Officers, Employees and Agents. On the
Closing Date and from time to time thereafter, the Borrowers shall deliver to
the Administrative Agent an Officer's Certificate setting forth the names of the
officers of each Borrower, employees and agents of such Borrower authorized to
request Loans on behalf of such Borrower and containing a specimen signature of
each such officer, employee or agent. The officers, employees and agents so
authorized shall also be authorized to act for such Borrower in respect of all
other matters relating to the Loan Documents. The Agents shall be entitled to
rely conclusively on such officer's, employee's or agent's authority to request
such Loan until the Agents receive written notice to the contrary. In addition,
the Agents shall be entitled to rely conclusively on any written notice sent to
it by telecopy. The Agents shall have no duty to verify the authenticity of the
signature appearing on, or any telecopy or facsimile of, any written Notice of
Borrowing or any other document, and, with respect to an oral request for such a
Loan, the Agents shall have no duty to verify the identity of any person
representing himself or herself as one of the officers, employees or agents
authorized to make such request or otherwise to act on behalf of any Borrower.
Neither any Agent nor any Lender shall incur any liability to any Borrower or
any other Person in acting upon any telecopy or facsimile or telephonic notice
referred to above which any Agent believes to have been given by a duly
authorized officer or other person authorized to borrow on behalf of any
Borrower.
ARTICLE III
PAYMENTS AND PREPAYMENTS
3.01. Prepayments; Reductions in Revolving Loan Commitments.
(a) Voluntary Prepayments/Reductions.
(i) The Borrowers may, at any time and from time to time,
prepay the Loans in whole or in part; provided, however, that any partial
prepayment of Eurodollar Rate Loans shall be in minimum amounts of $500,000 and
in multiples of $100,000 in
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excess thereof and that any partial prepayment of Base Rate Loans shall be in
minimum amounts of $200,000 and in multiples of $100,000 in excess thereof;
provided, further, that Eurodollar Rate Loans may only be prepaid (A) in whole
or in part on the expiration date of the then applicable Eurodollar Interest
Period, upon at least one (1) Business Day's prior written notice to the
Administrative Agent (which the Administrative Agent shall promptly transmit to
each Lender, it being agreed that the failure of the Administrative Agent to
give such notice shall not affect the Borrowers' right to prepay any Loan) or
(B) otherwise upon payment of the amounts described in Section 4.02(f). Any
notice of prepayment given to the Administrative Agent under this Section
3.01(a)(i) shall specify the Loans to be prepaid, the date (which shall be a
Business Day) of prepayment, and the aggregate principal amount of the
prepayment. Any prepayment of Term Loans shall be applied pro rata to the
remaining principal installments of the Term Loans. When notice of prepayment is
delivered as provided herein, the principal amount of the Loans specified in the
notice shall become due and payable on the prepayment date specified in such
notice.
(ii) The Borrowers, upon at least five (5) Business Days'
prior notice to the Administrative Agent (which the Administrative Agent shall
promptly transmit to each Lender), shall have the right, at any time and from
time to time, to terminate in whole or permanently reduce ratably in part the
unused portions of the Commitments. Any partial reduction of the Commitments
shall be in an aggregate minimum amount of One Million Dollars ($1,000,000) and
integral multiples of One Hundred Thousand Dollars ($100,000) in excess of that
amount, and shall reduce the Commitment of each Lender proportionately in
accordance with such Lender's Pro Rata Share. Any notice of termination or
reduction given to the Administrative Agent under this Section 3.01(a)(ii) shall
specify whether the termination or reduction is applicable to the Revolving Loan
Commitment or the Term Loan Commitment, the date (which shall be a Business Day)
of such termination or reduction and, with respect to a partial reduction, the
aggregate principal amount thereof.
(iii) The prepayments and payments in respect of reductions
and terminations described in clauses (i) and (ii) of this Section 3.01(a) may
be made without premium or penalty (except as provided in Section 4.02(f)).
(b) Mandatory Prepayments/Reductions.
(i) Immediately upon any Loan Party's receipt of any Net Cash
Proceeds on account of an Asset Sale (other than Excluded Proceeds), such Loan
Party shall make or cause to be made a mandatory prepayment of the Term Loans in
an amount equal to 100% of such Net Cash Proceeds. Each such prepayment of Term
Loans shall be applied pro rata to the remaining principal installments of the
Term Loans.
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(ii) Immediately upon any Loan Party's receipt of any Net Cash
Proceeds from the issuance of any Securities (other than Excluded Securities) by
such Loan Party (other than such Net Cash Proceeds that are used by such Loan
Party to consummate a Permitted Acquisition within one year from the date such
Net Cash Proceeds are received, provided that such Net Cash Proceeds are
deposited into the Cash Collateral Account upon receipt of such Net Cash
Proceeds by such Loan Party until the earlier of (A) the date such Loan Party
consummates a Permitted Acquisition in accordance with the provisions hereof or
(B) the date which is the first annual anniversary of the date of deposit
thereof), such Loan Party shall make or cause to be made a mandatory prepayment
of the Term Loans in an amount equal to 100% of such Net Cash Proceeds. Each
such prepayment of Term Loans shall be applied pro rata to the remaining
principal installments of the Term Loans.
(iii) On the 90th day following the last day of each Fiscal
Year, the Borrowers shall make or cause to be made a mandatory prepayment of the
Term Loans in an amount equal to the lesser of 50% of the Excess Cash Flow for
such Fiscal Year or the aggregate principal amount of the Term Loans outstanding
as of the last day of such Fiscal Year; provided, however, that no mandatory
prepayment shall be required hereunder if the Leverage Ratio of Stellex and its
Subsidiaries on a consolidated basis for such Fiscal Year is less than 3.25 to
1.00. Each such prepayment of Term Loans shall be applied pro rata to the
remaining principal installments of the Term Loans.
(iv) Immediately upon the Revolving Credit Obligations
exceeding the Maximum Revolving Credit Amount, the Borrowers shall make or cause
to be made a mandatory prepayment of the Revolving Credit Obligations in an
amount equal to such excess, such amount to be applied in accordance with the
provisions of Section 3.02(b).
(v) Nothing in this Section 3.01(b) shall be construed to
constitute the Lenders' consent to any transaction which is not expressly
permitted by Article IX.
3.02. Payments. (a) Manner and Time of Payment. All
payments of principal, interest, fees and other Obligations which are payable to
the Administrative Agent or any Lender shall be made without condition or
deduction for any counterclaim, defense, recoupment or set-off, in Dollars and
in immediately available funds, delivered to the Administrative Agent not later
than 1:00 p.m. (New York time) on the date due, by deposit of such funds to the
Administrative Agent's Account. The Administrative Agent shall thereafter cause
to be distributed to the Lenders their respective Pro Rata Shares of such
payments in accordance with the provisions of Section 3.02(b) if received prior
to 1:00 p.m. (New York time), and on the next succeeding
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Business Day, if received thereafter, by the Administrative Agent.
(b) Apportionment of Payments. (i) Subject to the provisions
of Sections 3.02(b)(ii), all payments of principal in respect of outstanding
Revolving Loans shall be applied by the Administrative Agent to the ratable
payment of the Revolving Loans owing to the Lenders, and all payments of
principal in respect of outstanding Term Loans shall be applied by the
Administrative Agent to the ratable payment of the Term Loans owing to the
Lenders. Payments relating to interest shall be applied to the payment of
interest owing to the Lenders in respect of the Loans on a ratable basis.
(ii) After the occurrence of an Event of Default and while the same
is continuing, the Administrative Agent shall apply all payments and prepayments
of any Obligations and all proceeds of Collateral in the following order:
(A) first, to pay principal of and interest on any Loans which
the Administrative Agent may have advanced on behalf of any Lender
pursuant to Section 2.01(c)(ii) or Section 2.02(c)(ii) for which the
Administrative Agent has not been reimbursed by such Lender or the
Borrowers;
(B) second, to pay Obligations in respect of any fees,
expense reimbursements or indemnities then due to the Administrative
Agent or the Lenders;
(C) third, to pay interest on the Loans;
(D) fourth, to pay the principal amount of the Loans
then outstanding in accordance with each Lender's Pro Rata Share; and
(E) fifth, to pay all other Obligations in such
order as the Administrative Agent may determine in its sole discretion.
The order of priority set forth in this Section 3.02(b)(ii) and the related
provisions of this Agreement are set forth solely to determine the rights and
priorities of the Administrative Agent and the Lenders as among themselves. If
sufficient funds are not available to fund all Obligations described in any of
the foregoing clauses (A) through (E), the available funds shall be allocated to
the Obligations described in such clause ratably.
(c) Payments on Non-Business Days. Whenever any payment to be
made by the Borrowers hereunder or under the Notes is stated to be due on a day
which is not a Business Day, the payment shall instead be due on the next
succeeding Business Day,
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and any such extension of time shall be included in the computation of the
payment of interest and fees hereunder.
3.03. Taxes. (a) Payments Free and Clear of Taxes. Any and all
payments by the Borrowers hereunder, under the Notes or under any other Loan
Document shall be made free and clear of and without deduction for any and all
present or future taxes, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto, excluding, in the case of each Lender
and the Administrative Agent, taxes imposed on its income, capital, profits or
gains and franchise taxes imposed on it, in each case by (i) the United States
except withholding taxes contemplated pursuant to Section 3.03(e)(ii)(C), (ii)
the Governmental Authority of the jurisdiction in which such Lender's office is
located or (iii) the Governmental Authority in which such Person is organized,
managed, controlled or doing business, in each case including all political
subdivisions thereof (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as "Taxes").
If the Borrowers shall be required by law to withhold or deduct any Taxes from
or in respect of any sum payable hereunder, under the Notes or under any other
Loan Document to any Lender or the Administrative Agent, (x) such sum payable
shall be increased as may be necessary so that after making all required
withholdings or deductions (including withholdings or deductions applicable to
additional sums payable under this Section 3.03) such Lender or the
Administrative Agent (as the case may be) receives an amount equal to the sum it
would have received had no such withholdings or deductions been made, (y) the
Borrowers shall make such withholdings or deductions, and (z) the Borrowers
shall pay the full amount withheld or deducted to the relevant taxation
authority or other authority in accordance with applicable law.
(b) Other Taxes. In addition, the Borrowers agree to pay any
present or future stamp, value-added or documentary taxes or any other excise or
property taxes, charges or similar levies which arise from and which relate
directly to (i) any payment made under any Loan Document or (ii) the execution,
delivery or registration of, or otherwise with respect to, this Agreement, the
Notes or any other Loan Document (hereinafter referred to as "Other Taxes").
(c) Indemnification. The Borrowers will indemnify each Lender
and each Agent against, and reimburse each on demand for, the full amount of all
Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes
imposed by any Governmental Authority on amounts payable under this Section 3.03
and any additional income or franchise taxes resulting therefrom) incurred or
paid by such Lender or such Agent (as the case may be) or any Affiliate of such
Lender and any liability (including penalties, interest, and out-of-pocket
expenses paid to third
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parties) arising therefrom or with respect thereto, whether or not such Taxes or
Other Taxes were correctly or lawfully payable. A certificate as to any amount
payable to any Person under this Section 3.03 submitted by such Person to the
Borrowers shall, absent manifest error, be final, conclusive and binding upon
all parties hereto. In determining such additional amount, such Person shall
take into account and reduce the amount otherwise payable by the Borrowers
pursuant to this Section 3.03 by an amount equal to the tax credits and other
tax benefits actually utilized (as determined by such Person in its reasonable
judgment). This indemnification shall be made within thirty (30) days from the
date such Person makes written demand therefor and within thirty (30) days after
the receipt of any refund of the Taxes or Other Taxes following final
determination that the Taxes or Other Taxes which gave rise to the
indemnification were not required to be paid, such Person shall repay the amount
of such paid indemnity to the Borrowers.
(d) Receipts. Within thirty (30) days after the date of any
payment of Taxes or Other Taxes by the Borrowers, the Borrowers will furnish to
the Administrative Agent, at its address referred to in Section 13.10, the
original or a certified copy of a receipt or other documentation reasonably
satisfactory to the Administrative Agent evidencing payment thereof. The
Borrowers will furnish to the Administrative Agent upon the Administrative
Agent's request from time to time an Officer's Certificate stating that all
Taxes and Other Taxes of which it is aware that are due have been paid and that
no additional Taxes or Other Taxes of which it is aware are due.
(e) Foreign Bank Certifications. (i) Each Lender that is not
created or organized under the laws of the United States or a political
subdivision thereof shall deliver to the Borrowers and the Administrative Agent
on or before the Closing Date or the date on which such Lender becomes a Lender
pursuant to Section 13.01 hereof a true and accurate certificate executed in
duplicate by a duly authorized officer of such Lender to the effect that such
Lender is eligible to receive payments hereunder and under the Notes without
deduction or withholding of United States federal income tax (A) under the
provisions of an applicable tax treaty concluded by the United States (in which
case the certificate shall be accompanied by two duly completed copies of IRS
Form 1001 (or any successor or substitute form or forms)) or (B) under Sections
1442(c)(1) and 1442(a) of the Internal Revenue Code (in which case the
certificate shall be accompanied by two duly completed copies of IRS Form 4224
(or any successor or substitute form or forms)) and IRS Form W-8 or W-9 and any
other form which the Borrowers or the Administrative Agent shall reasonably
request in connection therewith. In the event a Lender fails to deliver the
requisite forms in accordance with the preceding sentence, such Lender shall not
be entitled to the indemnification provided by Section 3.03(c).
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(ii) Each such Lender further agrees to deliver to the Borrowers
and the Administrative Agent from time to time, a true and accurate certificate
executed in duplicate by a duly authorized officer of such Lender before or
promptly upon the occurrence of any event requiring a change in the most recent
certificate previously delivered by it to the Borrowers and the Administrative
Agent pursuant to this Section 3.03(e). Each certificate required to be
delivered pursuant to this Section 3.03(e)(ii) shall certify as to one of the
following:
(A) that such Lender can continue to receive payments
hereunder and under the Notes without deduction or withholding of
United States federal income tax;
(B) that such Lender cannot continue to receive payments
hereunder and under the Notes without deduction or withholding of
United States federal income tax as specified therein but does not
require additional payments pursuant to Section 3.03(a) because it is
entitled to recover the full amount of any such deduction or
withholding from a source other than the Borrowers;
(C) that such Lender is no longer capable of receiving
payments hereunder and under the Notes without deduction or withholding
of United States federal income tax as specified therein by reason of a
change in law (including the Code or applicable tax treaty) after the
later of the Closing Date or the date on which a Lender became a Lender
pursuant to Section 13.01 and that it is not capable of recovering the
full amount of the same from a source other than the Borrowers; or
(D) that such Lender is no longer capable of receiving
payments hereunder without deduction or withholding of United States
federal income tax as specified therein other than by reason of a
change in law (including the Code or applicable tax treaty) after the
later of the Closing Date or the date on which a Lender became a Lender
pursuant to Section 13.01.
Each Lender agrees to deliver to the Borrowers and the Administrative Agent duly
completed copies of the above-mentioned IRS forms on or before the earlier of
(x) the date that any such form expires or becomes obsolete or otherwise is
required to be resubmitted as a condition to obtaining an exemption from
withholding from United States federal income tax and (y) fifteen (15) days
after the occurrence of any event requiring a change in the most recent form
previously delivered by such Lender to the Borrowers and the Administrative
Agent, unless any change in
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treaty, law, regulation, or official interpretation thereof which would render
such form inapplicable or which would prevent the Lender from duly completing
and delivering such form has occurred prior to the date on which any such
delivery would otherwise be required and the Lender promptly advises the
Borrowers and the Administrative Agent that it is not capable of receiving
payments hereunder or under the Notes without any deduction or withholding of
United States federal income tax. In the event a Lender fails to deliver the
requisite forms in accordance with this Section 3.03(e), such Lender shall not
be entitled to the indemnification provided by Section 3.03(c).
3.04. Increased Capital. If any Lender reasonably determines
that (i) the adoption or implementation of or any change in or in the
interpretation or administration of any law or regulation or any guideline or
request from any central bank or other Governmental Authority or
quasi-governmental authority exercising jurisdiction, power or control over such
Lender or banks or financial institutions generally (whether or not having the
force of law) effective after the date hereof, compliance with which affects or
would affect the amount of capital required or expected to be maintained by such
Lender or any corporation controlling such Lender and (ii) the amount of such
capital is increased by or based upon the making or maintenance by any Lender of
its Loans, any Lender's participation in or obligation to participate in the
Loans or other advances made hereunder or under the Notes or the existence of
any Lender's obligation to make Loans, then, in any such case, upon demand by
such Lender (with a copy of such demand to the Administrative Agent), the
Borrowers agree to immediately pay to the Administrative Agent for the account
of such Lender, from time to time as specified by such Lender, additional
amounts sufficient to compensate such Lender or such corporation therefor. Such
demand shall be accompanied by a statement as to the amount of such compensation
and include a brief summary of the basis for such demand. Such statement shall
be conclusive and binding for all purposes, absent manifest error.
ARTICLE IV
INTEREST AND FEES
4.01. Interest on the Loans and other Obligations.
(a) Rate of Interest. (i) All Revolving Loans and the
outstanding amount of all other Obligations (other than Term Loans) shall bear
interest on the unpaid amount thereof from the date such Loans are made and such
other Obligations are due and payable until paid in full, except as otherwise
provided in Section 4.01(d), as follows:
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(A) If a Base Rate Loan or other Obligation, at a rate per
annum equal to the sum of (I) the Base Rate as in effect from time to
time as interest accrues, plus (II) the Applicable Revolving Loan Base
Rate Margin in effect at such time; and
(B) If a Eurodollar Rate Loan, at a rate per annum equal to the
sum of (I) the Eurodollar Rate determined for the applicable Eurodollar
Interest Period, plus (II) the Applicable Revolving Eurodollar Rate
Margin in effect from time to time during such Eurodollar Interest
Period.
(ii) All Term Loans shall bear interest on the unpaid amount
thereof from the date such Loans are made until paid in full, except as
otherwise provided in Section 4.01(d), as follows:
(A) If a Base Rate Loan, at a rate per annum equal to the sum
of (I) the Base Rate as in effect from time to time as interest
accrues, plus (II) the Applicable Term Loan Base Rate Margin in effect
at such time; and
(B) If a Eurodollar Rate Loan, at a rate per annum equal to the
sum of (I) the Eurodollar Rate determined for the applicable Eurodollar
Interest Period, plus (II) the Applicable Term Loan Eurodollar Rate
Margin in effect from time to time during such Eurodollar Interest
Period.
(iii) The applicable basis for determining the rate of
interest on the Loans shall be selected by the Borrowers at the time a Notice of
Borrowing or a Notice of Conversion/Continuation is delivered by the Borrowers
to the Administrative Agent; provided, however, the Borrowers may not select the
Eurodollar Rate as the applicable basis for determining the rate of interest on
such a Loan if (x) such Loan is to be made on the Closing Date or (y) at the
time of such selection a Default or Event of Default would occur or has occurred
and is continuing. If on any day any Loan is outstanding with respect to which
notice has not been timely delivered to the Administrative Agent in accordance
with the terms hereof specifying the basis for determining the rate of interest
on that day, then for that day interest on that Loan shall be determined by
reference to the Base Rate.
(b) Interest Payments. (i) Interest accrued on each Base Rate
Loan shall be payable in arrears (A) on the first Business Day of each calendar
month, commencing on the first such day following the making of such Base Rate
Loan and (B) on the Commitment Termination Date.
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(ii) Interest accrued on each Eurodollar Rate Loan shall be
payable in arrears (A) on each Eurodollar Interest Payment Date applicable to
such Loan and (B) on the Commitment Termination Date.
(iii) Interest accrued on the balance of all other Obligations
shall be payable in arrears (A) on the first Business Day of each calendar
month, commencing on the first such day following the incurrence of such
Obligation and (B) on the Commitment Termination Date.
(c) Conversion or Continuation. (i) The Borrowers shall have
the option (A) to convert at any time all or any part of the outstanding Base
Rate Loans to Eurodollar Rate Loans; (B) to convert all or any part of
outstanding Eurodollar Rate Loans having Eurodollar Interest Periods which
expire on the same date to Base Rate Loans on such expiration date; or (C) to
continue all or any part of outstanding Eurodollar Rate Loans having Eurodollar
Interest Periods which expire on the same date as Eurodollar Rate Loans, and the
succeeding Eurodollar Interest Period of such continued Loans shall commence on
such expiration date; provided, however, no such outstanding Loan may be
continued as, or be converted into, a Eurodollar Rate Loan (i) if the
continuation of, or the conversion into, would violate any of the provisions of
Section 4.02 or (ii) if an Event of Default would occur or has occurred and is
continuing. Any conversion into or continuation of Eurodollar Rate Loans under
this Section 4.01(c) shall be in a minimum amount of Five Hundred Thousand
Dollars ($500,000) and in integral multiples of One Hundred Thousand Dollars
($100,000) in excess of that amount.
(ii) To convert or continue a Loan under Section 4.01(c)(i),
the Borrowers shall deliver a Notice of Conversion/Continuation to each Lender
no later than 12:00 noon (New York time) at least two (2) Business Days in
advance of the proposed conversion/continuation date. A Notice of
Conversion/Continuation shall specify (A) the proposed conversion/continuation
date (which shall be a Business Day), (B) the principal amount of the Loan to be
converted/continued, (C) whether such Loan shall be converted and/or continued
and (D) in the case of a conversion to, or continuation of, a Eurodollar Rate
Loan, the requested Eurodollar Interest Period. In lieu of delivering a Notice
of Conversion/Continuation, the Borrowers may give each Lender telephonic
notice of any proposed conversion/continuation by the time required under this
Section 4.01(c)(ii), and such notice shall be confirmed in writing delivered to
each Lender promptly (but in no event later than 5:00 p.m. (New York time) on
the same day). Any Notice of Conversion/Continuation for conversion to, or
continuation of, a Loan (or telephonic notice in lieu thereof) shall be
irrevocable, and the Borrowers shall be bound to convert or continue in
accordance therewith.
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(d) Default Interest. Notwithstanding the rates of interest
specified in Section 4.01(a) or elsewhere herein, effective immediately upon the
occurrence of any Event of Default and for as long thereafter as such Event of
Default shall be continuing, the principal balance of all Loans and of all other
Obligations, shall bear interest at a rate which is two percent (2.0%) per annum
in excess of the rate of interest applicable to such Obligations from time to
time (the "Default Rate").
(e) Computation of Interest. Interest on (i) Base Rate Loans
and all other Obligations shall be computed on the basis of the actual number of
days elapsed in the period during which interest accrues and a year of 360 days
and (ii) Eurodollar Rate Loans shall be computed on the basis of the actual
number of days elapsed in the period during which interest accrues and a year of
360 days. In computing interest on any Loan, the date of the making of the Loan
shall be included and the date of payment made in accordance with Section 3.02
shall be excluded; provided, however, if a Loan is repaid on the same day on
which it is made, one (1) day's interest shall be paid on such Loan.
(f) Changes; Legal Restrictions. If after the date hereof any
Lender reasonably determines that the adoption or implementation of or any
change in or in the interpretation or administration of any law or regulation or
any guideline or request from any central bank or other Governmental Authority
or quasi-governmental authority exercising jurisdiction, power or control over
any Lender or over banks or financial institutions generally (whether or not
having the force of law), compliance with which, in each case after the date
hereof:
(i) subjects a Lender (or its Applicable Lending Office) to
charges (other than Taxes) of any kind which is applicable to the
Commitments of the Lenders to make Eurodollar Rate Loans or changes the
basis of taxation of payments to that Lender of principal, fees,
interest, or any other amount payable hereunder with respect to
Eurodollar Rate Loans; or
(ii) imposes, modifies, or holds applicable, any reserve
(other than reserves taken into account in calculating the Eurodollar
Rate), special deposit, compulsory loan, FDIC insurance or similar
requirement against assets held by, or deposits or other liabilities
(including those pertaining to Letters of Credit) in or for the account
of, advances or loans by, commitments made, or other credit extended
by, or any other acquisition of funds by, a Lender or any Applicable
Lending Office or Eurodollar Affiliate of that Lender;
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and the result of any of the foregoing is to increase the cost to that Lender of
making, renewing or maintaining the Loans or its Commitments or to reduce any
amount receivable thereunder; then, in any such case, upon written demand by
such Lender (with a copy of such demand to the Administrative Agent), the
Borrowers shall immediately pay to the Administrative Agent for the account of
such Lender, from time to time as specified by such Lender, such amount or
amounts as may be necessary to compensate such Lender or its Eurodollar
Affiliate for any such additional cost incurred or reduced amount received. Such
demand shall be accompanied by a statement as to the amount of such compensation
and include a summary of the basis for such demand. Such statement shall be
conclusive and binding for all purposes, absent manifest error.
(g) Confirmation of Eurodollar Rate. Upon the request of the
Borrowers from time to time, the Administrative Agent shall promptly provide to
the Borrowers such information with respect to the applicable Eurodollar Rate as
may be reasonably requested.
4.02. Special Provisions Governing Eurodollar Rate
Loans. With respect to Eurodollar Rate Loans:
(a) Amount of Advance. Each Eurodollar Rate Loan shall be for
a minimum amount of Five Hundred Thousand Dollars ($500,000) and in integral
multiples of One Hundred Thousand Dollars ($100,000) in excess of that amount.
(b) Determination of Eurodollar Interest Period. By giving
notice as set forth in Section 2.01(b) or Section 2.02(b) (with respect to a
Borrowing of a Eurodollar Rate Loan) or Section 4.01(c) (with respect to a
conversion into or continuation of a Eurodollar Rate Loan), the Borrowers shall
have the option, subject to the other provisions of this Section 4.02, to select
an interest period (a "Eurodollar Interest Period") to apply to the Loans
described in such notice, subject to the following provisions:
(i) The Borrowers may only select, as to a particular
Borrowing of Eurodollar Rate Loans, a Eurodollar Interest Period of
either one, two, three or six months in duration;
(ii) In the case of immediately successive Eurodollar Interest
Periods applicable to a Borrowing of Eurodollar Rate Loans, each
successive Eurodollar Interest Period shall commence on the day on
which the next preceding Eurodollar Interest Period expires;
(iii) If any Eurodollar Interest Period would otherwise expire
on a day which is not a Business Day, such Eurodollar Interest Period
shall be extended to
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expire on the next succeeding Business Day if the next succeeding
Business Day occurs in the same calendar month, and if there shall be
no succeeding Business Day in such calendar month, such Eurodollar
Interest Period shall expire on the immediately preceding Business Day;
(iv) The Borrowers may not select a Eurodollar Interest Period
as to any Loan if such Eurodollar Interest Period terminates later than
the Commitment Termination Date or the Maturity Date;
(v) The Borrowers may not select a Eurodollar Interest Period
with respect to any portion of principal of a Loan which extends
beyond a date on which the Borrowers are required to make a scheduled
payment of such portion of principal; and
(vi) There shall be no more than six (6) Eurodollar Interest
Periods in effect at any one time.
(c) Determination of Interest Rate. As soon as practicable on
the second Business Day prior to the first day of each Eurodollar Interest
Period (the "Interest Rate Determination Date"), the Administrative Agent shall
determine (pursuant to the procedures set forth in the definition of "Eurodollar
Rate") the interest rate which shall apply to Eurodollar Rate Loans, for which
an interest rate is then being determined for the applicable Eurodollar Interest
Period and shall promptly give notice thereof (in writing or by telephone
confirmed in writing) to the Borrowers and to each Lender. The Administrative
Agent's determination shall be presumed to be correct, absent manifest error,
and shall be binding upon the Borrowers.
(d) Interest Rate Unascertainable, Inadequate or Unfair. In
the event that at least one (1) Business Day before the Interest Rate
Determination Date:
(i) the Administrative Agent reasonably determines that
adequate and fair means do not exist for ascertaining the applicable
interest rates by reference to which the Eurodollar Rate then being
determined is to be fixed;
(ii) the Requisite Lenders advise the Administrative Agent that
Dollar deposits in the principal amounts of the Eurodollar Rate Loans
comprising such Borrowing are not generally available in the London
interbank market for a period equal to such Eurodollar Interest Period;
or
(iii) the Requisite Lenders advise the Administrative Agent
that the Eurodollar Rate as determined by the
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Administrative Agent, after taking into account the adjustments for
reserves and increased costs provided for in Section 4.01(f), will not
adequately and fairly reflect the cost to such Lenders of funding Loans
of such Type;
then the Administrative Agent shall forthwith give notice thereof to the
Borrowers, whereupon (until the Administrative Agent notifies the Borrowers
that the circumstances giving rise to such suspension no longer exist) the right
of the Borrowers to elect to have Loans bear interest based upon the Eurodollar
Rate shall be suspended and each outstanding Loan of such Types shall be
converted into a Base Rate Loan on the last day of the then current Eurodollar
Interest Period therefor, and any Notice of Borrowing for which Revolving Loans
have not then been made shall be deemed to be a request for Base Rate Loans,
notwithstanding any prior election by the Borrowers to the contrary.
(e) Illegality. (i) If at any time any Lender determines
(which determination shall, absent manifest error, be final and conclusive and
binding upon all parties) that the making or continuation of any Eurodollar Rate
Loan has become unlawful or impermissible by compliance by that Lender with any
law, governmental rule, regulation or order of any Governmental Authority
(whether or not having the force of law and whether or not failure to comply
therewith would be unlawful or would result in costs or penalties), then, and in
any such event, such Lender may give notice of that determination, in writing,
to the Borrowers and the Administrative Agent, and the Administrative Agent
shall promptly transmit the notice to each other Lender.
(ii) When notice is given by a Lender under Section
4.02(e)(i), (A) the Borrowers' right to request from such Lender and such
Lender's obligation, if any, to make Eurodollar Rate Loans shall be immediately
suspended, and such Lender shall make a Base Rate Loan as part of any requested
Borrowing of Eurodollar Rate Loans and (B) if the affected Eurodollar Rate Loan
or Loans are then outstanding, the Borrowers shall immediately, or if permitted
by applicable law, no later than the date permitted thereby, upon at least one
(1) Business Day's prior written notice to the Administrative Agent and the
affected Lender, convert each such Loan into a Base Rate Loan.
(iii) If at any time after a Lender gives notice under Section
4.02(e)(i) such Lender determines that it may lawfully make Eurodollar Rate
Loans, such Lender shall promptly give notice of that determination, in writing,
to the Borrowers and the Administrative Agent, and the Administrative Agent
shall promptly transmit the notice to each other Lender. The Borrowers' right to
request, and such Lender's obligation, if any, to make Eurodollar Rate Loans
shall thereupon be restored.
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(f) Compensation. In addition to all amounts required to be
paid by the Borrowers pursuant to Section 4.01, the Borrowers shall compensate
each Lender, upon demand, for all losses, expenses and liabilities (including,
without limitation, any loss or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Lender to fund or
maintain such Lender's Eurodollar Rate Loans to the Borrowers but excluding any
loss of the Applicable Eurodollar Rate Margin on the relevant Loans) which that
Lender may sustain (i) if for any reason a Borrowing, conversion into or
continuation of Eurodollar Rate Loans does not occur on a date specified
therefor in a Notice of Borrowing or a Notice of Conversion/Continuation given
by the Borrowers or in a telephonic request by it for borrowing or
conversion/continuation or a successive Eurodollar Interest Period does not
commence after notice therefor is given pursuant to Section 4.01(c), (ii) if for
any reason any Eurodollar Rate Loan is prepaid (including, without limitation,
mandatorily pursuant to Section 3.01(b)) on a date which is not the last day of
the applicable Eurodollar Interest Period, (iii) as a consequence of a required
conversion of a Eurodollar Rate Loan to a Base Rate Loan as a result of any of
the events indicated in Section 4.02(d) or (e) or (iv) as a consequence of any
failure by the Borrowers to repay Eurodollar Rate Loans when required by the
terms hereof. The Lender making demand for such compensation shall deliver to
the Borrowers concurrently with such demand a written statement in reasonable
detail as to such losses, expenses and liabilities, and this statement shall be
conclusive as to the amount of compensation due to that Lender, absent manifest
error.
(g) Affiliates Not Obligated. No Eurodollar Affiliate or other
Affiliate of any Lender shall be deemed a party hereto or shall have any
liability or obligation hereunder.
4.03. Fees. (a) Unused Commitment Fee. The Borrowers agree to
pay to the Administrative Agent, for the account of the Lenders in accordance
with their Pro Rata Shares, a fee (the "Unused Commitment Fee"), accruing on (i)
the average amount by which the Revolving Loan Commitments exceeds the amount of
the Revolving Credit Obligations for the period commencing on the Closing Date
and ending on the Commitment Termination Date, and (ii) the average amount by
which the Term Loan Commitments exceeds the outstanding Term Loans for the
period commencing on the Closing Date and ending on the Term Loan Termination
Date, at the rate of one-half of one percent (1/2 of 1%) per annum on such
aggregate amount payable quarterly, in arrears, on the first Business Day of
each calendar quarter and on the Commitment Termination Date.
(b) Computation of Fees. All of the above fees
payable on a per annum basis shall be computed on the basis of
the actual number of days elapsed in a year of 360 days. All
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such fees shall be payable in addition to, and not in lieu of, interest,
compensation, expense reimbursements, indemnification and other Obligations.
ARTICLE V
CONDITIONS TO LOANS
5.01. Conditions Precedent to the Initial Loans. The
obligation of each Lender on the Closing Date to make its initial
Loan requested to be made by it shall be subject to the
satisfaction of all of the following conditions precedent:
(a) Documents. The Administrative Agent (on behalf of itself
and the Lenders) shall have received on or before the Closing Date all of the
following:
(i) this Agreement, the Notes and all other agreements,
documents, instruments, certificates and opinions described in the List
of Closing Documents attached hereto and made a part hereof as Exhibit
E, each duly executed where appropriate and in form and substance
satisfactory to the Lenders and in sufficient copies for each of the
Lenders;
(ii) a pro-forma consolidated balance sheet of Stellex and its
Subsidiaries as of June 30, 1997 with adjustments as of the Closing
Date, giving effect to the transactions contemplated in the Transaction
Documents, certified by the Chief Financial Officer; and
(iii) such additional documentation as the Administrative
Agent or the Requisite Lenders may reasonably request.
(b) Perfection of Liens. All Uniform Commercial Code and other
filing and recording fees and taxes shall have been paid or duly provided for.
The Administrative Agent shall be satisfied that all Liens granted to the
Collateral Agent with respect to the Collateral are valid and effective and,
upon the filing of the duly executed Uniform Commercial Code financing
statements (or similar filings required by the applicable statutes of any
jurisdiction in which the Collateral Agent is being granted a Lien by any Loan
Party), will be perfected and of first priority, except as otherwise permitted
under this Agreement and except for compliance with the Assignment of Claims Act
of 1940, as amended, with respect to Receivables where the account debtor is the
United States of America or any department, agency or instrumentality thereof.
All certificates representing Capital Stock included in the Collateral shall
have been delivered to the Collateral Agent (with duly executed stock powers, as
appropriate) and all instruments included in the
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Collateral shall have been delivered to the Collateral Agent (duly endorsed to
the Collateral Agent).
(c) Watkins-Johnson Acquisition Agreement and Related Matters.
The Administrative Agent and the Lenders shall be satisfied that: (i) the
Watkins-Johnson Acquisition Documents which are to be entered into as of or
prior to the Closing Date shall have been duly approved and executed and
delivered by the parties thereto, (ii) all conditions precedent to closing under
the Watkins-Johnson Acquisition Agreement and the other Watkins-Johnson
Acquisition Documents have been met or waived and such documents are, or
simultaneously with the execution hereof, shall be, in full force and effect.
(d) Subordinated Notes and Related Matters. The
Administrative Agent and the Lenders shall be satisfied that: (i) the
Subordinated Note Documents are on terms and conditions satisfactory to the
Administrative Agent and the Lenders, (ii) all conditions precedent to closing
under the Subordinated Note Documents have been met or waived and such documents
are, or simultaneously with the execution hereof, shall be, in full force and
effect, and (iii) Stellex has received at least cash in an amount equal to
$100,000,000 less discounts and expenses in connection with its issuance of the
Subordinated Notes.
(e) Equity Contribution. The Administrative Agent and the
Lenders shall be satisfied that Stellex has received at least $7,500,000 in cash
equity.
(f) No Legal Impediments. No law, regulation, order, judgment
or decree of any Governmental Authority shall, and the Administrative Agent
shall not have received any notice that any action, suit, investigation,
litigation or proceeding is pending or threatened in any court or before any
arbitrator or Governmental Authority which (i) purports to enjoin, prohibit,
restrain or otherwise affect (A) the making of the Loans on the Closing Date or
(B) the consummation of the transactions contemplated pursuant to the
Transaction Documents or (ii) would be reasonably expected to impose or result
in the imposition of a Material Adverse Effect.
(g) Consents. Except as set forth on Schedule 5.01(A), each
Loan Party shall have received all consents and authorizations required pursuant
to any material Contractual Obligation with any other Person and shall have
obtained all consents and authorizations of, and effected all notices to and
filings with, any Governmental Authority, in each case, as may be necessary to
allow such Loan Party, lawfully and without risk of rescission, (i) to execute,
deliver and perform, in all material respects, its obligations under this
Agreement, the other Loan Documents to which it is, or is to be, a party and
each other agreement or instrument to be executed and delivered by it
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pursuant thereto or in connection therewith and (ii) to create and perfect or
continue the validity and perfection of the Liens on the Collateral to be owned
by it in the manner and for the purpose contemplated by the Loan Documents.
(h) No Change in Condition. No change in the condition
(financial or otherwise), business, performance, properties, assets or
operations of Stellex and its Subsidiaries, taken as a whole, shall have
occurred since December 31, 1996 which change will have or is reasonably likely
to have a Material Adverse Effect.
(i) No Default. No Default or Event of Default shall have
occurred and be continuing or would result from the making of the Loans.
(j) Representations and Warranties. All of the
representations and warranties contained in Section 6.01 and in the other Loan
Documents shall be true and correct in all material respects on and as of the
Closing Date.
(k) Fees and Expenses Paid. There shall have been paid or
there will, substantially concurrently with the closing hereunder, be paid to
the Administrative Agent and to the Lenders, all fees due and payable pursuant
to the Loan Documents on or before the Closing Date, and all expenses
(including, without limitation, reasonable legal fees and expenses) due and
payable pursuant to the Loan Documents on or before the Closing Date.
5.02. Conditions Precedent to All Loans. The obligation of
each Lender to make any Loan requested to be made by it on any Funding Date on
or after the Closing Date is subject to the following conditions precedent as of
each such date:
(a) Representations and Warranties. As of such date (unless
the representation and warranty expressly speaks of the Closing Date), both
before and after giving effect to the Loans to be made, all of the
representations and warranties contained in Section 6.01 and in the other Loan
Documents shall be true in all material respects.
(b) No Defaults. As of such date, no Default or Event of
Default shall have occurred and be continuing or would result from the making of
the requested Loan or the application of the proceeds therefrom.
(c) No Change in Condition. As of such date, no material
adverse change shall have occurred in the condition (financial or otherwise),
performance, properties or operations of Stellex and its Subsidiaries, taken as
a whole, since December 31, 1996.
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Each request by the Borrowers for a Loan, each submission by the Borrowers of a
Notice of Borrowing, each acceptance by the Borrowers of the proceeds of each
Loan made hereunder, shall constitute a representation and warranty by the
Borrowers as of the Funding Date in respect of such Loan that all the conditions
contained in this Section 5.02 have been satisfied.
5.03. Conditions Precedent to the Term Loans. The obligation
of each Lender to make any Term Loan requested to be made by it on any Funding
Date on or after the Closing Date is subject to the following conditions
precedent as of each such date:
(a) Certificate. The Administrative Agent and the Lenders
shall have received a Certificate from Chief Financial Officer of Stellex, which
certificate shall be in form and detail reasonably satisfactory to the
Administrative Agent, certifying (i) the specific uses to be made of the
proceeds of the Term Loans (broken down by Permitted Acquisition), (ii) the
information provided in the Information Package with respect to each Permitted
Acquisition is true and complete in all material respects, (iii) the
representations and warranties set forth on Schedule 5.03(A) are true in all
material respects, and (iv) Stellex and its Subsidiaries are in compliance with
the covenants set forth on Schedule 5.03(B).
(b) Liens. The Administrative Agent shall have received
documentation, in form and substance satisfactory to the Administrative Agent,
granting the Collateral Agent a Lien with respect to the assets and/or Capital
Stock relating to the Permitted Acquisition.
(c) Perfection. All Uniform Commercial Code and other filing
and recording fees and taxes shall have been paid or duly provided for. The
Administrative Agent shall be satisfied that all Liens granted to the Collateral
Agent with respect to the Collateral are valid and effective and, upon the
filing of the duly executed Uniform Commercial Code financing statements (or
similar filings required by the applicable statutes of any jurisdiction in which
the Collateral Agent is being granted a Lien by any Loan Party), will be
perfected and of first priority, except as otherwise permitted under this
Agreement and except for compliance with the Assignment of Claims Act of 1940,
as amended, with respect to Receivables where the account debtor is the United
States of America or any department, agency or instrumentality thereof. All
certificates representing Capital Stock included in the Collateral shall have
been delivered to the Collateral Agent (with duly executed stock powers, as
appropriate) and all instruments included in the Collateral shall have been
delivered to the Collateral Agent (duly endorsed to the Collateral Agent).
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(d) No Legal Impediments. No law, regulation, order, judgment
or decree of any Governmental Authority shall, and the Administrative Agent
shall not have received any notice that any action, suit, investigation,
litigation or proceeding is pending or threatened in any court or before any
arbitrator or Governmental Authority which (i) purports to enjoin, prohibit,
restrain or otherwise affect (A) the making of the Term Loans on the Funding
Date or (B) the consummation of the transactions contemplated pursuant to the
documentation relating to the Permitted Acquisition or (ii) would be reasonably
expected to impose or result in the imposition of a Material Adverse Effect.
(f) Consents. Stellex shall have received all consents and
authorizations required pursuant to any material Contractual Obligation with any
other Person in connection with such Permitted Acquisition and shall have
obtained all consents and authorizations of, and effected all notices to and
filings with, any Governmental Authority required in connection with such
Permitted Acquisition, in each case, as may be necessary to allow Stellex or a
Subsidiary of Stellex, lawfully and without risk of rescission, (i) to execute,
deliver and perform, in all material respects, its obligations under the
Collateral Documents and the other agreements to which it is, or is to be, a
party in connection with or relating to the Permitted Acquisition and each other
agreement or instrument to be executed and delivered by it in connection with or
relating to the Permitted Acquisition and (ii) to create and perfect or continue
the validity and perfection of the Liens on the Collateral to be owned by it in
the manner and for the purpose contemplated by the Loan Documents after giving
effect to the Permitted Acquisition.
Each request by Stellex for a Term Loan, each submission by Stellex of a Notice
of Borrowing, each acceptance by Stellex of the proceeds of each Term Loan made
hereunder, shall constitute a representation and warranty by Stellex as of the
Funding Date in respect of such Term Loan that all the conditions contained in
this Section 5.03 have been satisfied.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.01. Representations and Warranties of the Loan Parties. In
order to induce the Lenders to enter into this Agreement and to make the Loans,
each Loan Party hereby represents and warrants as follows:
(a) Organization; Powers. Each Loan Party (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California or the State of Delaware, as applicable, and (ii) has
all requisite power and
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authority to own, operate and encumber its assets and to conduct its business as
presently contemplated.
(b) Authority. (i) Each Loan Party has the requisite power
and authority to execute, deliver and perform each of the Transaction Documents
to which it is a party.
(ii) No other action or proceeding on the part of any Loan
Party is necessary to execute, deliver and perform each of the Transaction
Documents to which it is a party thereto or to consummate the transactions
contemplated thereby.
(iii) Each of the Loan Documents to which any Loan Party is a
party has been duly executed and delivered by such Loan Party and constitutes
the legal, valid and binding obligation of such Loan Party, enforceable against
such Loan Party in accordance with its terms.
(c) Ownership. Schedule 6.01(C) sets forth the ownership of
Stellex and its Subsidiaries. Each Loan Party has delivered to the
Administrative Agent true and complete copies of the Governing Documents for
such Loan Party. There exists no other agreement or understanding (written or
oral) affecting in any material respect the relative rights, obligations or
liabilities of such Loan Party other than said Governing Documents so delivered
and such Loan Party is in compliance in all material respects with all of its
Governing Documents.
(d) No Conflict. Except as set forth of Schedule 6.01(D), the
execution, delivery and performance by each Loan Party of each Transaction
Document to which it is a party and the consummation of the transactions
contemplated thereby do not and will not (i) conflict with the Governing
Documents of such Loan Party, (ii) violate any Requirements of Law or any
material Contractual Obligation of such Loan Party or require the termination
of such material Contractual Obligation by such Loan Party, (iii) to the best of
such Loan Party's knowledge, constitute a tortious interference with any
Contractual Obligation of any Person, or (iv) result in or require the creation
or imposition of any Lien whatsoever upon any of the property or assets of such
Loan Party, other than Liens contemplated by the Loan Documents.
(e) Governmental Consents. Except as set forth of Schedule
6.01(E), the execution, delivery and performance by each Loan Party of each
Transaction Document to which it is a party and the consummation of the
transactions contemplated thereby do not and will not require any registration
with, consent or approval of, or notice to, or other action to, with or by any
Governmental Authority, except (i) filings and acknowledgments thereof necessary
to create or perfect security interests in the Collateral or cause any security
interest in Receivables where
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the account debtor is the United States of America or any department, agency or
instrumentality thereof to be valid against the United States of America and
(ii) consents that have been obtained.
(f) Governmental Regulation. No Loan Party is limited in its
ability to incur indebtedness or its ability to consummate the transactions
contemplated by the Transaction Documents by reason of regulation under the
Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, or the Investment Company Act of 1940, or any other
federal or state statute or regulation.
(g) Subsidiaries. Stellex has no Subsidiaries or interests in
any joint venture or partnership of any other Person other than the Subsidiaries
set forth on Schedule 6.01(C).
(h) Financial Position. True and complete copies of the
following financial statements have been delivered to the Administrative Agent
and the Lenders: (i) the audited consolidated balance sheet as at the end of
fiscal year ended December 31, 1996 and the related consolidated statements of
income, cash flows and shareholders equity and the notes thereto of Kleinert
Industries, Inc. and its Subsidiaries for such fiscal year then ended and the
unaudited consolidated balance sheet as at June 30, 1997 and the related
consolidated statements of income, cash flow and shareholders equity of Kleinert
Industries, Inc. and its Subsidiaries for such period then ended; (ii) the
audited combined balance sheet as at the end of fiscal year ended December 31,
1996 and the related combined statements of operations and invested equity and
cash flows and the notes thereto of Tactical Subsystems and Microwave Devices
Sectors of Watkins-Johnson Company for such fiscal year then ended and the
unaudited combined balance sheet as at June 30, 1997 and the related combined
statements of operations and invested equity and cash flows and the notes
thereto of Tactical Subsystems and Microwave Devices Sectors of Watkins-Johnson
Company for such period then ended. The foregoing financial statements were
prepared in conformity with GAAP, except as otherwise noted therein, and fairly
present the financial positions and the results of operations, equity and cash
flows of Kleinert Industries, Inc. and its Subsidiaries and the Tactical
Subsystems and Microwave Devices Sectors of Watkins-Johnson Company for each of
the periods covered thereby as at the respective dates thereof. No Loan Party
has any Accommodation Obligation, contingent liability or liability for any
Taxes, long-term leases or commitments, not reflected in the foregoing financial
statements which will have or is reasonably likely to have a Material Adverse
Effect.
(i) Projections. Stellex and its Subsidiaries have delivered
to each Lender pursuant to Section 5.01(a) certain
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projected financial statements of Stellex and its Subsidiaries which have been
prepared in good faith.
(j) Litigation; Adverse Effects. Except as set forth in
Schedules 6.01(J-1) and 6.01(P), no Loan Party has received any notice of any
action, suit, proceeding, investigation or arbitration before or by any
Governmental Authority or private arbitrator pending nor, to the knowledge of
such Loan Party, threatened against such Loan Party or any of its assets (i)
challenging the validity or the enforceability of any of the Transaction
Documents or transactions contemplated thereby or (ii) which will or is
reasonably likely to result in any Material Adverse Effect. Except as set forth
in Schedule 6.01(J-2), there is no material loss contingency within the meaning
of GAAP which has not been reflected in the financial statements of Kleinert
Industries, Inc. and its Subsidiaries and the Tactical Subsystems and Microwave
Devices Sectors of Watkins-Johnson Company with respect to the financial
statements referred to in Section 6.01(h) nor in any financial statements of
Stellex and its Subsidiaries delivered hereunder. No Loan Party is subject to,
or in default with respect to, any final judgment, writ, injunction, restraining
order or order of any nature, decree, rule or regulation of any court or
Governmental Authority which will have or is reasonably likely to have a
Material Adverse Effect.
(k) No Material Adverse Effect. Since December 31, 1996,
there has occurred no event which has had or is reasonably likely to have a
Material Adverse Effect.
(l) Payment of Taxes. Except as set forth on Schedule 6.01(L),
all tax returns and reports to be filed by Stellex and its Subsidiaries have
been timely filed, and all taxes, assessments, fees and other governmental
charges shown on such returns have been paid when due and payable, except such
taxes, if any, as are reserved against in accordance with GAAP and are being
contested in good faith by appropriate proceedings.
(m) Performance. No Loan Party has received notice, or has
actual knowledge, that (i) it is in default in the performance, observance or
fulfillment of any material (singularly or in the aggregate) Contractual
Obligations applicable to it or (ii) any condition exists which, with the giving
of notice or the lapse of time or both, would constitute a default with respect
to any material (singularly or in the aggregate) Contractual Obligation.
(n) Disclosure. The representations and warranties of each
Loan Party contained in the Loan Documents and all certificates and other
documents delivered pursuant to the terms thereof and the representations and
warranties of each Loan Party contained in the Acquisition Documents and all
certificates and
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other documents delivered pursuant to the terms thereof, do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained therein, in light of the
circumstances under which they were made, not misleading. No Loan Party has
intentionally withheld any fact from the Administrative Agent or the Lenders in
regard to any matter which will have or is reasonably likely to have a Material
Adverse Effect.
(o) Requirements of Law. No Loan Party is in violation of any
Requirement of Law applicable to it or its business which violation (singularly
or in the aggregate) will have or is reasonably likely to have a Material
Adverse Effect.
(p) Environmental Matters. To the best of each Loan Party's
knowledge, except as set forth in Schedule 6.01(P) hereto, (i) the operations of
such Loan Party comply in all material respects with all applicable
Environmental, Health or Safety Requirements of Law; (ii) such Loan Party has
obtained all material environmental, health and safety Permits necessary for its
operations, and all such Permits are in effect and such Loan Party is in
material compliance with all terms and conditions of such Permits; (iii) no Loan
Party nor its operations is subject to any order from or agreement with any
Governmental Authority or private party respecting any Environmental, Health or
Safety Requirements of Law or requiring Remedial Action; (iv) no Loan Party nor
its operations is subject to any Liabilities and Costs arising from the Release
or threatened Release of a Contaminant into the environment; (v) no Loan Party
has filed any notice under any Requirement of Law indicating treatment, storage
or disposal of a hazardous waste, as that term is defined under 40 CFR Part 261
or any applicable state equivalent; (vi) no Loan Party has filed any notice
under applicable Requirement of Law reporting a Release of a Contaminant into
the environment; (vii) there is not on or in the Real Property of any such Loan
Party nor has there been under such Loan Party's ownership or occupancy of such
Real Property: (A) any treatment, storage or disposal of any hazardous waste, as
that term is defined under 40 CFR Part 261 or any applicable state equivalent,
by such Loan Party, except in material compliance with all Environmental, Health
or Safety Requirements of Law, (B) any underground storage tanks or surface
impoundments, (C) any asbestos-containing material, or (D) any polychlorinated
biphenyls (PCB's) used in hydraulic oils, electrical transformers or other
equipment; (viii) no Loan Party has received any written notice or Claim to the
effect that it is or may be liable to any Person as a result of the Release or
threatened Release of a Contaminant into the environment; (ix) no Loan Party's
present Property or the Loan Party's past Property is listed or proposed for
listing on the National Priorities List pursuant to CERCLA ("NPL") or on the
Comprehensive Environmental Response Compensation Liability Information System
List ("CERCLIS") or any similar state list of
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sites requiring Remedial Action; and (x) no Environmental Lien has attached to
any Property of any Loan Party.
(q) ERISA. Neither any Loan Party nor any ERISA Affiliate
maintains or contributes to any Benefit Plan other than a Benefit Plan listed on
Schedule 6.01(Q). Except as set forth on Schedule 6.01(Q), each Plan which is
maintained or contributed to by any Loan Party which is intended to be a
qualified plan has been determined by the IRS to be qualified under Section
401(a) of the Code, and each trust related to any such Plan has been so
determined to be exempt from federal income tax under Section 501(a) of the
Code, and such Plan and trust are being operated in all material respects in
compliance with and will be timely amended as necessary in accordance with the
Tax Reform Act of 1986 and the Omnibus Budget Reconciliation Act of 1987 as
interpreted by the regulations promulgated thereunder. Neither any Loan Party
nor any ERISA Affiliate, to the extent such ERISA Affiliate at any time has
joint and several liability with any Loan Party, maintains or contributes to any
employee welfare benefit plan within the meaning of Section 3(1) of ERISA, which
provides benefits to retirees (or their beneficiaries or dependents) other than
as may be required by the Consolidated Omnibus Reconciliation Act of 1985, as
amended and interpreted by regulations promulgated thereunder. Each Loan Party
is in compliance in all material respects with the responsibilities, obligations
or duties imposed on it by ERISA or regulations promulgated thereunder with
respect to all Plans. No material accumulated funding deficiency (as defined in
Section 302(a)(2) of ERISA and Section 412(a) of the Code) exists in respect to
any Benefit Plan. Except as set forth on Schedule 6.01(Q), neither any Loan
Party nor any ERISA Affiliate nor any fiduciary of any Plan has engaged in a
nonexempt "prohibited transaction" described in Section 406 of ERISA or Section
4975 of the Code. Neither any Loan Party nor any ERISA Affiliate nor any
fiduciary of any Plan has taken any action which would constitute or result in a
Termination Event with respect to any Plan such that the actions described in
the preceding sentence or this sentence, or both, would result in a Material
Adverse Effect. Neither any Loan Party nor any ERISA Affiliate has incurred any
material liability to the PBGC which remains outstanding other than the
liability to pay the PBGC insurance premiums for the current year. Schedule B to
the most recent annual report filed with the IRS with respect to each Benefit
Plan and furnished to the Administrative Agent is complete and accurate in all
material respects. Since the date of each such Schedule B, there has been no
material adverse change in the funding status or financial condition of the
Benefit Plan relating to such Schedule B which would result in a Material
Adverse Effect. Neither any Loan Party nor any ERISA Affiliate has failed to
make any required installment under subsection (m) of Section 412 of the Code
and any other payment required under Section 412 of the Code on or before the
due date for such installment or other payment which
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would in the aggregate have a Material Adverse Effect. Neither any Loan Party
nor any ERISA Affiliate is required to provide security to a Benefit Plan under
Section 401(a)(29) of the Code due to a Plan amendment that results in an
increase in current liability for the plan year. No Loan Party or ERISA
Affiliate is required to, or has contributed to in the past six years, a
Multiemployer Plan.
(r) Labor Matters. No Loan Party is a party to any labor
contract. There are no strikes, lockouts or other disputes relating to any
collective bargaining or similar agreement to which such Loan Party is a party
which would have or is reasonably likely to have a Material Adverse Effect.
(s) Securities Activities. No Loan Party is engaged in the
business of extending credit for the purpose of purchasing or carrying Margin
Stock.
(t) Solvency. After giving effect to the receipt and
application of the Loans in accordance with the terms of this Agreement, each
Loan Party is Solvent.
(u) Patents, Trademarks, Permits, etc.; Government Approvals.
(i) Except as set forth on Schedule 6.01(U), each Loan Party
owns, is licensed or otherwise has the lawful right to use all permits
and other governmental approvals, patents, trademarks, trade names,
copyrights, technology, know-how and processes used in or necessary for
the conduct of its business as currently conducted which are material
to its condition (financial or otherwise), operations or performance.
There are no claims pending or, to the best of such Loan Party's
knowledge, threatened that such Loan Party is infringing or otherwise
adversely affecting the rights of any Person with respect to such
permits and other governmental approvals, patents, trademarks, trade
names, copyrights, technology, know-how and processes, except for such
claims and infringements as do not, in the aggregate, give rise to any
liability on the part of such Loan Party which has or is reasonably
likely to have a Material Adverse Effect.
(ii) The consummation of the transactions contemplated by the
Transaction Documents will not impair such Loan Party's ownership of or
rights under (or the license or other right to use, as the case may be)
any permits and governmental approvals, patents, trademarks, trade
names, copyrights, technology, know-how or processes in any manner
which has or is reasonably likely to have a Material Adverse Effect.
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(v) Assets and Properties. Each Loan Party has good and
marketable title or leasehold interests, as applicable, to all of its assets and
property (tangible and intangible), and all such assets and property are free
and clear of all Liens except Liens securing the Obligations and Liens permitted
under Section 9.03. Substantially all of the assets and property owned by,
leased to or used by such Loan Party are in good operating condition and repair,
ordinary wear and tear excepted, are free and clear of any known defects except
such defects as do not substantially interfere with the continued use thereof in
the conduct of normal operations, and are able to serve the function for which
they are currently being used, except in each case where the failure of such
asset to meet such requirements would not have or is not reasonably likely to
have a Material Adverse Effect. Neither this Agreement nor any other Transaction
Document, nor any transaction contemplated under any Transaction Document, will
affect any right, title or interest of such Loan Party in and to any of such
assets in a manner that would have or is reasonably likely to have a Material
Adverse Effect.
(w) Insurance. Schedule 6.01(W) accurately sets forth all
insurance policies and programs currently in effect with respect to the property
and assets and business of each Loan Party, specifying for each such policy and
program, (i) the amount thereof and the amount of the deductible relating
thereto, (ii) the risks insured against thereby, (iii) the name of the insurer
and each insured party thereunder, (iv) the policy or other identification
number thereof and (v) the expiration date thereof.
(x) Material Adverse Agreements. After giving effect to this
Agreement, no Loan Party is a party to or subject to any Contractual Obligation
or other restriction contained in its Governing Documents which has or is
reasonably likely to have a Material Adverse Effect.
(y) Forfeiture Proceeding. No Loan Party is engaged in or
proposes to be engaged in the conduct of any business or activity which could
result in a Forfeiture Proceeding and no Forfeiture Proceeding against it is
pending or, to the best of each Loan Party's knowledge, threatened.
(z) Bank Accounts. Except as set forth on Schedule 6.01(Z),
no Loan Party maintains a bank account or deposits funds with any other
financial institution.
ARTICLE VII
REPORTING COVENANTS
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Each Loan Party covenants and agrees so long as any Commitment
is outstanding and thereafter until payment in full of the Obligations:
7.01. Financial Statements. Each Loan Party shall maintain a
system of accounting established and administered in accordance with sound
business practices to permit preparation of financial statements in conformity
with GAAP, and each of the financial statements described below shall be
prepared from such system and records. Stellex shall deliver or cause to be
delivered to the Administrative Agent:
(a) Quarterly Reports. As soon as practicable, and in any
event within forty-five (45) days after the end of the first three fiscal
quarters in each Fiscal Year, consolidated balance sheet of Stellex and its
Subsidiaries as at the end of such period and the related statements of income
and cash flow of Stellex and its Subsidiaries for such fiscal quarter, certified
by the Chief Financial Officer of Stellex as fairly presenting the financial
position of Stellex and its Subsidiaries as at the dates indicated and the
results of its operations and cash flow for the fiscal quarter indicated in
accordance with GAAP, subject to normal year end adjustments.
(b) Annual Reports. As soon as practicable, and in any event
within ninety (90) days after the end of each Fiscal Year, (i) the audited
consolidated (and unaudited consolidating) balance sheet of Stellex and its
Subsidiaries as of the end of such Fiscal Year and the related audited
consolidated (and unaudited consolidating) statements of income and cash flow of
Stellex and its Subsidiaries for such Fiscal Year, and (ii) a report thereon of
an independent certified public accounting firm reasonably acceptable to the
Administrative Agent, which report shall be unqualified and shall state that
such financial statements fairly present the financial position of Stellex and
its Subsidiaries as at the dates indicated and the results of its operations and
cash flow for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years and that the examination by such accountants in
connection with such financial statements has been made in accordance with
generally accepted auditing standards.
(c) Certificates. (i) Together with each delivery of any
financial statement pursuant to paragraphs (a) and (b) of this Section 7.01, an
Officer's Certificate substantially in the form of Exhibit G attached hereto and
made a part hereof, stating that such officer has reviewed the terms of the Loan
Documents, and has made, or caused to be made under his supervision, a review in
reasonable detail of the transactions and consolidated financial condition of
Stellex and its Subsidiaries during the accounting period covered by such
financial statements, that such review has not disclosed the existence during or
at the end of
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such accounting period, and that such officer does not have knowledge of the
existence as at the date of such Officer's Certificate, of any condition or
event which constitutes an Event of Default or Default, or, if any such
condition or event existed or exists, specifying the nature and period of
existence thereof and what action the Borrowers have taken, are taking and
propose to take with respect thereto.
(ii) Together with each delivery of any financial statement
pursuant to paragraphs (a) and (b) of this Section 7.01, a certificate
substantially in the form of Exhibit H attached hereto (the "Compliance
Certificate"), signed by the Stellex's Chief Financial Officer, setting forth
calculations (with such specificity as the Lenders may reasonably request) for
the period then ended which demonstrate compliance, when applicable, with the
provisions of Article IX and Article X.
(d) Budgets; Business Plans; Financial Projections. As soon as
practicable after completion and in any event not later than fifteen (15) days
prior to the beginning of each Fiscal Year (i) a budget for such Fiscal Year;
(ii) an annual business plan for such Fiscal Year, accompanied by a report
reconciling all changes and departures from the business plan delivered to the
Administrative Agent for the preceding Fiscal Year; and (iii) a plan and
financial forecast, prepared in accordance with the Borrowers' normal accounting
procedures applied on a consistent basis, for such Fiscal Year and for the five
(5) succeeding Fiscal Years, but in no event for Fiscal Years later than 2003,
including, without limitation, (A) a forecasted balance sheet and changes in
financial position of Stellex and its Subsidiaries as at the end of such Fiscal
Year and (B) forecasted statements of income and cash flow of Stellex and its
Subsidiaries for such Fiscal Year and changes in financial position of Stellex
and its Subsidiaries as of the end of such Fiscal Year.
(e) Replacement Certificate. On June 30 and December 31 of
each Fiscal Year (and more often if so requested by the Administrative Agent),
Stellex shall provide the Administrative Agent with a replacement certificate
substantially in the form of Exhibit I attached hereto (the "Replacement
Certificate"), signed by Stellex's Chief Financial Officer, setting forth
calculations (with such specificity as the Lenders may reasonably request) for
the period then ended which demonstrate the Net Cash Proceeds that were used to
acquire replacement assets.
7.02. Borrowing Base Certificate. The Borrowers shall
provide the Administrative Agent and each Lender with a Borrowing Base
Certificate, certified as being true and correct by the Chief Financial Officer
of Stellex, on the thirtieth day following the last day of each month, or more
frequently if requested by the Administrative Agent. Each subsequent Borrowing
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Base Certificate shall be based upon, with respect to Receivables and Inventory,
information as of the last day of the immediately preceding month. Each such
Borrowing Base Certificate shall set forth Borrowing Base calculations since the
date of the last prior Borrowing Base Certificate and shall include a monthly
summary aging of Receivables and all Eligible Inventory that has become
ineligible, specifying the applicable category of ineligibility and such other
information as the Administrative Agent may request from time to time.
7.03. Other Financial Information. (a) The Borrowers shall
deliver or cause to be delivered to the Administrative Agent such other
information, reports, contracts, schedules, lists, documents, agreements and
instruments with respect to (i) the Collateral or (ii) the business, condition
(financial or otherwise), operations, performance or properties of any Loan
Party as the Administrative Agent or any Lender may, from time to time,
reasonably request. Each Loan Party hereby authorizes the Administrative Agent,
each Lender and their respective representatives to communicate directly with
the accountants and authorizes the accountants to disclose to the Administrative
Agent, such Lender and such representatives any and all financial statements and
other information of any kind, including copies of any management letter or the
substance of any oral information, that such accountants may have with respect
to the Collateral or the condition (financial or otherwise), operations,
properties and performance of Stellex and its Subsidiaries. Each Loan Party, on
or before the Closing Date, shall deliver a letter addressed to the accountants
instructing them to disclose such information in compliance with this Section
7.03(a).
(b) Stellex shall deliver or cause to be delivered to the
Administrative Agent copies of all financial statements, reports and notices, if
any, sent or made available generally by Stellex to the holders of its
publicly-held Securities or to a trustee under any indenture or filed with the
Commission, and of all press releases made available generally by Stellex to the
public concerning material developments in Stellex's business.
(c) The Borrowers shall deliver or cause to be delivered to
the Administrative Agent copies of any management reports delivered to any Loan
Party or to any officer or employee thereof by the accountants in connection
with the financial statements delivered pursuant to Section 7.01.
7.04. Events of Default. Promptly upon any Loan Party
obtaining knowledge (i) of any condition or event which constitutes a Default or
an Event of Default, (ii) that any Person has given any notice to any Loan Party
or taken any other action with respect to a claimed default or event or
condition of the type referred to in Section 11.01(e) or (iii) of any condition
or event which has or is reasonably likely to have a
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Material Adverse Effect or adversely affect the Collateral Agent's interest in
the Collateral or adversely affect the value of the Collateral in any material
respect, such Loan Party shall deliver to the Administrative Agent an Officer's
Certificate specifying (A) the nature and period of existence of any such
claimed default, Event of Default, Default, condition or event, (B) the notice
given or action taken by such Person in connection therewith and (C) what action
such Loan Party has taken, is taking and proposes to take with respect thereto.
7.05. Lawsuits. (a) Promptly upon any Loan Party obtaining
knowledge of the institution of, or written threat of, (i) (A) any action, suit,
proceeding or arbitration against or affecting such Loan Party or any asset of
such Loan Party not previously disclosed pursuant to Schedule 6.01(J) or
Schedule 6.01(P) involving an alleged liability or cost in excess of One Million
Dollars ($1,000,000) or any actions, suits, proceedings or arbitration which in
the aggregate involving money or property valued in excess of One Million
Dollars ($1,000,000), except where the same is fully covered by insurance (other
than applicable deductible), (B) any investigation or proceeding before or by
any Governmental Authority, the effect of which is reasonably likely to limit,
prohibit or restrict materially the manner in which such Loan Party currently
conducts its business or to declare any substance contained in such products
manufactured or distributed by it to be dangerous, except where the same is
fully covered by insurance (other than applicable deductible), or (C) any
Forfeiture Proceeding, such Loan Party shall give written notice thereof to the
Administrative Agent and provide such other information as may be reasonably
available to enable such Lender and the Administrative Agent and its counsel to
evaluate such matters; (ii) as soon as practicable and in any event within
forty-five (45) days after the end of each fiscal quarter, each Loan Party shall
provide the Administrative Agent with a litigation status report covering the
institution of, or written threat of, any action, suit, proceeding, governmental
investigation or arbitration reported pursuant to clause (i) above and shall
provide such other information at such time as may be reasonably available to
enable the Administrative Agent and its counsel to evaluate such matters; and
(iii) in addition to the requirements set forth in clauses (i) and (ii) of this
Section 7.05, each Loan Party upon request of the Administrative Agent or the
Requisite Lenders shall promptly give written notice to the Administrative Agent
of the status of any action, suit, proceeding, governmental investigation or
arbitration covered by a report delivered pursuant to clause (i) or (ii) above
and provide such other information as may be reasonably available to it to
enable the Administrative Agent and its counsel to evaluate such matters.
7.06. Insurance. As soon as practicable and in any
event by June 30 in each fiscal year, each Loan Party shall
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deliver to the Administrative Agent (i) an updated Schedule 6.01(W) in form and
substance reasonably satisfactory to the Administrative Agent and the Lenders
outlining all insurance policies and programs currently in effect with respect
to the property and assets and business of such Loan Party, insurance coverage
maintained as of the date of such report by such Loan Party and the loss payment
provisions of such coverage and (ii) evidence that all premiums with respect to
such coverage have been paid when due.
7.07. ERISA Notices. Each Loan Party shall deliver to
the Administrative Agent:
(i) As soon as possible, and in any event within ten (10)
Business Days after either a Loan Party or an ERISA Affiliate knows or
has reason to know that a Termination Event has occurred, a written
statement of the Chief Financial Officer of Stellex describing such
Termination Event and the action, if any, which such Loan Party or such
ERISA Affiliate has taken, is taking or proposes to take, with respect
thereto, and, when known, any action taken or threatened by the IRS,
the DOL or the PBGC with respect thereto;
(ii) as soon as possible, and in any event within ten (10)
Business Days, after either a Loan Party or an ERISA Affiliate knows or
has reason to know that a non-exempt prohibited transaction (defined in
Section 406 of ERISA and Section 4975 of the Code) has occurred, a
statement of the Chief Financial Officer of Stellex describing such
transaction;
(iii) within ten (10) days after the filing thereof with the
DOL, the IRS or the PBGC, copies of each annual report, including
Schedule B thereto, filed with respect to each Benefit Plan;
(iv) within ten (10) days after the filing thereof with the
IRS, a copy of each funding waiver request filed with respect to any
Benefit Plan and all communications received by either a Loan Party or
an ERISA Affiliate with respect to such request;
(v) within ten (10) days after the first to occur of an
amendment of any existing Benefit Plan which will result in an increase
in the benefits under such Benefit Plan or a notification of any such
increase, or the establishment of any new Benefit Plan or the
commencement of contributions to any Benefit Plan to which either a
Loan Party or an ERISA Affiliate was not previously contributing, a
copy of said amendment, notification or Benefit Plan;
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(vi) promptly upon, and in any event within ten (10)
Business Days after, receipt by either a Loan Party or an ERISA
Affiliate of a notice of the PBGC's intention to terminate a Benefit
Plan or to have a trustee appointed to administer a Benefit Plan,
copies of each such notice;
(vii) promptly upon, and in any event within ten (10)
Business Days after, receipt by either a Loan Party or an ERISA
Affiliate of an unfavorable determination letter from the IRS regarding
the qualification of a Plan under Section 401(a) of the Code, a copy of
said determination letter, if such disqualification would have a
Material Adverse Effect;
(viii) promptly upon, and in any event within ten (10)
Business Days after receipt by any Loan Party of a notice from a
Multiemployer Plan regarding the imposition of withdrawal liability, a
copy of said notice; and
(ix) promptly upon, and in any event within ten (10)
Business Days after, Stellex or any of its Subsidiaries fails to make a
required installment under subsection (m) of Section 412 of the Code or
any other payment required under Section 412 of the Code on or before
the due date for such installment or payment, a notification of such
failure, if such failure could result in either the imposition of a
Lien under said Section 412 or otherwise have a Material Adverse
Effect.
7.08. Environmental Notices. Each Loan Party shall notify the
Administrative Agent, in writing, promptly, and in any event within thirty (30)
days after such Loan Party's learning thereof, of any: (i) written notice or
written Claim to the effect that such Loan Party is or may be liable to any
Person as a result of the Release or threatened Release of any Contaminant into
the environment; (ii) written notice that such Loan Party is subject to
investigation by any Governmental Authority evaluating whether any Remedial
Action is needed to respond to the Release or threatened Release of any
Contaminant into the environment; (iii) written notice that any Property of such
Loan Party is subject to an Environmental Lien; (iv) written notice of violation
to such Loan Party of any Environmental, Health or Safety Requirement of Law,
which could have a Material Adverse Effect on such Loan Party; (v) commencement
or written threat of any judicial or administrative proceeding alleging a
violation of any Environmental, Health or Safety Requirement of Law; (vi)
written notice from a Governmental Authority of any changes to any existing
Environmental, Health or Safety Requirement of Law that could have a Material
Adverse Effect on the operations of
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such Loan Party; or (vii) any proposed acquisition of stock, assets, real estate
or leasing of property, or any other action by such Loan Party that could
subject such Loan Party to Liabilities and Costs that could have a Material
Adverse Effect. For purposes of clauses (i), (ii) and (iii), written notice
shall include other non-written communications given to an agent or employee of
such Loan Party with direct or indirect supervisory responsibility with respect
to the activity, if any, which is the subject of such communication, if the
subject of such communication could have a Material Adverse Effect.
7.09. Labor Matters. Each Loan Party shall notify the
Administrative Agent in writing, promptly, but in any event within ten (10) days
after learning thereof, of (i) any material labor dispute to which such Loan
Party may become a party, any strikes, lockouts or other disputes relating to
such Loan Party's plants and other facilities and (ii) any material liability
incurred with respect to the closing of any plant or other facility of such Loan
Party.
7.10. Other Information. Promptly upon receiving a request
therefor from the Administrative Agent or the Requisite Lenders, each Loan Party
shall prepare and deliver to the Administrative Agent such other information
with respect to such Loan Party or the Collateral, including, without
limitation, schedules identifying and describing the Collateral and any
dispositions thereof, as from time to time may be reasonably requested by the
Administrative Agent or the Requisite Lenders.
ARTICLE VIII
AFFIRMATIVE COVENANTS
Each Loan Party covenants and agrees so long as any Commitment
is outstanding and thereafter until payment in full of the Obligations:
8.01. Existence, etc. Except for those transactions permitted
under Section 9.09 of this Agreement, each Loan Party shall at all times
maintain its existence and preserve and keep, or cause to be preserved and kept,
in full force and effect its rights and franchises material to its businesses
except where the loss or termination of such rights and franchises does not have
or is not reasonably likely to have a Material Adverse Effect.
8.02. Powers; Conduct of Business. Each Loan Party shall
qualify and remain qualified to do business in each jurisdiction in which the
nature of its business requires it to be so qualified except for those
jurisdictions where failure to so qualify does not have or is not reasonably
likely to have a Material Adverse Effect.
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8.03. Compliance with Laws, etc. Each Loan Party shall, (a)
comply with all Requirements of Law and all restrictive covenants affecting
such Person or the business, property, assets or operations of such Person, and
(b) obtain as needed all Permits necessary for its operations and maintain such
Permits in good standing except in the case where noncompliance with either
clause (a) or (b) above does not have or is not reasonably likely to have a
Material Adverse Effect.
8.04. Payment of Taxes and Claims. Each Loan Party shall pay
(a) all taxes, assessments and other governmental charges imposed upon it or on
any of its properties or assets or in respect of any of its franchises,
business, income or property before any penalty or interest accrues thereon, the
failure to make payment of which will have or is reasonably likely to have a
Material Adverse Effect, and (b) all claims (including, without limitation,
claims for labor, services, materials and supplies) for sums which have become
due and payable prior to the same becoming subject to a Lien upon any of such
Person's properties or assets and prior to the time when any penalty or fine
shall be incurred with respect thereto; provided, however, that no such taxes,
assessments and governmental charges referred to in clause (a) above or claims
referred to in clause (b) above need be paid if being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and if
adequate reserves shall have been set aside therefor in accordance with GAAP.
8.05. Insurance. (a) Each Loan Party shall maintain insurance
against loss or damage of the kind customarily insured against by corporations
similarly situated with reputable insurers and with deductibles and on terms
customary for corporations similarly situated. All such policies and programs
shall be maintained with insurers reasonably satisfactory to the Administrative
Agent. Each certificate and policy relating to property damage, machinery and/or
business interruption coverage shall contain an endorsement, in form and
substance reasonably satisfactory to the Administrative Agent, showing loss
payable to the Collateral Agent, for the ratable benefit of the Lenders, and, if
required by the Administrative Agent, naming the Collateral Agent as an
additional insured under such policy. Each certificate and policy relating to
coverages other than the foregoing shall, if required by the Administrative
Agent, contain an endorsement naming the Collateral Agent as an additional
insured under such policy. Such endorsement or an independent instrument
furnished to the Administrative Agent shall provide that the insurance companies
will give the Collateral Agent at least thirty (30) days' written notice before
any such policy or policies of insurance shall be altered adversely to the
interests of the Collateral Agent and the Lenders or cancelled and that no act,
whether willful or negligent, or default of any Loan Party or any other Person
shall affect the right of the Collateral
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Agent to recover under such policy or policies of insurance in case of loss or
damage. In the event any Loan Party, at any time or times hereafter shall fail
to obtain or maintain any of the policies of insurance required herein or to pay
any premium in whole or in part relating thereto, then the Administrative Agent,
without waiving or releasing any obligation or resulting Event of Default
hereunder, may at any time or times thereafter (but shall be under no obligation
to do so) obtain and maintain such policies of insurance and pay such premiums
and take any other action with respect thereto which the Administrative Agent
deems advisable; provided, however, in the event that the Administrative Agent
decides to obtain and maintain such policies, the Administrative Agent will give
notice to the Borrowers, at least ten days prior to taking any such action, and
an opportunity for the Borrowers to cure such failure. All sums so disbursed by
the Administrative Agent shall be part of the Obligations hereunder, payable on
demand.
(b) Each Loan Party will appoint or designate a person, with
the approval of the Administrative Agent, to settle or adjust such claims
individually not in excess of Five Hundred Thousand Dollars ($500,000) per
occurrence or in the aggregate One Million Dollars ($1,000,000) during any
fiscal year without the consent of the Administrative Agent. In the event such
claims exceed the foregoing amounts, or claims individually or in the aggregate
have or are likely to have a Material Adverse Effect, such settlements and
adjustments thereof shall be made with the Administrative Agent's consent, which
consent shall not be unreasonably withheld. The Net Cash Proceeds of any such
insurance claim or settlement shall be applied, after deducting any expenses and
fees incurred by the Administrative Agent in the settlement and collection
thereof, as follows: (i) if no Default or Event of Default then exists and the
Administrative Agent receives a certification from the applicable Loan Party
contemporaneously with its receipt of such proceeds that such Loan Party intends
to use such proceeds to replace or repair such asset, such proceeds shall be
applied in accordance with Section 3.01(b)(i) hereof, (ii) if no Default or
Event of Default then exists and no certification is received by the
Administrative Agent, such proceeds shall be applied to the outstanding balance
of the Revolving Loans, and (iii) if a Default or Event of Default then exists,
such proceeds shall be applied to the Obligations in accordance with Section
3.02(b)(ii).
(c) So long as no Event of Default has occurred and is
continuing and all Obligations are paid when due, the proceeds received under
any business interruption insurance policy shall be remitted to the Loan Party
for a period of up to six months. Thereafter, the Administrative Agent shall be
entitled to receive such proceeds to apply against the Obligations.
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8.06. Inspection of Property; Books and Records; Discussions.
Each Loan Party shall permit any authorized representative(s) designated by
either any Agent or any Lender to visit and inspect any of the assets of such
Loan Party, to examine, audit, check and make copies of its financial and
accounting records, books, journals, orders, receipts and any correspondence and
other data relating to its businesses or the transactions contemplated by the
Loan Documents (including, without limitation, in connection with environmental
compliance, hazard or liability), and to discuss such Person's affairs, finances
and accounts with its officers and independent certified public accountants, all
upon reasonable notice and at such reasonable times during normal business
hours, as often as may be reasonably requested; provided, however, that upon the
occurrence and during the continuance of an Event of Default each Loan Party
shall permit any authorized representative(s) designated by any Agent or any
Lender to do all of the foregoing without notice, at any time and as often as
the Agents or the Lenders may request. Each such visitation and inspection (i)
by or on behalf of any Lender shall be at such Lender's expense and (ii) by or
on behalf of any Agent shall be at the Borrowers' expense; provided, however, so
long as no Event of Default exists, the Borrowers shall only pay the reasonable
expenses in connection with one inspection or audit per year. Each Loan Party
shall keep and maintain in all material respects proper books of record and
account in which entries sufficient to prepare financial statements in
conformity with GAAP shall be made of all dealings and transactions in relation
to its businesses and activities, including, without limitation, transactions
and other dealings with respect to the Collateral. If an Event of Default has
occurred and is continuing, each Loan Party, upon the Administrative Agent's
request, shall turn over copies of any such records to the Administrative Agent
or its representatives.
8.07. Tax Identification Numbers. Each Loan Party
shall provide the Administrative Agent in writing its tax
identification number promptly upon the availability thereof.
8.08. ERISA Compliance. Each Loan Party shall, and shall cause
each ERISA Affiliate to, establish, maintain and operate all Plans to comply in
all material respects with the provisions of ERISA, the Code, all other
applicable laws, and the regulations and interpretations thereunder and the
respective requirements of the governing documents for such Plans.
8.09. Maintenance of Property. Each Loan Party shall maintain
in all respects all of its owned and leased property in good, safe and insurable
condition and repair and in accordance with any applicable manufacturers'
specifications and recommendations, and not permit, commit or suffer any waste
(except in the ordinary course of business) or abandonment of any such property
and from time to time shall make or cause to be
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made all repairs, renewal and replacements thereof, except in the case where
noncompliance thereof, singularly or in the aggregate, does not have or is not
reasonably likely to have a Material Adverse Effect.
8.10. Condemnation. Immediately upon learning of the
institution of any proceeding for the condemnation or other taking of any of
the owned or leased Real Property of any Loan Party, such Loan Party shall
notify the Administrative Agent of the pendency of such proceeding, and permit
the Administrative Agent to participate in any such proceeding, and from time to
time will deliver to the Administrative Agent all instruments reasonably
requested by the Administrative Agent to permit such participation.
8.11. Maintenance of Licenses, Permits, etc. Each Loan Party
shall maintain in full force and effect all licenses, permits, governmental
approvals, franchises, authorizations or other rights necessary for the
operation of its business, except where the failure to obtain any of the
foregoing would not have or is not reasonably likely to have a Material Adverse
Effect; and notify the Administrative Agent in writing, promptly after learning
thereof, of the suspension, cancellation, revocation or discontinuance of or of
any pending or threatened action or proceeding seeking to suspend, cancel,
revoke or discontinue any such license, permit, governmental approval, franchise
authorization or right.
8.12. Post Closing Matters. The Loan Parties shall
cause each of the requirements set forth on Schedule 8.12 to be
satisfied on or before the date set forth opposite such
requirement.
ARTICLE IX
NEGATIVE COVENANTS
Each Loan Party covenants and agrees so long as any Commitment
is outstanding and thereafter until payment in full of the Obligations:
9.01. Indebtedness. The Loan Parties shall not, directly or
indirectly, create, incur, assume or otherwise become or remain liable with
respect to any Indebtedness, except:
(i) the Obligations;
(ii) trade payables in the ordinary course of business;
(iii) Permitted Existing Indebtedness;
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(iv) to the extent permitted by Section 9.13, Capital Leases
and purchase money Indebtedness incurred by the Loan Parties to finance
the acquisition of fixed assets in an aggregate principal amount
outstanding at any one time not to exceed Seven Million Five Hundred
Thousand Dollars ($7,500,000);
(v) Indebtedness owing by one Loan Party to another Loan
Party;
(vi) endorsements of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business;
(vii) Interest Rate Contracts with respect to the Loans;
(viii) Indebtedness (other than the type of Indebtedness
referred to in clauses (i) through (vii) or clauses (ix) through (xiv)
of this Section 9.01) incurred in the ordinary course of business in an
aggregate principal amount of up to One Million Dollars ($1,000,000)
outstanding at any time;
(ix) extensions, substitutions, renewals, and replacements of
the Deed of Trust in favor of Farm Bureau Life Insurance Company
described in item 3 on Schedule 1.01(A), provided that the amount
extended, substituted, renewed or replaced does not exceed the
principal amount outstanding at such time and that such extension,
substitution, renewal or replacement is on terms and conditions no less
favorable to Paragon than such Deed of Trust;
(x) Indebtedness represented by the Subordinated Notes or any
instrument evidencing subordinated indebtedness that extends, renews or
replaces the Subordinated Notes, provided that (A) the terms and
conditions of such subordinated indebtedness (other than pricing) are
substantially similar to, or more favorable to the Lenders than, the
terms and conditions of the Subordinated Notes and (B) no Default or
Event of Default has occurred and is continuing either before or after
giving effect to the incurrence of such subordinated indebtedness;
(xi) subordinated indebtedness that has terms and conditions
(other than pricing) that are substantially similar to, or more
favorable to the Lenders than, the terms and conditions of the
Subordinated Notes, provided that (A) after giving effect to the
incurrence of such subordinated indebtedness the Loan Parties are in
compliance with the covenants contained in Article X, (B) no Default or
Event of Default has occurred and is continuing either before or after
giving effect to the incurrence of such subordinated
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indebtedness, and (C) the proceeds of such subordinated indebtedness
are applied in accordance with Section 3.01(b)(ii);
(xii) Indebtedness of Stellex or a Subsidiary represented by
Put/Call Promissory Notes or the Put/Call Preferred Stock, in each
case, incurred or issued in exchange for Management Equity Interests,
in an aggregate amount not to exceed the value (calculated in
accordance with the respective agreements pursuant to which such
Management Equity Interests were issued or exchanged) of the Management
Equity Interests exchanged so long as no Default or Event of Default
has occurred and is continuing at the time of such incurrence or
issuance or would occur after giving effect to the incurrence of such
Put/Call Promissory Note or the issuance of the Put/Call Preferred
Stock;
(xiii) Indebtedness of a Subsidiary outstanding on or prior to
the date on which such Subsidiary was acquired by Stellex or a
Subsidiary of Stellex (other than Indebtedness incurred in connection
with, or in contemplation of, the transaction or series of related
transactions pursuant to which such Subsidiary became a Subsidiary or
was otherwise acquired by Stellex or a Subsidiary of Stellex) and
Indebtedness assumed by Stellex or a Subsidiary of Stellex in
connection with a Permitted Acquisition which is outstanding on or
prior to the date of such Permitted Acquisition (other than
Indebtedness incurred in connection with, or in contemplation of, such
Permitted Acquisition; provided that the aggregate permitted amount,
accreted value or liquidation preference, as applicable, of all such
Indebtedness does not exceed Four Million Dollars ($4,000,000) at any
one time outstanding;
(xiv) Indebtedness evidenced by a subordinated note, held by a
seller in connection with a Permitted Acquisition, that has terms and
conditions that are satisfactory to the Administrative Agent, provided
that (A) after giving effect to the incurrence of such subordinated
indebtedness the Loan Parties are in compliance with the covenants
contained in Article X, (B) no Default or Event of Default has occurred
and is continuing either before or after giving effect to the
incurrence of such subordinated indebtedness, and (C) the aggregate
amount of such Indebtedness and the aggregate amount of the outstanding
Indebtedness permitted under Section 9.01(xiii) does not exceed Eight
Million Dollars ($8,000,000) in the aggregate; and
(xv) extensions, substitutions, renewals and replacements of
any Indebtedness described in clause (xiii) and (xiv) above, provided
that (A) the amount extended, substituted, renewed or replaced does not
exceed the
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principal amount outstanding at such time with respect to such
Indebtedness, (B) that such extension, substitution, renewal or
replacement is on terms (other than pricing) and conditions no less
favorable to the Loan Party and the Lenders than the terms and
conditions of the Indebtedness being extended, substituted, renewed or
replaced.
9.02. Sales of Assets. The Loan Parties shall not sell,
assign, transfer, lease, convey or otherwise dispose of any assets, whether now
owned or hereafter acquired, or any income or profits therefrom, or enter into
any agreement to do so, except:
(i) sales of Inventory in the ordinary course of business;
(ii) the disposition of Equipment if such Equipment is
obsolete or no longer useful in the ordinary course of such Loan
Party's business;
(iii) sales of assets with an aggregate book value not in
excess of Five Hundred Thousand Dollars ($500,000) in any Fiscal Year;
(iv) the disposition of Property by casualty or
condemnation;
(v) assignments, transfers, conveyances and other
dispositions from a Wholly Owned Subsidiary of a Loan Party to another
Wholly Owned Subsidiary of a Loan Party; provided, however, that until
the Farm Bureau Consent has been delivered to the Administrative Agent,
no assets may be assigned, transferred, leased or otherwise conveyed to
Paragon;
(vi) Permitted Dispositions, provided that no Permitted
Disposition may be made prior to the first annual anniversary of the
Closing Date, and provided, further, that no Permitted Disposition may
be made prior to the Term Loan Termination Date if any portion of the
Net Cash Proceeds therefrom will be used to purchase any portion of the
Subordinated Notes;
(vii) any Loan Party may enter into a license agreement
granting licenses in respect of patents and other rights and assets
with its suppliers on terms and conditions that are commercially
reasonable; and
(viii) all licenses granted in connection with the
Watkins-Johnson Acquisition.
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9.03. Liens. The Loan Parties shall not, directly or
indirectly, create, incur, assume or permit to exist any Lien on or with respect
to the Collateral, except:
(i) Liens created by the Loan Documents;
(ii) Permitted Existing Liens;
(iii) Customary Permitted Liens;
(iv) Liens securing Indebtedness permitted by Section
9.01(iv) covering only assets acquired with such Indebtedness and Liens
securing Indebtedness permitted by Section 9.01(ix) covering only the
assets subject to a Lien under the Deed of Trust; and
(v) a Lien with respect to a deposit made by a customer of
a Loan Party in connection with a purchase order placed by such
customer so long as such Lien is limited to the inventory covered by
such purchase order and such inventory is not scheduled on any
Borrowing Base Certificate;
(vi) Liens on property of a Person existing at the time such
Person becomes a Subsidiary of Stellex or of a Subsidiary of Stellex,
provided that such Liens were in existence prior to the time such
Person becomes a Subsidiary and do not extend to any other assets;
(vii) Liens on property existing at the time of acquisition
thereof by Stellex or a Subsidiary of Stellex, provided that such Liens
were in existence prior to the contemplation of such acquisition and do
not extend to any other assets; and
(viii) other Liens securing obligations incurred in the
ordinary course of business which obligations do not exceed Five
Hundred Thousand Dollars ($500,000) at any one time outstanding.
9.04. Investments. The Loan Parties shall not, directly or
indirectly, make or own any Investment, except:
(i) Investments in Cash Equivalents;
(ii) Investments by any Loan Party in its Subsidiaries;
(iii) Investments in Interest Rate Contracts permitted
pursuant to Section 9.01(vii);
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(iv) Investments received in connection with the bankruptcy
or reorganization of customers of any Loan Party or received in
settlement
of delinquent obligations of or disputes with such Loan Party's
customers in the ordinary course of business; and
(v) other Investments not otherwise permitted under this
Section 9.04 having an aggregate market value (measured on the date
that such Investment was made and without giving affect to subsequent
changes in value) not to exceed $2,500,000 outstanding at any time;
provided that the Collateral Agent has a first priority Lien with
respect to such Investments and such Investment does not violate
Section 9.09.
9.05. Accommodation Obligations. The Loan Parties shall not,
directly or indirectly, create or become or be liable with respect to any
Accommodation Obligation, except (i) recourse obligations resulting from
endorsement of negotiable instruments for collection in the ordinary course of
business, (ii) the Farm Bureau Guaranty, (iii) lease obligations in connection
with office space in New York, New York where Stellex and Mentmore Holding
Corporation will be joint tenants, (iv) Accommodation Obligations by one Loan
Party on behalf of another Loan Party (other than Paragon until the Farm Bureau
Consent has been delivered to the Administrative Agent) but only in connection
with Indebtedness permitted pursuant to Section 9.01(i), (ii), (iii) (iv), (v),
(vi), (vii), (viii), (x) or (xi), and (v) Accommodation Obligations by one Loan
Party that is the acquiror or the target in connection with a Permitted
Acquisition on behalf of another Loan Party that is the acquiror or the target
in connection with such Permitted Acquisition but only in connection with
Indebtedness permitted pursuant to Section 9.01(xiii) or (xiv).
9.06. Restricted Junior Payments. The Loan Parties
shall not declare or make any Restricted Junior Payments, except:
(i) dividends and other distributions made by any Loan Party
(other than Stellex) to Stellex or another Loan Party;
(ii) payments of interest on the Subordinated Notes or the
other subordinated indebtedness permitted pursuant to Section 9.01(xi)
or Section 9.01(xii), provided that such payments are made in
accordance with the provisions of the Subordinated Note Indenture or
such subordinated indebtedness;
(iii) Restricted Junior Payments made to a Management Equity
Holder pursuant to the Put/Call Promissory Notes, the Put/Call
Preferred Stock or to purchase Management Equity Interests, so long as
no Default or Event of Default has
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occurred and is continuing or would occur after giving effect to the
making of such Restricted Junior Payment; provided that (a) the
aggregate amount of such Restricted Junior Payments does not exceed
$500,000 during any Fiscal Year; provided, further, that, with respect
to any Fiscal Year after December 31, 2000, (A) if the Leverage Ratio
for Stellex and its Subsidiaries on a consolidated basis as of the last
day of the immediately preceding Fiscal Year is less than 4.0 to 1.0,
then the aggregate amount of such Restricted Junior Payments that may
be made during such Fiscal Year shall not exceed $2,000,000 and (B) if
the Leverage Ratio for Stellex and its Subsidiaries on a consolidated
basis as of the last day of the immediately preceding Fiscal Year is
less than 3.5 to 1.0, then the aggregate amount of such Restricted
Junior Payments that may be made during such Fiscal Year shall not
exceed $4,000,000; and
(iv) Restricted Junior Payments made by the issuance of
Put/Call Promissory Notes or Put/Call Preferred Stock, in each case, in
exchange for Management Equity Interests, in an aggregate amount not to
exceed the value (calculated in accordance with the respective
agreements pursuant to which such Management Equity Interests were
issued or exchanged) of the Management Equity Interests exchanged so
long as no Default or Event of Default has occurred and is continuing
at the time of such incurrence or issuance or would occur after giving
effect to the issuance of such Put/Call Promissory Note or such
Put/Call Preferred Stock.
9.07. Change in Nature of Business. The Loan Parties shall not
make any material change in the nature or conduct of its business from the
businesses carried on as of the Closing Date other than the Permitted
Acquisitions made in accordance with the provisions of this Agreement.
9.08. Transactions with Affiliates. None of the Loan Parties
shall, directly or indirectly, enter into or permit to exist any transaction
with any Affiliate of such Loan Party except for (i) transactions the terms of
which are in the ordinary course of business, in accordance with customary
practice, and not less favorable to such Loan Party than those that might be
obtained in an arm's length transaction at the time from a Person who is not an
Affiliate, (ii) reasonable salaries, bonuses and other compensation (including
deferred compensation, retirement, loan arrangements and severance benefits)
paid to current and former officers, directors and managers of such Loan Party
commensurate with salary, bonus and compensation levels of other companies
engaged in a similar business in similar circumstances, specifically including
those amount contemplated by the Management Participation Agreement as in effect
on the date hereof, (iii) transactions permitted under Sections 9.01(v),
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9.01(xiii), 9.04(ii), 9.05, 9.06, 9.09 and 9.17, (iv) the loan from Trinity
Investment Corp. in an amount of Two Million Five Hundred Thousand Dollars
($2,500,000) plus accrued and unpaid interest, which amount shall be paid to
Trinity Investment Corp. on the Closing Date and (v) tax-sharing arrangement
among the Loan Parties described in the Tax Sharing Agreement.
9.09. Restriction on Fundamental Changes. (a) No Loan Party
shall enter into any merger or consolidation, or liquidate, wind-up or dissolve
(or suffer any liquidation or dissolution), or convey, lease, sell, transfer or
otherwise dispose of, in one transaction or series of transactions, all or
substantially all of its business or assets, whether now or here after acquired,
except (i) Permitted Dispositions and (ii) any Wholly Owned Subsidiary of a Loan
Party may merge or consolidate into, or convey, lease, sell, transfer or
otherwise dispose of, in one transaction or a series of related transactions,
all or substantially all of its business or assets to, another Wholly Owned
Subsidiary of such Loan Party so long as the terms and conditions of any such
transaction and the documentation in connection therewith are in form and
substance satisfactory to Requisite Lenders and all assets remain subject to the
first priority Lien of the Collateral Agent under the Collateral Documents.
(b) No Loan Party shall acquire by purchase or otherwise all
or substantially all of the business property or assets of, or stock or other
evidence of beneficial ownership of, any Person; provided, however, that a Loan
Party may make a Permitted Acquisition if (i) such Loan Party acquires at least
75% of the equity interests (including 75% of the Voting Stock) of a Person in
connection with a Permitted Acquisition involving the acquisition of such
Person; (ii) the equity interests and/or assets acquired by such Loan Party with
respect to any such Permitted Acquisition are pledged by such Loan Party to the
Collateral Agent pursuant to agreements, substantially in the forms of the
Collateral Documents; (iii) any acquired Person guarantees the Obligations
pursuant to an agreement, substantially in the form of the Guaranty and becomes
a Loan Party under the Contribution Agreement; (iv) no Default or Event of
Default has occurred and is continuing; and (iv) all documentation (including,
without limitation, UCC financing statements, opinions of counsel, and
appropriate consents) in connection with such Permitted Acquisition is in form
and substance reasonably satisfactory to the Administrative Agent and the
Requisite Lenders.
(c) No Loan Party shall create any new Subsidiary, joint
venture or partnership; provided, however, that a Loan Party may create a new
corporate Subsidiary if (i) a Loan Party holds at least 75% of the equity
interests (including at least 75% of the Voting Stock) of such newly created
Subsidiary; (ii)
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all of the equity interests that a Loan Party has (whether as legal or
beneficial owner) are pledged to the Collateral Agent, on terms and conditions
satisfactory to the Administrative Agent and all of the assets of such new
Subsidiary are pledged to the Collateral Agent, on terms and conditions
satisfactory to the Administrative Agent; (ii) such new Subsidiary guarantees
the Obligations on terms and conditions satisfactory to the Administrative Agent
and becomes a Loan Party under the Contribution Agreement; (iii) no Default or
Event of Default has occurred and is continuing; and (iv) all documentation
(including, without limitation, security agreements, guarantees, pledge
agreements, UCC financing statements, opinions of counsel, and appropriate
consents) in connection with such new Subsidiary shall be in form and substance
reasonably satisfactory to the Administrative Agent and the Requisite Lenders.
(c) Except as permitted under this Agreement, no Loan Party
shall change its corporate, capital or legal structure.
9.10. Sales and Leasebacks. No Loan Party shall become liable,
by assumption or by Accommodation Obligation, with respect to any lease, whether
a Capital Lease or an operating lease, of any property (whether real or personal
or mixed) (i) which such Loan Party has sold or transferred or will sell or
transfer to any other Person or (ii) which such Loan Party intends to use for
substantially the same purposes as any other asset which it has sold or
transferred or will sell or transfer to any other Person in connection with such
lease.
9.11. Margin Regulations. No Loan Party shall use all or any
portion of the proceeds of any Loan made under this Agreement to purchase or
carry Margin Stock.
9.12. ERISA. No Loan Party shall, nor shall it permit any
ERISA Affiliate to, do any of the following to the extent that such act or
failure to act would result in the aggregate, after taking into account any
other such acts or failure to act, in a Material Adverse Effect:
(i) engage, or knowingly permit an ERISA Affiliate to engage,
in any prohibited transaction described in Sections 406 of ERISA or
4975 of the Code for which a class exemption is not available or a
private exemption has not been previously obtained from the DOL;
(ii) permit to exist any accumulated funding deficiency (as
defined in Sections 302 of ERISA or 412 of the Code), with respect to
any Benefit Plan, which has not been waived;
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(iii) fail, or permit any ERISA Affiliate to fail, to pay
timely required contributions or annual installments due with respect
to any waived funding deficiency to any Plan if such failure could
result in the imposition of a Lien or otherwise could have a Material
Adverse Effect;
(iv) terminate, or permit any ERISA Affiliate to terminate,
any Benefit Plan which would result in any liability of such Loan
Party, or any ERISA Affiliate under Title IV of ERISA or under such
Benefit Plan; or
(v) fail, or permit any ERISA Affiliate to fail, to pay any
required installment under section (m) of Section 412 of the Code or
any other payment required under Section 412 of the Code or Section 302
of ERISA on or before the due date for such installment or other
payment, if such failure could result in the imposition of a Lien or
otherwise could have a Material Adverse Effect.
9.13. Capital Expenditures. None of the Loan Parties shall
make or incur any Capital Expenditures (a) during the period from the Closing
Date to the end of Fiscal Year 1997 if, after giving effect to such Capital
Expenditures, the aggregate amount of all Capital Expenditures made by the Loan
Parties would exceed One Million Seven Hundred Thousand Dollars ($1,700,000) for
such period, and (b) during any Fiscal Year thereafter if, after giving effect
to such Capital Expenditures, the aggregate amount of all Capital Expenditures
made by the Loan Parties during such Fiscal Year would exceed Four Million
Dollars ($4,000,000) for such Fiscal Year; provided, however, the Loan Parties
may carry forward from one Fiscal Year (other than Fiscal Year 1997) to the next
Fiscal Year any Capital Expenditures permitted but not made or incurred in such
Fiscal Year.
9.14. Amendment of Governing Documents. No Loan Party (other
than Stellex) shall amend, supplement or otherwise change its Governing
Documents in any material respect, and Stellex shall not amend, supplement or
otherwise change its Governing Documents in any material respect which is
adverse to the interests of the Lenders.
9.15. Environmental Liabilities. Except as disclosed in
Schedule 6.01(P), no Loan Party shall become subject to any Liabilities and
Costs which exceed One Million Dollars ($1,000,000) in a particular instance or
Two Million Five Hundred Thousand Dollars ($2,500,000) in the aggregate, arising
out of or relating to (a) the Release or threatened Release at any location of
any Contaminant into the environment, or any Remedial Action in response thereto
or (b) any violation of any Environmental, Health or Safety Requirement of Law.
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9.16. No Activities Leading to Forfeiture. No Loan Party
shall engage in the conduct of any business or activity which could result in a
Forfeiture Proceeding.
9.17. Management Fees and Consulting Fees. The Loan Parties
shall not pay any management fee or consulting fee or transfer any assets to any
Affiliate, other than the following payments:
(i) the payment of management fees pursuant to the Management
Agreement in an amount not to exceed (A) Seven Hundred Fifty Thousand
Dollars ($750,000) during any Fiscal Year, exclusive of expenses, and
(B) after the first anniversary of the Closing Date, additional
payments in an amount not to exceed one percent (1%) of sales for
Stellex and its Subsidiaries on a consolidated basis during such Fiscal
Year less any amount paid pursuant to the preceding clause (A),
exclusive of expenses, provided, in the case of clause (B) above, that
the Interest Coverage Ratio for Stellex and its Subsidiaries on a
consolidated basis for the immediately preceding Fiscal Year, after
giving pro forma effect to such payment, is equal to or greater than
2.25 to 1.0; provided, further, that at the time of any such payment
and after giving effect to such payment no Default or Event of Default
shall have occurred and be continuing;
(ii) the reimbursement of reasonable business expenses
incurred in the ordinary course of business by an Affiliate on behalf
of any Loan Party, provided that the Loan Parties are in compliance
with Section 9.08;
(iii) the payment of investment banking fees by the Loan
Parties to Mentmore Holdings Corporation in connection with the
transactions contemplated by the Transaction Documents in an amount not
to exceed One Million Dollars ($1,000,000); and
(iv) the payment of investment banking fees by the Loan
Parties to Mentmore Holdings Corporation in connection with any
Permitted Acquisition in an amount not to exceed one percent (1%) of
the transaction value.
9.18. Farm Bureau Life Insurance Company. Aerospace shall not
assign or transfer any moneys, securities or other property to Farm Bureau, or
permit any moneys, securities or other property to be in the constructive or
actual possession of or on deposit with Farm Bureau, provided, however, that
Aerospace may make payments to Farm Bureau that are due and payable under the
Farm Bureau Guaranty.
9.19. Amendment of Subordinated Documents. No Loan Party
shall amend, supplement or otherwise change the provisions
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of the Subordinated Note Documents or any documents evidencing the subordinated
indebtedness referred to in Section 9.01(xii) in any material respect which
would be adverse to the interests of the Lenders.
ARTICLE X
FINANCIAL COVENANTS
Each Loan Party covenants and agrees so long as any Commitment
is outstanding and thereafter until payment in full of the Obligations:
10.01. Minimum Net Worth. The Net Worth of Stellex and its
Subsidiaries on a consolidated basis at the end of each fiscal quarter of each
Fiscal Year shall not be less than the sum of (i) $5,500,000 plus (ii) an amount
equal to 50% of Net Income since the Closing Date (excluding any losses).
10.02. Minimum Interest Coverage Ratio. The Interest
Coverage Ratio of Stellex and its Subsidiaries on a consolidated
basis at the end of each Financial Covenant Period set forth
below shall not be less than the ratio set forth opposite such
date:
Financial Covenant
Period Ending: Ratio
------------------ -----
March 31, 1998 1.60 to 1.00
June 30, 1998 1.60 to 1.00
September 30, 1998 1.60 to 1.00
December 31, 1998 1.70 to 1.00
March 31, 1999 1.70 to 1.00
June 30, 1999 1.70 to 1.00
September 30, 1999 1.70 to 1.00
December 31, 1999 2.00 to 1.00
March 31, 2000 2.00 to 1.00
June 30, 2000 2.00 to 1.00
September 30, 2000 2.00 to 1.00
December 31, 2000 2.50 to 1.00
March 31, 2001 2.50 to 1.00
June 30, 2001 2.50 to 1.00
September 30, 2001 2.50 to 1.00
December 31, 2001 2.75 to 1.00
March 31, 2002 2.75 to 1.00
June 30, 2002 2.75 to 1.00
September 30, 2002 2.75 to 1.00
December 31, 2002 3.00 to 1.00
March 31, 2003 3.00 to 1.00
June 30, 2003 3.00 to 1.00
September 30, 2003 3.00 to 1.00
December 31, 2003 3.00 to 1.00
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10.03. Minimum Fixed Charge Coverage Ratio. The Fixed Charge
Coverage Ratio of Stellex and its Subsidiaries on a consolidated basis at the
end of each Financial Covenant Period commencing with the Financial Covenant
Period ending March 31, 2000 shall not be less than 1.50 to 1.00.
10.04. Maximum Leverage Ratio. The Leverage Ratio of
Stellex and its Subsidiaries on a consolidated basis, at the end
of each Financial Covenant Period set forth below, shall not be
greater than the ratio set forth opposite such date:
Financial Covenant
Period Ending: Ratio
------------------ -----
March 31, 1998 6.00 to 1.00
June 30, 1998 6.00 to 1.00
September 30, 1998 6.00 to 1.00
December 31, 1998 6.00 to 1.00
March 31, 1999 6.00 to 1.00
June 30, 1999 6.00 to 1.00
September 30, 1999 6.00 to 1.00
December 31, 1999 4.75 to 1.00
March 31, 2000 4.75 to 1.00
June 30, 2000 4.75 to 1.00
September 30, 2000 4.75 to 1.00
December 31, 2000 4.25 to 1.00
March 31, 2001 4.25 to 1.00
June 30, 2001 4.25 to 1.00
September 30, 2001 4.25 to 1.00
December 31, 2001 3.50 to 1.00
March 31, 2002 3.50 to 1.00
June 30, 2002 3.50 to 1.00
September 30, 2002 3.50 to 1.00
December 31, 2002 3.25 to 1.00
March 31, 2003 3.25 to 1.00
June 30, 2003 3.25 to 1.00
September 30, 2003 3.25 to 1.00
December 31, 2003 3.25 to 1.00
ARTICLE XI
EVENTS OF DEFAULT; RIGHTS AND REMEDIES
11.01. Events of Default. Each of the following
occurrences shall constitute an Event of Default under this
Agreement:
(a) Failure to Make Payments When Due. The Borrowers shall
fail to pay any principal of any Note when due, or shall fail to pay any
interest on any Note or any other Obligation within three (3) Business Days
after such interest or Obligation shall become due.
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(b) Breach of Representation or Warranty. Any representation
or warranty made or deemed to have been made by any Loan Party under, relating
to or in connection with this Agreement, the Notes, any of the other Loan
Documents or any certificate or statement furnished by any Loan Party pursuant
to or in connection with this Agreement shall be false or misleading in any
material respect when made.
(c) Breach of Certain Covenants. Any Loan Party shall fail
duly and punctually to perform or observe any agreement, covenant or obligation
binding on such Loan Party under Section 7.04, Section 8.01, Section 8.02,
Section 8.03, Section 8.06, Article IX or Article X of this Agreement or under
any section of any other Loan Document.
(d) Other Defaults. Any Loan Party shall fail duly and
punctually to perform or observe any term, covenant or obligation binding on
such Loan Party (i) under Section 7.01 or Section 7.02 of this Agreement and
such failure shall continue for ten (10) Business Days after the occurrence of
such failure or (ii) under this Agreement (other than as described in Sections
11.01(a), (c) or (d)(i)), and such failure shall continue for thirty (30) days
after any Loan Party knew of such failure.
(e) Default as to Other Indebtedness. Any Loan Party shall
fail to make any payment when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) with respect to any Indebtedness
(other than (i) an Obligation, (ii) the Seller Note or (iii) any Put/Call
Promissory Notes or the Put/Call Preferred Stock but only so long as such
Put/Call Promissory Notes or Put/Call Preferred Stock (or any payments
thereunder or failure to make payments thereunder) do not give rise to a default
or event of default under or in connection with any other Indebtedness) if the
aggregate amount of such other Indebtedness is One Million Dollars ($1,000,000)
or more; or any breach, default or event of default shall occur, or any other
condition shall exist under any instrument, agreement or indenture pertaining to
any such Indebtedness, if the effect thereof (with or without the giving of
notice or lapse of time or both) is to cause an acceleration, mandatory
redemption or other required repurchase of such Indebtedness or permit the
holder or holders of such Indebtedness to accelerate the maturity of any such
Indebtedness or require a redemption or other repurchase of such Indebtedness;
or any such Indebtedness shall be otherwise declared to be due and payable (by
acceleration or otherwise) or required to be prepaid, redeemed or otherwise
repurchased by any Loan Party (other than by a regularly scheduled required
prepayment) prior to the stated maturity thereof; or the holder or holders of
any Lien, in any amount, shall commence foreclosure of such Lien upon property
of any Loan Party having an aggregate value in excess of One Million Dollars
($1,000,000).
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(f) Involuntary Bankruptcy; Appointment of Receiver, etc. (i)
An involuntary case shall be commenced against any Loan Party and the petition
shall not be dismissed, stayed, bonded or discharged for a period of thirty (30)
days; or a court having jurisdiction in the premises shall enter a decree or
order for relief in respect of any Loan Party in an involuntary case, under any
applicable bankruptcy, insolvency or other similar law now or hereinafter in
effect; or any other similar relief shall be granted under any applicable
federal, state, local or foreign law; or the board of directors of any Loan
Party (or any committee thereof) adopts any resolution or otherwise authorizes
any action to approve any of the foregoing.
(ii) A decree or order of a court having jurisdiction in the
premises for the appointment of a receiver, liquidator, sequestrator, trustee,
custodian or other officer having similar powers over any Loan Party or over all
or a substantial part of the assets of any Loan Party shall be entered and such
decree or order shall not be stayed, dismissed or discharged for a period of
thirty (30) days; or an interim receiver, trustee or other custodian of any Loan
Party or of all or a substantial part of the assets of any Loan Party shall be
appointed or a warrant of attachment, execution or similar process against any
substantial part of the assets of any Loan Party shall be issued and any such
event shall not be stayed, dismissed, bonded or discharged for a period of
thirty (30) days; or the board of directors of any Loan Party (or any committee
thereof) adopts any resolution or otherwise authorizes any action to approve any
of the foregoing.
(g) Voluntary Bankruptcy; Appointment of Receiver, etc. Any
Loan Party shall commence a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or shall consent to
the entry of an order for relief in an involuntary case, or to the conversion of
an involuntary case to a voluntary case, under any such law, or shall consent to
the appointment of or taking possession by a receiver, trustee or other
custodian for all or a substantial part of its assets; or any Loan Party shall
make any assignment for the benefit of creditors or shall be unable or fail, or
shall admit in writing its inability, to pay its debts as such debts become due,
or the board of directors of any Loan Party (or any committee thereof) adopts
any resolution or otherwise authorizes any action to approve any of the
foregoing.
(h) Judgments and Attachments. Any money judgment (other than
a money judgment covered by insurance as to which the insurance company has
acknowledged coverage), writ or warrant of attachment, or similar process
against any Loan Party or any assets of any Loan Party involving in any case an
amount in excess of One Million Dollars ($1,000,000) is entered and shall remain
undischarged, unvacated, unbonded or unstayed for a period of thirty (30) days.
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(i) Dissolution. Any order, judgment or decree shall be
entered against any Loan Party decreeing its involuntary dissolution or split
up and such order shall remain undischarged and unstayed for a period of thirty
(30) days; or any Loan Party shall otherwise dissolve or cease to exist (except
as permitted under this Agreement).
(j) Loan Documents; Failure of Security. At any time, for any
reason, (i) any Loan Document ceases to be in full force and effect or any Loan
Party seeks to repudiate its obligations thereunder and the Liens intended to be
created thereby are, or any Loan Party seeks to render such Liens, invalid and
unperfected, or (ii) Liens in favor of the Collateral Agent and/or the Lenders
contemplated by the Loan Documents shall, at any time, for any reason, be
invalidated or otherwise cease to be in full force and effect, or such Liens
shall be subordinated or shall not have the priority contemplated by this
Agreement or the Loan Documents.
(k) ERISA Liabilities. Any Termination Event occurs which will
or is reasonably likely to subject either a Loan Party or an ERISA Affiliate to
a liability which will, or is reasonably likely to have, a Material Adverse
Effect.
(l) Waiver Application. The plan administrator of any Benefit
Plan applies under Section 412(d) of the Code for a waiver of the minimum
funding standards of Section 412(a) of the Code and the substantial business
hardship upon which the application for the waiver is based could subject either
any Loan Party or any ERISA Affiliate to liability which will or is reasonably
likely to have a Material Adverse Effect.
(m) Change of Control. A Change of Control shall have
occurred.
(n) Government Contracts. At any time, for any reason, (i) a
notice of debarment, notice of suspension or notice of termination for default
shall have been issued to any Borrower under or in connection with any
Government Contract which could reasonably result in a Material Adverse Effect;
(ii) a notice of debarment, notice of suspension or notice of termination for
default shall have been issued to any other party under a Government Contract as
a direct or indirect result of any Borrower's performance or malfeasance
thereunder which could reasonably result in a Material Adverse Effect; (iii) any
Borrower is barred or suspended from contracting with any Governmental
Authority; (iv) a Government investigation shall have been commenced in
connection with any Government Contract or any Borrower which could reasonably
result in criminal or civil liability, suspension, debarment or any other
adverse administrative action arising by reason of alleged fraud, willful
misconduct, neglect, default or other wrongdoing; (v) the actual
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termination of any Material Contract due to alleged fraud, willful misconduct,
neglect, default or other wrongdoing which could reasonably result in a Material
Adverse Effect; or (vi) a cure notice issued under any Government Contract shall
remain uncured beyond (A) the expiration of the time period available to such
Borrower pursuant to such Government Contract and/or such cure notice, to cure
the noticed default or (B) the date on which the other contracting party is
entitled to exercise its rights and remedies under the Government Contract as a
consequence of such default, which could reasonably result in a Material Adverse
Effect.
An Event of Default shall be deemed "continuing" until cured
or waived in writing in accordance with Section 13.09.
11.02. Rights and Remedies.
(a) Acceleration and Termination. Upon the occurrence of any
Event of Default described in Section 11.01(f) or 11.01(g), the Commitments
shall automatically and immediately terminate and the unpaid principal amount
of, and any and all accrued interest on, the Obligations and all accrued fees
shall automatically become immediately due and payable, without presentment,
demand, or protest or other requirements of any kind (including, without
limitation, valuation and appraisement, diligence, presentment, notice of intent
to demand or accelerate and of acceleration), all of which are hereby expressly
waived by the Borrowers, and the obligations of the Lenders to make Loans
hereunder shall thereupon terminate; and upon the occurrence and during the
continuance of any other Event of Default, the Administrative Agent shall, at
the request, or may with the consent, of the Requisite Lenders, declare (i) that
the Commitments are terminated, whereupon the Commitments shall immediately
terminate, and/or (ii) the unpaid principal amount of, and any and all accrued
interest on, the Obligations and all accrued fees to be, and the same shall
thereupon be, immediately due and payable, without presentment, demand, or
protest or other requirements of any kind (including, without limitation,
valuation and appraisement, diligence, presentment, notice of intent to demand
or accelerate and of acceleration, except as may be specifically provided for
herein), all of which are hereby expressly waived by the Borrowers.
(b) Enforcement. Each Loan Party acknowledges that in the
event any Loan Party fails to perform, observe or discharge any of its
respective obligations or liabilities under this Agreement or any other Loan
Document, any remedy of law may prove to be inadequate relief to the Agents and
the Lenders; therefore, the Loan Parties agree that the Agents and the Lenders
shall be entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages.
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ARTICLE XII
THE AGENTS
12.01. Appointment. (a) Each Lender hereby designates and
appoints SocGen as the Administrative Agent of such Lender under this Agreement,
and each Lender hereby irrevocably authorizes the Administrative Agent to take
such action on its behalf under the provisions of this Agreement, the Notes and
the Loan Documents and to exercise such powers as are set forth herein or
therein together with such other powers as are reasonably incidental thereto. As
to any matters not expressly provided for by this Agreement or the other Loan
Documents, the Administrative Agent shall not be required to exercise any
discretion or take any action. Notwithstanding the foregoing, the Administrative
Agent shall be required to act or refrain from acting (and shall be fully
protected in so acting or refraining from acting) upon the instructions of the
Requisite Lenders (unless the instructions or consent of all of the Lenders is
required hereunder or thereunder) and such instructions shall be binding upon
all Lenders; provided, however, the Administrative Agent shall not be required
to take any action which (i) the Administrative Agent believes will expose it to
personal liability unless the Administrative Agent receives an indemnification
satisfactory to it from the Lenders with respect to such action or (ii) is
contrary to this Agreement, the Notes, the other Loan Documents or applicable
law. The Administrative Agent agrees to act as such on the express conditions
contained in this Article XII.
(b) Each Lender hereby designates and appoints First Union as
the Syndication Agent and the Collateral Agent of such Lender under this
Agreement, and each Lender hereby irrevocably authorizes the Syndication Agent
and the Collateral Agent to take such action on its behalf under the provisions
of this Agreement, the Notes and the Loan Documents and to exercise such powers
as are set forth herein or therein together with such other powers as are
reasonably incidental thereto. As to any matters not expressly provided for by
this Agreement or the other Loan Documents, the Syndication Agent and the
Collateral Agent shall not be required to exercise any discretion or take any
action. Notwithstanding the foregoing, the Syndication Agent and the Collateral
Agent shall be required to act or refrain from acting (and shall be fully
protected in so acting or refraining from acting) upon the instructions of the
Requisite Lenders (unless the instructions or consent of all of the Lenders is
required hereunder or thereunder) and such instructions shall be binding upon
all Lenders; provided, however, the Syndication Agent and the Collateral Agent
shall not be required to take any action which (i) the Syndication Agent and the
Collateral Agent believes will expose it to personal liability unless the
Syndication Agent and the Collateral Agent receives an indemnification
satisfactory
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to it from the Lenders with respect to such action or (ii) is contrary to this
Agreement, the Notes, the other Loan Documents or applicable law. The
Syndication Agent and the Collateral Agent agrees to act as such on the express
conditions contained in this Article XII.
(c) The provisions of this Article XII are solely for the
benefit of the Agents and the Lenders, and none of the Loan Parties shall have
any rights to rely on or enforce any of the provisions hereof (other than as
expressly set forth in Section 12.07). In performing its functions and duties
under this Agreement, the Agents shall act solely as agents of the Lenders and
does not assume and shall not be deemed to have assumed any obligation or
relationship of agency, trustee or fiduciary with or for any Loan Party. The
Agents may perform any of their respective duties hereunder, or under the Loan
Documents, by or through their respective agents or employees.
12.02. Nature of Duties. The Agents shall not have any duties
or responsibilities except those expressly set forth in this Agreement or in the
Loan Documents. The duties of the Agents shall be mechanical and administrative
in nature. The Agents shall not have by reason of this Agreement a fiduciary
relationship in respect of any Holder. Nothing in this Agreement or any of the
Loan Documents, expressed or implied, is intended to or shall be construed to
impose upon the Agents any obligations in respect of this Agreement or any of
the Loan Documents except as expressly set forth herein or therein. Each Lender
shall make its own independent investigation of the financial condition and
affairs of Stellex and the other Loan Parties in connection with the Loans
hereunder and shall make its own appraisal of the credit worthiness of Stellex
and the other Loan Parties initially and on a continuing basis, and the Agents
shall not have any duty or responsibility, either initially or on a continuing
basis, to provide any Holder with any credit or other information with respect
thereto (except for reports required to be delivered by the Agents under the
terms of this Agreement). If the Agents seek the consent or approval of the
Lenders to the taking or refraining from taking of any action hereunder, the
Agents shall send notice thereof to each Lender. The Agents shall promptly
notify each Lender at any time that the Lenders so required hereunder have
instructed the Agents to act or refrain from acting pursuant hereto.
12.03. Rights, Exculpation, etc. (a) Liabilities;
Responsibilities. None of the Agents, any Affiliate of any Agent, or any of
their respective officers, directors, employees, agents, attorneys or
consultants shall be liable to any Holder for any action taken or omitted by
them hereunder, under the Notes or under any of the Loan Documents, or in
connection therewith, except that no Person shall be relieved of any liability
imposed by law for gross negligence or willful
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misconduct. No Agent shall be liable for any apportionment or distribution of
payments made by it in good faith, and if any such apportionment or distribution
is subsequently determined to have been made in error the sole recourse of any
Holder to whom payment was due, but not made, shall be to recover from other
Holders any payment in excess of the amount to which they are determined to have
been entitled. The Agents shall not be responsible to any Holder for any
recitals, statements, representations or warranties herein or for the
execution, effectiveness, genuineness, validity, legality, enforceability,
collectability, or sufficiency of this Agreement, the Notes or any of the other
Loan Documents or the transactions contemplated thereby, or for the financial
condition of Stellex or any other Loan Party. None of the Agents are making any
representation and warranty in connection with, and shall not be required to
make any inquiry concerning, the Collateral, the performance or observance of
any of the terms, provisions or conditions of this Agreement, the Notes or any
of the Loan Documents, or the financial condition of Stellex or any other Loan
Party, or the existence or possible existence of any Default or Event of
Default.
(b) Right to Request Instructions. Any Agent may at any time
request instructions from the Lenders (and after all Obligations owing to the
Lenders have been paid in full, from the Holders) with respect to any actions or
approvals which by the terms of any of the Loan Documents such Agent is
permitted or required to take or to grant, and such Agent shall be absolutely
entitled to refrain from taking any action or to withhold any approval and shall
not be under any liability whatsoever to any Person for refraining from any
action or withholding any approval under any of the Loan Documents until it
shall have received such instructions from those Lenders or Holders, as the case
may be, from whom such Agent is required to obtain such instructions for the
pertinent matter in accordance with the Loan Documents. Without limiting the
generality of the foregoing, no Holder shall have any right of action whatsoever
against any Agent as a result of such Agent acting or refraining from acting
under the Loan Documents in accordance with the instructions of all Lenders or,
where required by the express terms of this Agreement, a lesser proportion of
the Lenders, or of all Holders (after the Obligations owing to the Lenders have
been paid in full).
12.04. Reliance. Each Agent shall be entitled to rely upon any
written notices, statements, certificates, orders or other documents or any
telephone message believed by it in good faith to be genuine and correct and to
have been signed, sent or made by the proper Person, and with respect to all
matters pertaining to this Agreement or any of the Loan Documents and its duties
hereunder or thereunder, upon advice of legal counsel, independent public
accountants and other experts selected by it.
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12.05. Indemnification. To the extent that the Agents are not
reimbursed and indemnified by the Borrowers, the Lenders will reimburse and
indemnify each Agent for and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, reasonable costs,
reasonable expenses or disbursements of any kind or nature whatsoever which may
be imposed on, incurred by, or asserted against it in any way relating to or
arising out of the Loan Documents or any action taken or omitted by such Agent
under the Loan Documents, in proportion to each Lender's Pro Rata Share;
provided that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from such Agent's gross negligence or
willful misconduct. The obligations of the Lenders under this Section 12.05
shall survive the payment in full of the Loans and all other Obligations and the
termination of this Agreement. In the event that after payment and distribution
of any amount by the Administrative Agent to Lenders, any Lender or third party,
including any Loan Party, any creditor of any Loan Party or a trustee in
bankruptcy, recovers from the Administrative Agent any amount found to have been
wrongfully paid to the Administrative Agent or disbursed by the Administrative
Agent to Lenders, then Lenders, in proportion to their respective Pro Rata
Shares, shall reimburse the Administrative Agent for all such amounts.
12.06. The Agents Individually. With respect to the Loans made
by it, SocGen and First Union shall have and may exercise the same rights and
powers hereunder and is subject to the same obligations and liabilities as and
to the extent set forth herein for any other Lender. The terms "Lenders" or
"Requisite Lenders" or any similar terms shall, unless the context clearly
otherwise indicates, include SocGen and First Union in their respective
individual capacities as a Lender or one of the Requisite Lenders. Each of
SocGen and First Union and their respective Affiliates may accept deposits from,
lend money to, and generally engage in any kind of banking, trust or other
business with any Loan Party or any of its Affiliates as if it were not acting
as an Agent pursuant hereto.
12.07. Successor Agents. (a) Resignation. Any Agent may
resign from the performance of all its functions and duties hereunder at any
time by giving at least thirty (30) days' prior written notice to the Borrowers
and the Lenders. Such resignation shall take effect upon the acceptance by a
successor Agent of appointment pursuant to this Section 12.07.
(b) Appointment by Requisite Lenders. Upon any such notice of
resignation, the Requisite Lenders shall have the right to appoint a successor
Agent selected from among the Lenders, which appointment shall be subject to the
prior written approval of Stellex (which may not be unreasonably withheld, and
shall not
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be required upon the occurrence and during the continuance of an Event of
Default or Default).
(c) Appointment by Retiring Agent. If a successor Agent shall
not have been appointed within the thirty (30) day period provided in paragraph
(a) of this Section 12.07, the retiring Agent shall then appoint a successor
Agent who shall serve as such Agent until such time, if any, as the Requisite
Lenders appoint a successor Agent as provided above. Each Lender shall indemnify
and hold such Agent harmless for and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, reasonable
costs, reasonable expenses or disbursements of any kind or nature whatsoever
which may be imposed on, incurred by, or asserted against it in any way relating
to or arising out of the appointment of a successor Agent pursuant to the terms
of this paragraph (c).
(d) Rights of the Successor and Retiring Agents. Upon the
acceptance of any appointment hereunder as Administrative Agent, Collateral
Agent or Syndication Agent, as the case may be, by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations under this Agreement.
After any retiring Agent's resignation hereunder as an Agent, the provisions of
this Article XII shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was such Agent under this Agreement.
12.08. Relations Among Lenders. Each Lender agrees that it
will not take any legal action, nor institute any actions or proceedings,
against any Loan Party or any other Loan Party or with respect to any
Collateral, without the prior written consent of the Requisite Lenders. Without
limiting the generality of the foregoing, no Lender may accelerate or otherwise
enforce its portion of the Obligations, except in accordance with Section
11.02(a).
12.09. Concerning the Collateral and the Loan Documents. (a)
Authority. Subject to the terms and conditions hereof, each Lender authorizes
and directs the Collateral Agent to enter into the Loan Documents relating to
the Collateral for the benefit of the Lenders. Each Lender agrees that any
action taken by any Agent or all Lenders (or, where required by the express
terms of this Agreement, a lesser proportion of the Lenders) in accordance with
the provisions of this Agreement or the other Loan Documents, and the exercise
by any Agent or all Lenders (or, where so required, such lesser proportion) of
the powers set forth herein or therein, together with such other powers as are
reasonably incidental thereto, shall be authorized and binding upon all of the
Lenders. Without limiting the generality of the foregoing, (i) the
Administrative Agent shall
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have the sole and exclusive right and authority to act as the disbursing and
collecting agent for the Lenders with respect to all payments and collections
arising in connection with this Agreement and the Loan Documents relating to the
Collateral and (ii) the Collateral Agent shall have the sole and exclusive right
and authority to execute and deliver each Loan Document relating to the
Collateral and accept delivery of each such agreement delivered by any Loan
Party; act as collateral agent for the Lenders for purposes of the perfection of
all security interests and Liens created by such agreements and all other
purposes stated therein; manage, supervise and otherwise deal with the
Collateral; take such action as is necessary or desirable to maintain the
perfection and priority of the security interests and Liens created or purported
to be created by the Loan Documents; and except as may be otherwise specifically
restricted by the terms of this Agreement or any other Loan Document, exercise
all remedies given to the Collateral Agent or the Lenders with respect to the
Collateral under the Loan Documents, applicable law or otherwise.
(b) Release of Collateral. (i) Each Lender hereby directs the
Collateral Agent to release or to subordinate any Lien held by the Agent for the
benefit of the Lenders (A) against all of the Collateral, upon payment in full
of the Obligations and termination of this Agreement or (B) against the
Collateral sold, assigned, transferred, conveyed or otherwise disposed of
pursuant to Sections 9.02(ii), (iii) and (vi) when the Collateral Agent receives
a certificate from the Borrowers pursuant to which the Borrowers represent and
warrant that the Collateral is being sold, assigned, transferred, conveyed or
otherwise disposed of in compliance with Section 9.02(ii), (iii) or (vi).
(ii) Each Lender hereby directs the Collateral Agent to
execute and deliver or file such termination and partial release statements and
do such other things as are necessary to release Liens to be released pursuant
to this Section 12.09(b) promptly upon the effectiveness of any such release.
Upon request by the Collateral Agent at any time, the Lenders will confirm in
writing the Collateral Agent's authority to release particular types or items as
Collateral pursuant to this Section 12.09.
(iii) Without in any manner limiting the Collateral Agent's
authority to act without any specific or further authorization or consent by the
Lenders (as set forth in Section 12.09(b)), each Lender agrees to confirm in
writing, upon request by Stellex, the authority to release or subordinate Liens
in the Collateral conferred upon the Collateral Agent under Section 12.09(b). So
long as no Event of Default or Default is then continuing, upon receipt by the
Collateral Agent of any such written confirmation from the Lenders of its
authority to release any particular items or types of Collateral, and upon at
least
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five (5) Business Days prior written request by Stellex, the Collateral Agent
shall (and is hereby irrevocably authorized by Lenders to) execute such
documents as may be necessary to evidence the release of the Liens granted to
the Collateral Agent for the benefit of Lenders herein or pursuant hereto upon
such Collateral; provided, that (A) the Collateral Agent shall not be required
to execute any such document on terms which, in the Collateral Agent's opinion,
would expose the Collateral Agent to liability or create any obligation or
entail any consequence other than the release of such Liens without recourse or
warranty, and (B) such release shall not in any manner discharge, affect or
impair the Obligations or any Liens upon (or obligations of the Borrowers in
respect of) all interests retained by the Loan Parties all of which shall
continue to constitute part of the Collateral.
(iv) The Collateral Agent shall have no obligation whatsoever
to the Lenders or to any other Person to assure that the Collateral exists or is
owned by any Loan Party or is cared for, protected or insured or has been
encumbered or that the Liens granted to the Collateral Agent pursuant to the
Loan Documents have been properly or sufficiently or lawfully created,
perfected, protected or enforced or are entitled to any particular priority, or
to exercise at all or in any particular manner or under any duty of care,
disclosure or fidelity, or to continue exercising, any of the rights,
authorities and powers granted or available to the Collateral Agent in this
Section 12.09 or in any of the Loan Documents, it being understood and agreed
that in respect of the Collateral, or in any act, omission or event related
thereto, the Collateral Agent may act in any manner it may deem appropriate, in
its sole discretion, given its own interest in the Collateral as one of the
Lenders and that the Collateral Agent shall have no duty or liability whatsoever
to any Lender unless required to act or refrain from acting upon the
instructions of the Lenders and then only in accordance with Section 12.01.
ARTICLE XIII
MISCELLANEOUS
13.01. Assignments and Participations. (a) Assignments. No
assignment or participation of any Lender's rights or obligations under this
Agreement and the Notes shall be made except in accordance with this Section
13.01. Each Lender may assign to one or more Eligible Assignees all or a portion
of its rights and obligations under this Agreement and the Notes in accordance
with the provisions of this Section 13.01.
(b) Limitations on Assignments. Each assignment shall be
subject to the following conditions: (i) each assignment shall be of a
constant, and not a varying, ratable percentage of
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all of the assigning Lender's rights and obligations in respect of its interest
being assigned under this Agreement and its Note and, in the case of a partial
assignment, shall be in a minimum principal amount of Five Million Dollars
($5,000,000) except that such limitations shall not apply to an assignment by
any Lender of any portion of its rights and obligations to another Lender or an
assignment by any Lender of all of its rights or obligations to another Person,
(ii) each such assignment shall be to an Eligible Assignee, and (iii) the
parties to each such assignment shall execute and deliver to the Administration
Agent, for its acceptance and recording in the Register, an Assignment and
Acceptance, together with a processing and recordation fee of Three Thousand
Five Hundred Dollars ($3,500); provided, however, any Lender may assign any or
all of its rights and obligations under this Agreement to any of its Affiliates
without notice to or consent of the Borrowers or the Administrative Agent and
without being subject to the foregoing conditions. Upon such execution,
delivery, acceptance and recording in the Register, from and after the effective
date specified in each Assignment and Acceptance and accepted by the
Administrative Agent (which effective date shall not be any earlier than the
date on which the Administrative Agent so accepts and records the Assignment and
Acceptance in the Register), (x) the assignee thereunder shall, in addition to
any rights and obligations hereunder held by it immediately prior to such
effective date, if any, have the rights and obligations hereunder that have been
assigned to it pursuant to such Assignment and Acceptance and shall, to the
fullest extent permitted by law, have the same rights and benefits hereunder as
if it were an original Lender hereunder and (y) the assigning Lender shall, to
the extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of such
assigning Lender's rights and obligations under this Agreement, the assigning
Lender shall cease to be a party hereto).
(c) The Register. The Administrative Agent shall maintain at
its address referred to in Section 13.09 a copy of each Assignment and
Acceptance delivered to and accepted by it and a register (the "Register") for
the recordation of the names and addresses of the Lenders and the Commitment of
each Lender from time to time and whether such Lender is an original Lender or
the assignee of another Lender pursuant to an Assignment and Acceptance. The
Administrative Agent shall incur no liability of any kind to any Loan Party, any
Lender or any other Person with respect to its maintenance of the Register or
the recordation of information therein. The Register shall be available for
inspection by the Borrowers or any Lender at any reasonable time and from time
to time upon reasonable prior notice. No assignment shall be effective unless
and until the Assignment and
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Acceptance has been accepted by the Administrative Agent and registered in the
Register.
(d) Fee. Upon its receipt of an Assignment and Acceptance
executed by the assigning Lender and an Eligible Assignee and a processing and
recordation fee of $3500 (payable by the assigning Lender or the assignee, as
shall be agreed between them), the Administrative Agent shall, if such
Assignment and Acceptance has been completed and is in compliance with this
Agreement and in substantially the form of Exhibit A hereto, (i) accept such
Assignment and Acceptance, (ii) record the information contained therein in the
Register and (iii) give prompt notice thereof to the Borrowers and the other
Lenders.
(e) Participations. Each Lender may sell participations to
one or more commercial banks, lending institutions, finance companies, insurance
companies, other financial institutions or funds in or to all or a portion of
its rights and obligations under and in respect of any and all facilities under
this Agreement (including, without limitation, all or a portion of any or all of
its Commitments hereunder and the Loans owing to it); provided, however, that
(i) such Lender's obligations under this Agreement (including, without
limitation, its Commitments hereunder) shall remain unchanged, (ii) such Lender
shall remain solely responsible to the other parties hereto for the performance
of such obligations, (iii) the Borrowers, the Agents and the other Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and (iv) such participant's
rights to agree or to restrict such Lender's ability to agree to the
modification, waiver or release of any of the terms of the Loan Documents or to
the release of any Collateral covered by the Loan Documents, to consent to any
action or failure to act by any party to any of the Loan Documents or any of
their respective Affiliates, or to exercise or refrain from exercising any
powers or rights which any Lender may have under or in respect of the Loan
Documents or any Collateral, shall be limited to the right to consent to (A) the
increase in the Commitment of the Lender from whom such participant purchased a
participation, (B) the reduction of the principal of, or rate or amount of
interest on, the Loans subject to such participation (other than by the payment
or prepayment thereof), (C) the postponement of any date fixed for any payment
of principal of, or interest on, the Loan(s) subject to such participation
(except with respect to any modifications of the provisions relating to
prepayments of Loans and other Obligations) and (D) the release of any guarantor
of the Obligations or all or a substantial portion of the Collateral except as
provided in Section 12.09(b).
(f) Information Regarding the Borrowers. Any Lender may, in
connection with any assignment or participation or proposed assignment or
participation pursuant to this Section 13.01,
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disclose to the assignee or participant or proposed assignee or participant, any
information relating to the Borrowers furnished to such Lender by any Agent or
by or on behalf of the Borrowers; provided that, prior to any such disclosure,
such assignee or participant, or proposed assignee or participant, shall agree
to preserve in accordance with Section 13.23 the confidentiality of any
confidential information described therein.
(g) Payment to Participants. Anything in this Agreement to
the contrary notwithstanding, in the case of any participation, all amounts
payable by the Borrowers under the Loan Documents shall be calculated and made
in the manner and to the parties required hereby as if no such participation had
been sold.
(h) Lenders' Creation of Security Interests. Notwithstanding
any other provision set forth in this Agreement, any Lender may at any time
create a security interest in all or any portion of its rights under this
Agreement and its Notes (including, without limitation, Obligations owing to it
and the Notes held by it) in favor of any Federal Reserve Bank of the Federal
Reserve Board without notice to or consent of the Borrowers or the Agents.
13.02. Relations Among Lenders. Each Lender agrees
that it will not take any action, nor institute any actions or
proceedings, against the Borrowers with respect to the
Obligations or any Collateral, without the prior written consent
of Requisite Lenders.
13.03. Replacement of Lender. In the event that a Replacement
Event occurs and is continuing with respect to any Lender, the Borrowers may
designate a Replacement Lender to assume such Lender's Commitment hereunder, to
purchase the Loans and participations of such Lender and such Lender's rights
hereunder, without recourse to or representation or warranty by, or expense to,
such Lender for a purchase price equal to the outstanding principal amount of
the Loans payable to such Lender plus any accrued but unpaid interest on such
Loans and accrued but unpaid fees owing to such Lender, and upon such
assumption, purchase and substitution, and subject to the execution and delivery
to the Administrative Agent by the Replacement Lender of documentation
satisfactory to the Administrative Agent (pursuant to which such Replacement
Lender shall assume the obligations of such original Lender under this
Agreement), the Replacement Lender shall succeed to the rights and obligations
of such Lender hereunder and such Lender shall no longer be a party hereto or
have any rights hereunder provided that the obligations of the Borrowers to such
Lender under Section 13.05 hereof with respect to events occurring or
obligations arising before such replacement shall survive such replacement.
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13.04. Expenses.
(a) Generally. The Borrowers agree upon demand to pay, or
reimburse each Agent for, all of such Agent's reasonable audit, legal,
appraisal, valuation, filing, document duplication and reproduction and
investigation expenses and for all other out-of-pocket costs and expenses of
every type and nature (including, without limitation, the reasonable fees,
expenses and disbursements of legal counsel, auditors, accountants, appraisers,
printers, insurance and environmental advisers, and other consultants and
agents) incurred by such Agent in connection with (i) the preparation,
negotiation, and execution of this Agreement and the other Loan Documents; (ii)
the interpretation of this Agreement (including, without limitation, the
satisfaction or attempted satisfaction of any of the conditions set forth in
Article V), the other Loan Documents and the making of the Loans hereunder;
(iii) the creation, perfection or protection of the Liens under the Loan
Documents; (iv) the ongoing administration of this Agreement and the Loans,
including consultation with attorneys in connection therewith and with respect
to such Agent's rights and responsibilities under this Agreement and the other
Loan Documents and, to the extent provided under Section 8.06, such Agent's
periodic inspections and audits of the Borrowers; (v) the protection, collection
or enforcement of any of the Obligations or the enforcement of any of the Loan
Documents; (vi) the commencement, defense or intervention in any court
proceeding relating in any way to the Obligations, the assets of any Borrower,
this Agreement or any of the other Loan Documents; (vii) the response to, and
preparation for, any subpoena or request for document production with which such
Agent is served or deposition or other proceeding in which such Agent is called
to testify, in each case, relating in any way to the Obligations, the assets of
any Borrower, this Agreement or any of the other Loan Documents; and (viii) any
amendments, consents, waivers, assignments, restatements, or supplements to any
of the Loan Documents and the preparation, negotiation, and execution of the
same.
(b) After Default. The Borrowers further agree to pay or
reimburse each Agent and each Lender upon demand for all out-of-pocket costs and
expenses, including, without limitation, reasonable attorneys' fees incurred by
such Agent or such Lender after the occurrence of an Event of Default (i) in
enforcing any Loan Document or any of the Obligations or any security therefor
or exercising or enforcing any other right or remedy available by reason of such
Event of Default; (ii) in connection with any refinancing or restructuring of
the credit arrangements provided under this Agreement in the nature of a
"work-out" or in any insolvency or bankruptcy proceeding; (iii) in commencing,
defending or intervening in any litigation or in filing a petition, complaint,
answer, motion or other pleadings in any legal proceeding relating to the
Obligations, the Property, any
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Borrower and related to or arising out of the transactions contemplated hereby
or by any of the other Loan Documents; and (iv) in taking any other action in or
with respect to any suit or proceeding (bankruptcy or otherwise) described in
clauses (i) through (iii) above.
13.05. Indemnity. The Borrowers further agree to defend,
protect, indemnify, and hold harmless each Agent and each of the Lenders and
each of their respective Affiliates, and their respective officers, directors,
employees, attorneys and agents (including, without limitation, those retained
in connection with the satisfaction or attempted satisfaction of any of the
conditions set forth in Article V) (collectively, the "Indemnitees") from and
against any and all liabilities, obligations, losses (other than loss of
profits), damages, penalties, actions, judgments, suits, claims, costs, expenses
and disbursements of any kind or nature whatsoever (excluding any taxes and
including, without limitation, the reasonable fees and disbursements of counsel
for such Indemnitees in connection with any investigative, administrative or
judicial proceeding, whether or not such Indemnitees shall be designated a party
thereto), imposed on, incurred by, or asserted against such Indemnitees in any
manner relating to or arising out of (a) this Agreement, the Notes, the other
Loan Documents, or any act, event or transaction related or attendant thereto,
the making of the Loans, the management of such Loans, the use or intended use
of the proceeds of the Loans, or any of the transactions contemplated by the
Loan Documents, or (b) any Liabilities and Costs under federal, state or local
environmental, health or safety laws, regulations or common law principles
arising from or in connection with the past, present or future operations of any
Borrower or any of its predecessors in interest, or, the past, present or future
environmental condition of any Property of any Borrower, the presence of
asbestos-containing materials at any Property of any Borrower or the Release or
threatened Release of any Contaminant into the environment from any Property of
any Borrower (collectively, the "Indemnified Matters"); provided, however, the
Borrowers shall have no obligation to an Indemnitee hereunder with respect to
Indemnified Matters caused by or resulting from the willful misconduct or gross
negligence of such Indemnitee, as determined by a court of competent
jurisdiction in a final non-appealable judgment or order. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is violative of any law or public
policy, the Borrowers shall contribute the maximum portion which it is permitted
to pay and satisfy under applicable law, to the payment and satisfaction of all
Indemnified Matters incurred by the Indemnitees.
13.06. Change in Accounting Principles. If any change
in the accounting principles used in the preparation of the most
recent financial statements referred to in Section 7.01 are
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hereafter required or permitted by the rules, regulations, pronouncements and
opinions of the Financial Accounting Standards Board or the American Institute
of Certified Public Accountants (or successors thereto or agencies with similar
functions) and are adopted by Stellex and its Subsidiaries with the agreement of
its independent certified public accountants and such changes result in a change
in the method of calculation of any of the covenants, standards or terms found
in Article IX and Article X, the parties hereto agree to enter into negotiations
in order to amend such provisions so as to equitably reflect such changes with
the desired result that the criteria for evaluating compliance with such
covenants, standards and terms by Stellex and its Subsidiaries shall be the same
after such changes as if such changes had not been made; provided, however, no
change in GAAP that would affect the method of calculation of any of the
covenants, standards or terms shall be given effect in such calculations until
such provisions are amended, in a manner satisfactory to the Requisite Lenders
and Stellex, to so reflect such change in accounting principles.
13.07. Setoff. In addition to any Liens granted under the Loan
Documents and any rights now or hereafter granted under applicable law, upon the
occurrence and during the continuance of any Event of Default, each Lender and
any Affiliate of any Lender is hereby authorized by each Borrower at any time
and from time to time, without notice to any Person (any such notice being
hereby expressly waived) to set off and to appropriate and to apply any and all
deposits (general or special, including, but not limited to, indebtedness
evidenced by certificates of deposit, whether matured or unmatured (but not
including tax, payroll and trust accounts)) and any other Indebtedness at any
time held or owing by such Lender or any of its Affiliates to or for the credit
or the account of such Borrower against and on account of the Obligations of the
Borrowers to such Lender or any of its Affiliates, including, but not limited
to, all Loans and all claims of any nature or description arising out of or in
connection with this Agreement or the Notes, irrespective of whether or not (i)
such Lender shall have made any demand hereunder or (ii) the Administrative
Agent, at the request or with the consent of the Requisite Lenders, shall have
declared the principal of and interest on the Loans and other amounts due
hereunder and under the Notes to be due and payable as permitted by Article XI
and even though such Obligations may be contingent or unmatured. Each Lender
agrees that it shall not, without the express consent of the Requisite Lenders,
and that it shall, to the extent it is lawfully entitled to do so, upon the
request of the Requisite Lenders, exercise its setoff rights hereunder against
any accounts of any Borrower now or hereafter maintained with such Lender or any
of its Affiliates.
13.08. Ratable Sharing. The Lenders agree among themselves
that (i) with respect to all amounts received by them
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which are applicable to the payment of the Obligations (excluding the fees
described in Sections 3.03, 3.04 and 4.01(e)) equitable adjustment will be made
so that, in effect, all such amounts will be shared among them ratably in
accordance with their Pro Rata Shares, whether received by voluntary payment, by
the exercise of the right of setoff or banker's lien, by counterclaim or
cross-action or by the enforcement of any or all of the Obligations (excluding
the fees and amounts described in Sections 3.03, 3.04 and 4.01(e)) or the
Collateral, (ii) if any of them shall by voluntary payment or by the exercise of
any right of counterclaim, setoff, banker's lien or otherwise, receive payment
of a proportion of the aggregate amount of the Obligations held by it, which is
greater than the amount which such Lender is entitled to receive hereunder, the
Lender receiving such excess payment shall purchase, without recourse or
warranty, an undivided interest and participation (which it shall be deemed to
have done simultaneously upon the receipt of such payment) in such Obligations
owed to the others so that all such recoveries with respect to such Obligations
shall be applied ratably in accordance with their Pro Rata Shares; provided,
however, that if all or part of such excess payment received by the purchasing
party is thereafter recovered from it, those purchases shall be rescinded and
the purchase prices paid for such participations shall be returned to such party
to the extent necessary to adjust for such recovery, but without interest except
to the extent the purchasing party is required to pay interest in connection
with such recovery. Each Borrower agrees that any Lender so purchasing a
participation from another Lender pursuant to this Section 13.08 may, to the
fullest extent permitted by law, exercise all its rights of payment (including,
subject to Section 13.07, the right of setoff) with respect to such
participation as fully as if such Lender were the direct creditor of such
Borrower in the amount of such participation.
13.09. Amendments and Waivers. Unless otherwise provided in
this Agreement, no amendment or modification of any provision of this Agreement
or the Notes shall be effective without the written agreement of the Requisite
Lenders and the Borrowers, and no termination or waiver of any provision of this
Agreement or the Notes, or consent to any departure by the Borrowers therefrom,
shall be effective without the written concurrence of the Requisite Lenders,
which the Requisite Lenders shall have the right to grant or withhold in their
sole discretion. Notwithstanding the foregoing, any amendment, modification,
termination, waiver or consent with respect to any of the following provisions
of this Agreement and the Notes shall be effective only by a written agreement,
signed by each Lender: (a) waiver of any of the conditions specified in Sections
5.01, 5.02 and 5.03 (except with respect to a condition based upon another
provision of this Agreement, the waiver of which requires only the concurrence
of the Requisite Lenders), (b) increase in the aggregate amount of the
Commitments or the Commitment of any
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Lender, (c) reduction of the principal of, rate or amount of interest on the
Loans or any fees or other amounts payable to such Lender (other than by the
payment or prepayment thereof), (d) postponement of the Commitment Termination
Date or any other date fixed for any payment of principal of, or interest on,
the Loans or any fees or other amounts payable to such Lender (except with
respect to any modifications of the provisions relating to prepayments of Loans
and other Obligations), (e) release of all or a substantial portion of the
Collateral (except as provided in Section 12.09(b)), (f) amendment of the
definition of "Requisite Lenders", or (g) amendment of Section 13.08 or this
Section 13.09. Any waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it was given. No notice to or
demand on the Borrowers in any case shall entitle the Borrowers to any other or
further notice or demand in similar or other circumstances. Notwithstanding
anything to the contrary contained in this Section 13.09, no amendment,
modification, waiver or consent shall affect the rights or duties of the Agents
under this Agreement or the other Loan Documents, unless made in writing and
signed by the Agents in addition to the Lenders required above to take such
action.
13.10. Notices. (a) Unless otherwise specifically provided
herein, any notice or other communication herein required or permitted to be
given shall be in writing and may be personally served, telecopied, telexed or
sent by courier service or United States certified mail and shall be deemed to
have been given when delivered in person or by courier service, upon receipt of
a telecopy or telex or four (4) Business Days after deposit in the United States
mail with postage prepaid and properly addressed. Notices to the Agents pursuant
to Articles II, III or XII shall not be effective until received by the Agents.
For the purposes hereof, the addresses of the parties hereto (until notice of a
change thereof is delivered as provided in this Section 13.10) shall be as set
forth below each party's name on the signature pages hereof or the signature
page of any applicable Assignment and Acceptance, or, as to each party, at such
other address as may be designated by such party in a written notice to all of
the other parties to this Agreement.
(b) The Borrowers agree to indemnify and hold harmless each
Indemnitee from and against any and all claims, damages, liabilities,
obligations, losses, penalties, actions, judgments, suits, costs, disbursements
and expenses of any kind or nature (including, without limitation, reasonable
fees and disbursements of counsel to any such Indemnitee) which may be imposed
on, incurred by or asserted against any such Indemnitee in any manner relating
to or arising out of any action taken or omitted by such Indemnitee in good
faith in reliance on any notice or other written communication in the form of a
telecopy or facsimile purporting to be from the Borrowers; provided that the
Borrowers shall have no obligation under this Section 13.10(b) to an
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<PAGE>
Indemnitee with respect to any indemnified matter caused by or resulting from
the gross negligence or willful misconduct of that Indemnitee, as determined by
a court of competent jurisdiction in a final non-appealable judgment or order.
13.11. Survival of Warranties and Agreements. All
representations and warranties made herein and all obligations of the Borrowers
in respect of taxes, indemnification and expense reimbursement shall survive the
execution and delivery of this Agreement and the other Loan Documents, the
making and repayment of the Loans and the termination of this Agreement and
shall not be limited in any way by the passage of time or occurrence of any
event and shall expressly cover time periods when any of the Agents or any of
the Lenders may have come into possession or control of any assets of any
Borrower.
13.12. Failure or Indulgence Not Waiver; Remedies Cumulative.
No failure or delay on the part of any Agent or any Lender in the exercise of
any power, right or privilege under this Agreement, the Notes or any of the
other Loan Documents shall impair such power, right or privilege or be construed
to be a waiver of any default or acquiescence therein, nor shall any single or
partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing under this Agreement, the Notes and the other Loan Documents
are cumulative to and not exclusive of any rights or remedies otherwise
available.
13.13. Marshalling; Payments Set Aside. Neither any Agent nor
any Lender shall be under any obligation to marshall any assets in favor of any
Borrower or any other Person or against or in payment of any or all of the
Obligations. To the extent that the Borrowers make a payment or payments to the
Agents or the Lenders, or any of such Persons receives payment from the proceeds
of the Collateral or exercises its rights of setoff, and such payment or
payments or the proceeds of such enforcement or setoff or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, receiver or any other party, then to the
extent of such recovery, the obligation or part thereof originally intended to
be satisfied, and all Liens, right and remedies therefor, shall be revived and
continued in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.
13.14. Independence of Covenants. All covenants here
under shall be given independent effect so that if a particular action or
condition is not permitted by any of such covenants, the fact that it would be
permitted by an exception to, or be otherwise within the limitations of, another
covenant shall not
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<PAGE>
avoid the occurrence of an Event of Default or Default if such action is taken
or condition exists.
13.15. Severability. In case any provision in or obligation
under this Agreement, the Notes or the other Loan Documents shall be invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby.
13.16. Headings. Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement or be given any substantive effect.
13.17. Governing Law. THIS AGREEMENT SHALL BE INTERPRETED,
AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
13.18. Limitation of Liability. No claim may be made by any
Borrower, any Lender, any Agent or any other Person against any other Agent or
any other Lender or the Affiliates, directors, officers, employees, attorneys or
agents of any of them for any special, consequential or punitive damages in
respect of any claim for breach of contract or any other theory of liability
arising out of or related to the transactions contemplated by this Agreement or
the Notes or the other Loan Documents, or any act, omission or event occurring
in connection therewith; and each Borrower, each other Borrower, each Lender and
each Agent hereby waive, release and agree not to sue upon any such claim for
any such damages, whether or not accrued and whether or not known or suspected
to exist in its favor.
13.19. Successors and Assigns. This Agreement, the Notes and
the other Loan Documents shall be binding upon the parties thereto and their
respective successors and assigns and shall inure to the benefit of the parties
thereto and the successors and permitted assigns of the Lenders. The rights
hereunder of the Borrowers, or any interest therein, may not be assigned without
the written consent of all Lenders.
13.20. Certain Consents and Waivers.
(a) Personal Jurisdiction. (i) EACH OF THE AGENTS, THE
LENDERS, THE BORROWERS IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND
ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT OR
FEDERAL COURT SITTING IN NEW YORK, NEW YORK, AND ANY COURT HAVING JURISDICTION
OVER APPEALS OF MATTERS HEARD IN SUCH COURTS, IN ANY ACTION OR PROCEEDING
ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED AMONG THEM IN
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<PAGE>
CONNECTION WITH THIS AGREEMENT, WHETHER ARISING IN CONTRACT, TORT, EQUITY OR
OTHERWISE, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE
PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT
OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE COURT
OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF THE BORROWERS
IRREVOCABLY DESIGNATES AND APPOINTS MENTMORE HOLDINGS CORPORATION, AS ITS AGENT
(THE "PROCESS AGENT"), WITH AN OFFICE LOCATED AT THE ADDRESS IN NEW YORK, NEW
YORK SET FORTH IN THE LETTER DATED AS OF THE DATE HEREOF BETWEEN THE
ADMINISTRATIVE AGENT AND THE PROCESS AGENT, FOR SERVICE OF ALL PROCESS IN ANY
SUCH PROCEEDING IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED TO BE
EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. EACH OF THE AGENTS, THE LENDERS
AND THE BORROWERS AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING
SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. EACH OF THE BORROWERS WAIVES IN
ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT
CONSIDERING THE DISPUTE.
(ii) EACH OF THE BORROWERS AGREES THAT EACH AGENT SHALL HAVE
THE RIGHT TO PROCEED AGAINST ANY BORROWER OR ITS PROPERTY IN A COURT IN ANY
LOCATION TO ENABLE THE AGENTS AND THE LENDERS TO REALIZE ON THE COLLATERAL OR
ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT
ORDER ENTERED IN FAVOR OF ANY AGENT OR ANY LENDER. EACH OF THE BORROWERS AGREES
THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT
BY ANY AGENT OR ANY LENDER TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY
FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF
ANY AGENT OR ANY LENDER. EACH OF THE BORROWERS WAIVES ANY OBJECTION THAT IT MAY
HAVE TO THE LOCATION OF THE COURT IN WHICH ANY AGENT OR ANY LENDER MAY COMMENCE
A PROCEEDING DESCRIBED IN THIS SECTION.
(b) Service of Process. EACH OF THE BORROWERS IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY
SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO THE PROCESS AGENT OR SUCH BORROWER'S NOTICE
ADDRESS SPECIFIED BELOW, SUCH SERVICE TO BECOME EFFECTIVE TEN (10) DAYS AFTER
SUCH MAILING. EACH OF THE BORROWERS IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING,
WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS
OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF
ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, THE NOTES OR ANY
OTHER LOAN DOCUMENT IN ANY JURISDICTION SET FORTH ABOVE. NOTHING HEREIN SHALL
AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL
LIMIT THE RIGHT OF ANY AGENT OR ANY LENDER TO BRING
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<PAGE>
PROCEEDINGS AGAINST ANY BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.
(c) Waiver of Jury Trial. EACH OF THE AGENTS, THE
LENDERS AND THE BORROWERS IRREVOCABLY WAIVES TRIAL BY JURY IN ANY
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, THE NOTES OR
ANY OTHER LOAN DOCUMENT.
13.21. Counterparts; Effectiveness; Inconsistencies. This
Agreement and any amendments, waivers, consents, or supplements hereto may be
executed in counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument. This Agreement shall become effective against each
Borrower, each Lender and each Agent on the date hereof when each such party
hereto executes and delivers this Agreement. This Agreement and each of the
other Loan Documents shall be construed to the extent reasonable to be
consistent one with the other, but to the extent that the terms and conditions
hereof are actually inconsistent with the terms and conditions of any other Loan
Document, this Agreement shall govern.
13.22. Entire Agreement. This Agreement, taken together with
all of the other Loan Documents, embodies the entire agreement and understanding
among the parties hereto and supersedes all prior agreements and understandings,
written and oral, relating to the subject matter hereof.
13.23. Confidentiality. The Lenders shall hold all nonpublic
information obtained pursuant to the requirements of this Agreement and
identified as such by the Borrowers in accordance with such Lender's customary
procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices and in any event may make
disclosure reasonably required by a bona fide offeree, transferee or participant
in connection with the contemplated transfer or participation or as required or
requested by any Governmental Authority or representative thereof or pursuant to
legal process and shall require any such offeree, transferee or participant to
agree (and require any of its offerees, transferees or participants to agree) to
comply with this Section 13.23. In no event shall any Lender be obligated or
required to return any materials furnished by the Borrowers; provided, however,
each offeree shall be required to agree that if it does not become a transferee
or participant it shall return all materials furnished to it by the Borrowers in
connection with this Agreement.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as
of the date first above written.
STELLEX INDUSTRIES, INC.
By: /s/ William L. Remley
--------------------------------
Title: Vice Chairman
-------------------------
KII HOLDING CORP.
By: /s/ William L. Remley
--------------------------------
Title: Vice Chairman
-------------------------
TSMD ACQUISITION CORP.
By: /s/ William L. Remley
--------------------------------
Title: President
-------------------------
KII ACQUISITION CORP.
By: /s/ William L. Remley
--------------------------------
Title: Vice Chairman
-------------------------
STELLEX MICROWAVE SYSTEMS, INC.
By: /s/ William L. Remley
--------------------------------
Title: Vice Chairman
-------------------------
STELLEX AEROSPACE
By: /s/ William L. Remley
--------------------------------
Title: Vice Chairman
-------------------------
<PAGE>
PARAGON PRECISION PRODUCTS
By: /s/ William L. Remley
--------------------------------
Title: Vice Chairman
-------------------------
BANDY MACHINING INTERNATIONAL
By: /s/ William L. Remley
--------------------------------
Title: Vice Chairman
-------------------------
SCANNING ELECTRON ANALYSIS
LABORATORIES, INC.
By: /s/ William L. Remley
--------------------------------
Title: Vice Chairman
-------------------------
GENERAL INSPECTION LABORATORIES, INC.
By: /s/ William L. Remley
--------------------------------
Title: Vice Chairman
-------------------------
Notice address:
c/o Stellex Industries, Inc.
21550 Oxnard Street, Suite 570
Woodland Hills, CA 91367
Attn: Bradley C. Call, President
Telecopy: (818) 710-7807
with copies to:
Mentmore Holdings Corporation
1480 Broadway Ave., 13th Floor
New York, NY 10018
Attn: William L. Remley, President
Telecopy: (212) 391-1393
and
Winston & Strawn
200 Park Avenue
New York, NY 10166-4193
Attn: Jonathan Goldstein, Esq.
Telecopy: (212) 294-4700
<PAGE>
SOCIETE GENERALE,
as Administrative Agent
By: /s/ John M. Stack
---------------------------------
Title: Director
---------------------------
Notice address:
Societe Generale
1221 Avenue of the Americas
New York, NY 10020
Attn: John M. Stack, Director
Telecopy: (212) 278-6418
Societe Generale
1221 Avenue of the Americas
New York, NY 10020
Attn: General Counsel
Telecopy: (212) 278-7432
with copies to:
Sidley & Austin
875 Third Avenue
New York, NY 10022
Attn: Barbara A. Vrancik, Esq.
Telecopy: (212) 906-2021
<PAGE>
FIRST UNION COMMERCIAL CORPORATION,
as Syndication Agent and
Collateral Agent
By: /s/ Shaun Kelley
---------------------------------
Title: Vice President
--------------------------
Notice address:
1970 Chain Bridge Road
Mail Code VA1942
McLean, VA 22102
Attn: Barbara Boehm
Telecopy: (703) 760-6019
<PAGE>
Revolving Loan SOCIETE GENERALE, as Lender
Commitment
- --------------
$17,500,000
By: /s/ John M. Stack
Term Loan ---------------------------------
Commitment Title: Director
- ---------- ------------------------
$17,500,000
Notice address:
Societe Generale
1221 Avenue of the Americas
New York, NY 10020
Attn: John M. Stack, Director
Telecopy: (212) 278-6418
Societe Generale
1221 Avenue of the Americas
New York, NY 10020
Attn: General Counsel
Telecopy: (212) 278-7432
with copies to:
Sidley & Austin
875 Third Avenue
New York, NY 10022
Attn: Barbara A. Vrancik, Esq.
Telecopy: (212) 906-2021
<PAGE>
Revolving Loan
Commitment
- ----------
$7,500,000
Term Loan
Commitment
- ----------
$7,500,000
FIRST UNION COMMERCIAL CORPORATION,
as Lender
By: /s/ Shaun Kelley
---------------------------------
Title: Vice President
---------------------------
Notice address:
1970 Chain Bridge Road
Mail Code VA1942
McLean, VA 22102
Attn: Barbara Boehm
Telecopy: (703) 760-6019
<PAGE>
EXHIBIT A
Form of Assignment and Acceptance
ASSIGNMENT AND ACCEPTANCE
ASSIGNMENT AND ACCEPTANCE dated ____________ __, 199_, between
_______________________ (the "Assignor") and __________________________ (the
"Assignee").
PRELIMINARY STATEMENTS
A. Reference is made to the Credit Agreement dated as of October __, 1997
among Stellex Industries, Inc., KII Holding Corp., TSMD Acquisition Corp., KII
Acquisition Corp., Stellex Microwave Systems, Inc., Stellex Aerospace, Paragon
Precision Products, Bandy Machining International, Scanning Electron Analysis
Laboratories, Inc., and General Inspection Laboratories, Inc. (collectively, the
"Borrowers", and individually, a "Borrower"), the financial institutions from
time to time parties thereto as lenders (the "Lenders"), and Societe Generale,
in its capacity as administrative agent for the Lenders (in such capacity, the
"Administrative Agent"), and First Union Commercial Corporation, in its
capacities as collateral agent and syndication agent for the Lenders (together
with the Administrative Agent and the collateral agent, the "Agents") (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"). Terms defined in the Credit Agreement and not otherwise defined
herein are used herein with the meanings ascribed thereto in the Credit
Agreement.
B. The Assignor is a Lender under the Credit Agreement and desires to sell
and assign to the Assignee, and the Assignee desires to purchase and assume from
the Assignor, on the terms and conditions set forth below, a ___ percent (____%)
interest1 in the Assignor's Commitment (the "Assigned Percentage") together with
the Assignor's rights and obligations under the Credit Agreement with respect to
the Assigned Percentage.
NOW, THEREFORE, the Assignor and the Assignee hereby agree as follows:
- --------
1 Such percentage shall be in compliance with the minimum principal amount
permitted for a partial assignment under Section 13.01(b) of the Credit
Agreement.
-1-
<PAGE>
1. In consideration of the Assignee's payment to the Assignor of
$_____________, the Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, the Assigned
Percentage, together with the Assignor's rights and obligations under the Credit
Agreement with respect to such Assigned Percentage, including, without
limitation, the obligation to make Revolving Loans and Term Loans.
2. The Assignor (i) represents and warrants that as of the date hereof its
Pro Rata Share (without giving effect to assignments thereof which have not yet
become effective) is ____% and that such Pro Rata Share multiplied by the
aggregate Commitments is equal to $_____________; (ii) represents and warrants
that it has legal and beneficial title to the interests being assigned by it
hereunder free and clear of any claim adverse to such title; (iii) makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the
Credit Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Credit Agreement, any of the other Loan
Documents, or any other instrument or document furnished pursuant thereto or
executed and delivered in connection therewith; (iv) makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of any Loan Party or the performance or observance by any Borrower of its
obligations under the Credit Agreement, any other Loan Document or any
instrument or document furnished pursuant thereto; and (v) attaches the
Revolving Loan Note[s] and the Term Loan Note[s] delivered to it under the
Credit Agreement and has requested that the Borrowers exchange such Notes for
the following new Notes:
Revolving Loan
Note Payable Revolving Loan
to the Order of: Note Amount
---------------- -----------
[Name of Assignor] $_________
[Name of Assignee] $_________
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<PAGE>
Term Loan
Note Payable Term Loan
to the Order of: Note Amount
---------------- -----------
[Name of Assignor] $_________
[Name of Assignee] $_________
3. The Assignee (i) represents and warrants that it is legally authorized
to enter into this Assignment and Acceptance; (ii) confirms that it has received
a copy of the Credit Agreement, together with copies of such other Loan
Documents, information, exhibits, reports, projections and forecasts which the
Assignee has deemed appropriate to make its own credit analysis and decision to
enter into this Assignment and Acceptance; (iii) agrees that it shall have no
recourse against the Assignor with respect to any matters relating to the Credit
Agreement, any other Loan Document or this Assignment and Acceptance (except
with respect to the representations and warranties made by the Assignor in
clauses (i) and (ii) of paragraph 2 above); (iv) agrees that it will,
independently and without reliance upon any of the Agents, the Assignor or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Credit Agreement and the other Loan Documents; (v)
appoints and authorizes each of the Agents to take such action as Agents on its
behalf and to exercise such powers under the Credit Agreement and the other Loan
Documents as are delegated to each of such Agents, respectively, by the terms
thereof, together with such powers as are reasonably incidental thereto; (vi)
agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Credit Agreement and the other Loan
Documents are required to be performed by it as a Lender; (vii) confirms that it
is an Eligible Assignee; and (viii) specifies as its address for notices the
address set forth beneath its name on the signature page hereof, together with
the name and address of its Domestic Lending Office and its Eurodollar Lending
Office.
4. The effective date for this Assignment and Acceptance shall be
___________ __, 199_ (the "Effective Date").2 Following the execution of this
Assignment and Acceptance, it will be delivered to the Administrative Agent for
acceptance by the
- --------
2 Such date shall be at least two (2) Business Days after the date of execution
of this Assignment and Acceptance by the Assignor and Assignee.
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<PAGE>
Administrative Agent and for recording in the Register by the Administrative
Agent, together with a processing and recordation fee of $3,500 to be paid to
the Administrative Agent by the [Assignor][Assignee]3.
5. As of the Effective Date, provided that the Administrative Agent accepts
this Assignment and Acceptance, (i) the Assignee shall be a party to the Credit
Agreement and, to the extent provided in this Assignment and Acceptance, have
the rights and obligations of a Lender thereunder and (ii) the Assignor shall
relinquish its rights and be released from its obligations under the Credit
Agreement with respect to the Assigned Percentage.
6. From and after the Effective Date, provided that the Administrative
Agent accepts this Assignment and Acceptance, the Administrative Agent shall
make all payments under the Credit Agreement in respect of the Assigned
Percentage (including, without limitation, all payments of principal, interest
and fees with respect thereto) to the Assignee. The Assignor and Assignee shall
make all appropriate adjustments in payments under the Credit Agreement for
periods prior to the Effective Date directly between themselves.
7. This Assignment and Acceptance shall be governed by, and construed in
accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, intending to be legally bound, each of the undersigned
has caused this Assignment and Acceptance to be executed on its behalf by its
officer thereunto duly authorized, as of _________ __, 199_.
[NAME OF ASSIGNOR]
By______________________________
Name:_________________________
Title:________________________
New Pro Rata Share ______%
New Commitment $__________
- --------
3 Insert applicable selection.
-4-
<PAGE>
[NAME OF ASSIGNEE]
By______________________________
Name:_________________________
Title:________________________
Notice Address and
Domestic Lending Office:
Eurodollar Lending Office:
Pro Rata Share ______%
Commitment $____________
Agreed to and accepted this ___
day of ___________, 199_
SOCIETE GENERALE, as Administrative Agent
By____________________________
Each of the undersigned Borrowers hereby confirms its acceptance of the Assignee
as an Eligible Assignee.
STELLEX INDUSTRIES, INC.
By____________________________
Name:
Title:
KII HOLDING CORP.
By____________________________
Name:
Title:
TSMD ACQUISITION CORP.
By____________________________
Name:
Title:
-5-
<PAGE>
KII ACQUISITION CORP.
By____________________________
Name:
Title:
STELLEX MICROWAVE SYSTEMS, INC.
By____________________________
Name:
Title:
STELLEX AEROSPACE
By____________________________
Name:
Title:
PARAGON PRECISION PRODUCTS
By____________________________
Name:
Title:
BANDY MACHINING INTERNATIONAL
By____________________________
Name:
Title:
SCANNING ELECTRON ANALYSIS
LABORATORIES, INC.
By____________________________
Name:
Title:
-6-
<PAGE>
GENERAL INSPECTION
LABORATORIES, INC.
By____________________________
Name:
Title:
-7-
<PAGE>
EXHIBIT B
Form of Borrowing Base Certificate
BORROWING BASE CERTIFICATE
To: Societe Generale, in its capacity as administrative agent (the
"Administrative Agent") and First Union Commercial Corporation, in its
capacity as collateral agent (the "Collateral Agent") for the Lenders (as
defined below) under that certain Credit Agreement dated as of October 31,
1997 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement") among Stellex Industries, Inc., KII Holding Corp., TSMD
Acquisition Corp., KII Acquisition Corp., Stellex Microwave Systems, Inc.,
Stellex Aerospace, Paragon Precision Products, Bandy Machining
International, Scanning Electron Analysis Laboratories, Inc., and General
Inspection Laboratories, Inc. (each individually, a "Borrower", and
collectively, the "Borrowers"), the financial institutions from time to
time party thereto (the "Lenders"), the Administrative Agent, the
Collateral Agent, and First Union Commercial Corporation, as syndication
agent.
Pursuant to the provisions of the Credit Agreement, the undersigned hereby
certifies that:
1. I am the duly [elected] [appointed], qualified and acting [Chief
Financial Officer]1 of Stellex Industries, Inc.
2. Unless otherwise defined herein, terms are used herein as defined in the
Credit Agreement.
3. The information set forth below with respect to Inventory and
Receivables of the Borrowers as of the close of business on ________________ is
true, accurate and complete.
A. Inventory
Total Inventory: __________________
(less) non-Eligible Inventory: __________________
equals [Eligible Inventory: __________________]
[--------------------
--------------------
--------------------]
- --------
1 Insert title if being delivered by other office or member of management of
Stellex Industries, Inc. with significant responsibility for its financial
affairs.
<PAGE>
50% of Eligible Inventory: __________________ ("T1")
B. Receivables
Total Receivables: __________________
(less) [non-Eligible Receivables: __________________]
[--------------------
--------------------
--------------------]
equals Eligible Receivables: __________________
85% of Eligible Receivables: __________________ ("T2")
C. Borrowing Base (preliminary calculation)
Sum of T1 plus T2 (from above): _______________
4. I hereby certify that the information contained in this certificate is
true, complete and accurate, and acknowledge that the preliminary calculation of
the Borrowing Base is an accurate calculation and is based on the information
contained in this certificate.
STELLEX INDUSTRIES, INC.
By:_______________________
Name:
-2-
<PAGE>
EXHIBIT C
Form of Notice of Borrowing
NOTICE OF BORROWING
To: Societe Generale, in its capacity as administrative agent (with its
successors in such capacity, the "Administrative Agent") for the Lenders
(as defined below) under the Credit Agreement dated as of October __, 1997
(as amended, restated, supplemented or otherwise modified from time to
time, the "Credit Agreement")1 among Stellex Industries, Inc., a Delaware
corporation, KII Holding Corp., a Delaware corporation, TSMD Acquisition
Corp., a Delaware corporation, KII Acquisition Corp., a Delaware
corporation, Stellex Microwave Systems, Inc., a California corporation,
Stellex Aerospace, a California corporation, Paragon Precision Products, a
California corporation, Bandy Machining International, a California
corporation, Scanning Electron Analysis Laboratories, Inc., a California
corporation, and General Inspection Laboratories, Inc., a California
corporation (collectively, the "Borrowers", and individually, a
"Borrower"), the financial institutions from time to time parties thereto
as lenders (the "Lenders"), First Union Commercial Corporation, in its
capacities as collateral agent and syndication agent for the Lenders, and
the Administrative Agent.
Pursuant to Section [2.01(b)][2.02(b)] of the Credit Agreement, this Notice
of Borrowing (this "Notice") represents the request of all of the Borrowers to
borrow on [the date hereof] [_______________, 199__ ](the "Funding Date")from
the Lenders the principal amount of [Revolving Loans]2 [Term Loans]3
- --------
1 Unless otherwise defined herein, terms defined in the Credit Agreement
shall have the same meanings in this Notice.
2 For Borrowings of Revolving Loans, a Notice of Borrowing must be given (i)
no later than 12:00 P.M. (New York time) on the proposed Funding Date, in
the case of a Borrowing consisting of Base Rate Loans, and (ii) no later
than 12:00 P.M. (New York time) at least two (2) Business Days in advance
of the proposed Funding Date, in the case of a Borrowing consisting of
Eurodollar Rate Loans.
3 The request to borrow Term Loans must be given no later than 12:00 P.M.
(New York time) at least one (1) Business Day in advance of the proposed
Funding Date.
<PAGE>
of $______________ as [Base Rate Loans] [Eurodollar Rate Loans]4. [The Interest
Period for such Eurodollar Rate Loans is requested to be a [one, two, three, or
six] month period.] Proceeds of such Loans are to be deposited on the Funding
Date into the [insert name of appropriate account]. [The Availability as of the
date hereof is $_____________.]5
Each of the undersigned certifies that as of the Funding Date all of the
conditions precedent contained in [Sections 5.01,]6 5.02 [and 5.03]7 of the
Credit Agreement have been satisfied (or waived pursuant to Section 13.09 of the
Credit Agreement) and that all representations and warranties of the Borrowers
set forth in Section 6.01 of the Credit Agreement and the other Loan Documents
are true and correct in all material respects on the Funding Date (other than
representations and warranties which expressly speak as of another date).
Dated this ___ day of ___________, 199_.
STELLEX INDUSTRIES, INC.
By:_________________________________
Title:___________________________
KII HOLDING CORP.
- --------
4 Term Loans may only be made as Base Rate Loans but may be converted to
Eurodollar Rate Loans pursuant to Section 4.01(c) of the Credit Agreement.
5 To be used for Revolving Loans.
6 To be used for Loans to be made on the Closing Date.
7 To be used for Term Loans.
-2-
<PAGE>
By:_________________________________
Title:___________________________
TSMD ACQUISITION CORP.
By:_________________________________
Title:___________________________
KII ACQUISITION CORP.
By:_________________________________
Title:___________________________
STELLEX MICROWAVE SYSTEMS, INC.
By:_________________________________
Title:___________________________
STELLEX AEROSPACE
By:_________________________________
Title:___________________________
PARAGON PRECISION PRODUCTS
-3-
<PAGE>
By:_________________________________
Title:___________________________
BANDY MACHINING INTERNATIONAL
By:_________________________________
Title:___________________________
SCANNING ELECTRON ANALYSIS
LABORATORIES, INC.
By:_________________________________
Title:___________________________
GENERAL INSPECTION LABORATORIES, INC.
By:_________________________________
Title:___________________________
-4-
<PAGE>
EXHIBIT D
Form of Notice of Conversion/Continuation
To: Societe Generale, in its capacity as administrative agent (with its
successors in such capacity, the "Administrative Agent") for the Lenders
(as defined below) under the Credit Agreement dated as of October __, 1997
(as amended, restated, supplemented or otherwise modified from time to
time, the "Credit Agreement") among Stellex Industries, Inc., a Delaware
corporation, KII Holding Corp., a Delaware corporation, TSMD Acquisition
Corp., a Delaware corporation, KII Acquisition Corp., a Delaware
corporation, Stellex Microwave Systems, Inc., a California corporation,
Stellex Aerospace, a California corporation, Paragon Precision Products, a
California corporation, Bandy Machining International, a California
corporation, Scanning Electron Analysis Laboratories, Inc., a California
corporation, and General Inspection Laboratories, Inc., a California
corporation (collectively, the "Borrowers", and individually, a
"Borrower"), the financial institutions from time to time parties thereto
as lenders (the "Lenders"), First Union Commercial Corporation, in its
capacities as collateral agent and syndication agent for the Lenders, and
the Administrative Agent.
Pursuant to Section 4.01(c)(ii) of the Credit Agreement, this Notice of
Conversion/Continuation (this "Notice") represents the election of the Borrowers
to:
[1. Convert $_____________1 in aggregate principal amount of Base Rate
Loans to Eurodollar Rate Loans on __________________, 199_.2 The initial
Interest Period for such Eurodollar Rate Loans is requested to be a [one, two,
three or six] month period.]
- --------
1/Must be in a principal amount of at least $500,000 and in integral multiples
of $100,000 in excess of that amount.
2/Must be a Business Day at least two (2) Business Days following the Business
Day on which the Notice of Conversion/Continuation is delivered to the
Administrative Agent.
<PAGE>
[2. Convert $_____________ in aggregate principal amount of outstanding
Eurodollar Rate Loans to Base Rate Loans on __________________, 199__.3]
[3. Continue as Eurodollar Rate Loans $________________4 in aggregate
principal amount of Revolving Loans consisting of Eurodollar Rate Loans with a
current Interest Period ending ________________, 199__. The succeeding Interest
Period for such Eurodollar Rate Loans is requested to be a [one, two, three or
six] month period.]
[Each of the Borrowers hereby certifies that (i) the proposed
[continuation] [conversion] would not violate any provisions of Section 4.02 of
the Credit Agreement, (ii) no Event of Default would occur or has occurred and
is continuing under the Credit Agreement and (iii) all representations and
warranties of the Borrowers set forth in Section 6.01 of the Credit Agreement
and the other Loan Documents are and will be true and correct in all material
respects on the date of the proposed [continuation] [conversion] (other than
representations and warranties which expressly speak as of the Closing Date).]5
- --------
3/Must be a Business Day at least two (2) Business Days following the Business
Day on which the Notice of Conversion/Continuation is delivered to the
Administrative Agent. Must also be the date of expiration of the relevant
Interest Period[s].
4/Must be a Business Day at least two (2) Business Days following the Business
Day on which the Notice of Conversion/Continuation is delivered to the
Administrative Agent. Must also be in a principal amount of at least $500,000
and in integral multiples of $100,000 in excess of that amount.
5/To be used for continuations of, and conversions into, Eurodollar Rate Loans.
-2-
<PAGE>
Unless otherwise defined herein, terms defined in the Credit Agreement
shall have the same meanings in this Notice.
Dated this ____ day of ______________, 199__.
STELLEX INDUSTRIES, INC.
By:_______________________________
Title:_________________________
KII HOLDING CORP.
By:_______________________________
Title:_________________________
TSMD ACQUISITION CORP.
By:_______________________________
Title:_________________________
KII ACQUISITION CORP.
By:_______________________________
Title:_________________________
STELLEX MICROWAVE SYSTEMS, INC.
By:_______________________________
Title:_________________________
-3-
<PAGE>
STELLEX AEROSPACE
By:_______________________________
Title:_________________________
PARAGON PRECISION PRODUCTS
By:_______________________________
Title:_________________________
BANDY MACHINING INTERNATIONAL
By:_______________________________
Title:_________________________
SCANNING ELECTRON ANALYSIS
LABORATORIES, INC.
By:_______________________________
Title:_________________________
GENERAL INSPECTION LABORATORIES, INC.
By:_______________________________
Title:_________________________
-4-
<PAGE>
EXHIBIT E
$50,000,000
SECURED CREDIT FACILITY
to
STELLEX INDUSTRIES, INC.
KII HOLDING CORP.
TSMD ACQUISITION CORP.
KII ACQUISITION CORP.
STELLEX MICROWAVE SYSTEMS, INC.
STELLEX AEROSPACE
PARAGON PRECISION PRODUCTS
BANDY MACHINING INTERNATIONAL
SCANNING ELECTRON ANALYSIS LABORATORIES, INC.
GENERAL INSPECTION LABORATORIES, INC.
LIST OF CLOSING DOCUMENTS1
A. Loan Documents
1. Credit Agreement, dated as of October 31, 1997 (the "Agreement") among
STELLEX INDUSTRIES, INC., a Delaware corporation, KII HOLDING CORP., a Delaware
corporation, TSMD ACQUISITION CORP., a Delaware corporation, KII ACQUISITION
CORP., a Delaware corporation, STELLEX MICROWAVE SYSTEMS, INC., a California
corporation, STELLEX AEROSPACE, a California corporation, PARAGON PRECISION
PRODUCTS, a California corporation, BANDY MACHINING INTERNATIONAL, a California
corporation, SCANNING ELECTRON ANALYSIS LABORATORIES, INC., a California
corporation, and GENERAL INSPECTION LABORATORIES, INC., a California corporation
(collectively, the "Borrowers", and individually, a "Borrower"), the financial
institutions from time to time parties thereto, whether by execution of this
Agreement or an Assignment and Acceptance (the "Lenders"), SOCIETE GENERALE
("SocGen"), in its capacity as administrative agent for the Lenders (in such
capacity, the "Administrative Agent"), and FIRST UNION COMMERCIAL CORPORATION,
in its capacity as collateral agent (the "Collateral Agent") and syndication
agent (the "Syndication Agent", collectively, with the Administrative Agent and
the Collateral Agent the "Agents"), evidencing a secured credit facility to be
made available to the Borrowers of up to $50,000,000 with the Exhibits and
Schedules listed below attached thereto:
- --------
1 Unless otherwise defined herein, capitalized terms used herein have the
meanings ascribed to them in the Agreement.
<PAGE>
EXHIBITS
Exhibit A -- Form of Assignment and Acceptance
Exhibit B -- Form of Borrowing Base Certificate
Exhibit C -- Form of Notice of Borrowing
Exhibit D -- Form of Notice of Conversion/Continuation
Exhibit E -- List of Closing Documents
Exhibit F-1 -- Form of Revolving Loan Note
Exhibit F-2 -- Form of Term Loan Note
Exhibit G -- Form of Officer's Certificate
Exhibit H -- Form of Compliance Certificate
Exhibit I -- Form of Replacement Certificate
Exhibit J -- Form of Guaranty
Exhibit K -- Form of Cash Collateral Pledge Agreement
Exhibit L -- Form of Security Agreement
Exhibit M -- Form of Pledge Agreement
Exhibit N -- Form of Patent Security Agreement
SCHEDULES
Schedule 1.01(A) -- Permitted Existing Indebtedness
Schedule 1.01(B) -- Permitted Existing Liens
Schedule 1.05 -- Knowledge
Schedule 5.01(A) -- Consents to be Obtained
Schedule 5.03(A) -- Representations and Warranties
Schedule 5.03(B) -- Covenants
Schedule 6.01(C) -- Ownership
Schedule 6.01(D) -- No Conflict
Schedule 6.01(E) -- Governmental Consents to be Sought
Schedule 6.01(J) -- Litigation; Adverse Effects
Schedule 6.01(L) -- Payment of Taxes
Schedule 6.01(P) -- Environmental Matters
Schedule 6.01(Q) -- ERISA Matters
Schedule 6.01(U) -- Governmental Permits
Schedule 6.01(W) -- Insurance
Schedule 6.01(Z) -- Bank Accounts
Schedule 8.12 -- Post-Closing Matters
2. Revolving Loan Notes made by the Borrowers in favor of each Lender in
the principal amount of such Lender's Revolving Loan Commitment.
3. Term Loan Notes made by the Borrowers in favor of each Lender in the
principal amount of such Lender's Term Loan Commitment.
B. Collateral Documents
4. Guaranty made by the Borrowers in favor of the Agents and the Lenders,
pursuant to which each Borrower guaranties the obligations of each other
Borrower under the Agreement and under such Guaranty.
2
<PAGE>
5. Contribution Agreement executed by each Loan Party in favor of each
other Loan Party.
6. Security Agreement executed by Stellex Industries, Inc. in favor of the
Collateral Agent, for the benefit of the Agents, the Lenders, and the other
Holders, pursuant to which Stellex Industries, Inc. grants to the Collateral
Agent a security interest in all of its personal property.
7. Security Agreement executed by KII Holding Corp. in favor of the
Collateral Agent, for the benefit of the Agents, the Lenders, and the other
Holders, pursuant to which KII Holding Corp. grants to the Collateral Agent a
security interest in all of its personal property.
8. Security Agreement executed by TSMD Acquisition Corp. in favor of the
Collateral Agent, for the benefit of the Agents, the Lenders, and the other
Holders, pursuant to which TSMD Acquisition Corp. grants to the Collateral Agent
a security interest in all of its personal property.
9. Security Agreement executed by KII Acquisition Corp. in favor of the
Collateral Agent, for the benefit of the Agents, the Lenders, and the other
Holders, pursuant to which KII Acquisition Corp. grants to the Collateral Agent
a security interest in all of its personal property.
10. Security Agreement executed by Stellex Microwave Systems, Inc. in favor
of the Collateral Agent, for the benefit of the Agents, the Lenders, and the
other Holders, pursuant to which Stellex Microwave Systems, Inc. grants to the
Collateral Agent a security interest in all of its personal property.
11. Security Agreement executed by Stellex Aerospace in favor of the
Collateral Agent, for the benefit of the Agents, the Lenders, and the other
Holders, pursuant to which Stellex Aerospace grants to the Collateral Agent a
security interest in all of its personal property.
12. Security Agreement executed by Paragon Precision Products in favor of
the Collateral Agent, for the benefit of the Agents, the Lenders, and the other
Holders, pursuant to which Paragon Precision Products grants to the Collateral
Agent a security interest in all of its personal property.
13. Security Agreement executed by Bandy Machining International in favor
of the Collateral Agent, for the benefit of the Agents, the Lenders, and the
other Holders, pursuant to which Bandy Machining International grants to the
Collateral Agent a security interest in all of its personal property.
14. Security Agreement executed by Scanning Electron Analysis Laboratories,
Inc. in favor of the Collateral Agent, for
3
<PAGE>
the benefit of the Agents, the Lenders, and the other Holders, pursuant to which
Scanning Electron Analysis Laboratories, Inc. grants to the Collateral Agent a
security interest in all of its personal property.
15. Security Agreement executed by General Inspection Laboratories, Inc. in
favor of the Collateral Agent, for the benefit of the Agents, the Lenders, and
the other Holders, pursuant to which General Inspection Laboratories, Inc.
grants to the Collateral Agent a security interest in all of its personal
property.
16. Patent Security Agreement executed by Stellex Microwave Systems, Inc.
in favor of the Collateral Agent, for the benefit of the Agents, the Lenders,
and the other Holders, pursuant to which Stellex Microwave Systems, Inc. grants
to the Collateral Agent a security interest in all of its patents and patent
licenses.
17. Patent Security Agreement executed by TSMD Acquisition Corp. in favor
of the Collateral Agent, for the benefit of the Agents, the Lenders, and the
other Holders, pursuant to which TSMD Acquisition Corp. grants to the Collateral
Agent a security interest in all of its patents and patent licenses.
18. Cash Collateral Pledge Agreement executed by each of the Borrowers in
favor of the Collateral Agent, for the benefit of the Agents, the Lenders and
the other Holders, evidencing the pledge of the Cash Collateral Account.
19. Pledge Agreement executed by Stellex Industries, Inc. in favor of the
Collateral Agent, for the benefit of the Agents, the Lenders and the other
Holders, evidencing the pledge of (i) all the promissory notes held by Stellex
Industries, Inc., together with such original promissory notes duly endorsed and
in transferable form; and (ii) all the issued and outstanding capital stock of
KII Holding Corp. owned by Stellex Industries, Inc. and all the issued and
outstanding capital stock of TSMD Acquisition Corp., together with stock
certificates and appro priate stock powers undated and endorsed in blank.
20. Pledge Agreement executed by TSMD Acquisition Corp. in favor of the
Collateral Agent, for the benefit of the Agents, the Lenders and the other
Holders, evidencing the pledge of all the issued and outstanding capital stock
of Stellex Microwave Systems, Inc., together with stock certificates and
appropriate stock powers undated and endorsed in blank.
21. Pledge Agreement executed by KII Holding Corp. in favor of the
Collateral Agent, for the benefit of the Agents, the Lenders and the other
Holders, evidencing the pledge of all the issued and outstanding capital stock
of KII Acquisition Corp.,
4
<PAGE>
together with stock certificates and appropriate stock powers undated and
endorsed in blank.
22. Pledge Agreement executed by KII Acquisition Corp. in favor of the
Collateral Agent, for the benefit of the Agents, the Lenders and the other
Holders, evidencing the pledge of all the issued and outstanding capital stock
of Stellex Aerospace, together with stock certificates and appropriate stock
powers undated and endorsed in blank.
23. Pledge Agreement executed by Stellex Aerospace in favor of the
Collateral Agent, for the benefit of the Agents, the Lenders and the other
Holders, evidencing the pledge of all the issued and outstanding stock of Bandy
Machining International, Scanning Electron Analysis Laboratories, Inc. and
General Inspection Laboratories, Inc., together with stock certificates and
appropriate stock powers undated and endorsed in blank.
24. Consent of Watkins-Johnson Company
25. UCC Lien Search Reports of filings against each Borrower in the offices
with respect to each set forth on Schedule I hereto.
26. Tax Lien and Judgment Search Reports relating to each Borrower in the
offices with respect to each set forth on Schedule I hereto.
27. UCC-1 Financing Statements (the "UCC-1 Financing Statements") to be
filed against each Borrower in the offices with respect to each set forth on
Schedule III hereto.
28. UCC-3 Termination Statements (the "UCC-3 Termination Statements") to be
filed with respect to each of KII Acquisition Corp., KII Holding Corp., Kleinert
Industries, Inc., Paragon Precision Products, Bandy Machining International,
Scanning Electron Analysis Laboratories, Inc., and General Inspection
Laboratories, Inc. in the offices with respect to each set forth on Schedule II
hereto.
29. Loss Payable Endorsement(s) relating to insurance policies covering the
Collateral (with insurance certificate(s) attached).
C. Corporate Documents
30. Certificate of Incorporation of Stellex Industries, Inc. together with
all amendments thereto certified by the Secretary of State of Delaware and Good
Standing Certificates for Stellex Industries, Inc. from the appropriate offices
of the states set forth on Schedule IV hereto under the heading "Stellex
Industries, Inc. Good Standing Certificates".
5
<PAGE>
31. Certificate of Incorporation of KII Holding Corp. together with all
amendments thereto certified by the Secretary of State of Delaware and Good
Standing Certificates for KII Holding Corp. from the appropriate offices of the
states set forth on Schedule IV hereto under the heading "KII Holding Corp. Good
Standing Certificates".
32. Certificate of Incorporation of TSMD Acquisition Corp. together with
all amendments thereto certified by the Secretary of State of Delaware and Good
Standing Certificates for TSMD Acquisition Corp. from the appropriate offices of
the states set forth on Schedule IV hereto under the heading "TSMD Acquisition
Corp. Good Standing Certificates".
33. Certificate of Incorporation of KII Acquisition Corp. together with all
amendments thereto certified by the Secretary of State of Delaware and Good
Standing Certificates for KII Acquisition Corp. from the appropriate offices of
the states set forth on Schedule IV hereto under the heading "KII Acquisition
Corp. Good Standing Certificates".
34. Certificate of Incorporation of Stellex Microwave Systems, Inc.
together with all amendments thereto certified by the Secretary of State of
California and Good Standing Certificates for Stellex Microwave Systems, Inc.
from the appropriate offices of the states set forth on Schedule IV hereto under
the heading "Stellex Microwave Systems, Inc. Good Standing Certificates".
35. Certificate of Incorporation of Stellex Aerospace together with all
amendments thereto certified by the Secretary of State of California and Good
Standing Certificates for Stellex Aerospace from the appropriate offices of the
states set forth on Schedule IV hereto under the heading "Stellex Aerospace Good
Standing Certificates".
36. Certificate of Incorporation of Paragon Precision Products together
with all amendments thereto certified by the Secretary of State of California
and Good Standing Certificates for Paragon Precision Products from the
appropriate offices of the states set forth on Schedule IV hereto under the
heading "Paragon Precision Products Good Standing Certificates".
37. Certificate of Incorporation of Bandy Machining International together
with all amendments thereto certified by the Secretary of State of California
and Good Standing Certificates for Bandy Machining International from the
appropriate offices of the states set forth on Schedule IV hereto under the
heading "Bandy Machining International Good Standing Certificates".
38. Certificate of Incorporation of Scanning Electron Analysis
Laboratories, Inc. together with all amendments thereto
6
<PAGE>
certified by the Secretary of State of California and Good Standing Certificates
for Scanning Electron Analysis Laboratories, Inc. from the appropriate offices
of the states set forth on Schedule IV hereto under the heading "Scanning
Electron Analysis Laboratories, Inc. Good Standing Certificates".
39. Certificate of Incorporation of General Inspection Laboratories, Inc.
together with all amendments thereto certified by the Secretary of State of
California and Good Standing Certificates for General Inspection Laboratories,
Inc. from the appropriate offices of the states set forth on Schedule IV hereto
under the heading "General Inspection Laboratories, Inc. Good Standing
Certificates".
40. Certificate of the Secretary of Stellex Industries, Inc., certifying,
among other things, (i) resolutions of the Board of Directors authorizing the
Agreement, the Notes and the Loan Documents to which it is a party, (ii) the
names and signatures of the officers of the Company authorized on behalf of such
company to execute the Agreement, the Notes and the Loan Documents to which it
is a party and the other instruments and documents to be executed and delivered
on behalf of such company, (iii) that attached thereto is a true and correct
copy of the Bylaws of such company as in effect on the date of such
certification, and (iv) that there have been no changes in the Certificate of
Incorporation of such company since the date of the most recent certification
thereof by the Secretary of State of Delaware.
41. Certificate of the Secretary of KII Holding Corp., certifying, among
other things, (i) resolutions of the Board of Directors authorizing the
Agreement, the Notes and the Loan Documents to which it is a party, (ii) the
names and signatures of the officers of the Company authorized on behalf of such
company to execute the Agreement, the Notes and the Loan Documents to which it
is a party and the other instruments and documents to be executed and delivered
on behalf of such company, (iii) that attached thereto is a true and correct
copy of the Bylaws of such company as in effect on the date of such
certification, and (iv) that there have been no changes in the Certificate of
Incorporation of such company since the date of the most recent certification
thereof by the Secretary of State of Delaware.
42. Two Certificates of the Secretary of TSMD Acquisition Corp., the first
such certificate certifying, among other things, (i) resolutions of the Board of
Directors authorizing the Agreement, the Notes and the Loan Documents to which
it is a party, (ii) the names and signatures of the officers of the Company
authorized on behalf of such company to execute the Agreement, the Notes and the
Loan Documents to which it is a party and the other instruments and documents to
be executed and delivered on behalf of such company, (iii) that
7
<PAGE>
attached thereto is a true and correct copy of the By-laws of such company as in
effect on the date of such certification, and (iv) that there have been no
changes in the Certificate of Incorporation of such company since the date of
the most recent certification thereof by the Secretary of State of Delaware, and
the second such certificate certifying resolutions of the Board of Directors
authorizing the Watkins-Johnson Acquisition Agreement and the transaction
contemplated thereby.
43. Certificate of the Secretary of KII Acquisition Corp., certifying,
among other things, (i) resolutions of the Board of Directors authorizing the
Agreement, the Notes and the Loan Documents to which it is a party, (ii) the
names and signatures of the officers of the Company authorized on behalf of such
company to execute the Agreement, the Notes and the Loan Documents to which it
is a party and the other instruments and documents to be executed and delivered
on behalf of such company, (iii) that attached thereto is a true and correct
copy of the Bylaws of such company as in effect on the date of such
certification, and (iv) that there have been no changes in the Certificate of
Incorporation of such company since the date of the most recent certification
thereof by the Secretary of State of Delaware.
44. Two Certificates of the Secretary of Stellex Microwave Systems, Inc.,
the first such certificate certifying, among other things, (i) resolutions of
the Board of Directors authorizing the Agreement, the Notes and the Loan
Documents to which it is a party, (ii) the names and signatures of the officers
of the Company authorized on behalf of such company to execute the Agreement,
the Notes and the Loan Documents to which it is a party and the other
instruments and documents to be executed and delivered on behalf of such
company, (iii) that attached thereto is a true and correct copy of the By-laws
of such company as in effect on the date of such certification, and (iv) that
there have been no changes in the Certificate of Incorporation of such company
since the date of the most recent certification thereof by the Secretary of
State of California, and the second such certificate certifying resolutions of
the Board of Directors authorizing the Watkins-Johnson Acquisition Agreement and
the transaction contemplated thereby.
45. Certificate of the Secretary of Stellex Aerospace, certifying, among
other things, (i) resolutions of the Board of Directors authorizing the
Agreement, the Notes and the Loan Documents to which it is a party, (ii) the
names and signatures of the officers of the Company authorized on behalf of such
company to execute the Agreement, the Notes and the Loan Documents to which it
is a party and the other instruments and documents to be executed and delivered
on behalf of such company, (iii) that attached thereto is a true and correct
copy of the Bylaws of such company as in effect on the date of such
certification, and (iv) that there have been no changes in the
8
<PAGE>
Certificate of Incorporation of such company since the date of the most recent
certification thereof by the Secretary of State of California.
46. Certificate of the Secretary of Paragon Precision Products, certifying,
among other things, (i) resolutions of the Board of Directors authorizing the
Agreement, the Notes and the Loan Documents to which it is a party, (ii) the
names and signatures of the officers of the Company authorized on behalf of such
company to execute the Agreement, the Notes and the Loan Documents to which it
is a party and the other instruments and documents to be executed and delivered
on behalf of such company, (iii) that attached thereto is a true and correct
copy of the Bylaws of such company as in effect on the date of such
certification, and (iv) that there have been no changes in the Certificate of
Incorporation of such company since the date of the most recent certification
thereof by the Secretary of State of California.
47. Certificate of the Secretary of Bandy Machining International,
certifying, among other things, (i) resolutions of the Board of Directors
authorizing the Agreement, the Notes and the Loan Documents to which it is a
party, (ii) the names and signatures of the officers of the Company authorized
on behalf of such company to execute the Agreement, the Notes and the Loan
Documents to which it is a party and the other instruments and documents to be
executed and delivered on behalf of such company, (iii) that attached thereto is
a true and correct copy of the Bylaws of such company as in effect on the date
of such certification, and (iv) that there have been no changes in the
Certificate of Incorporation of such company since the date of the most recent
certification thereof by the Secretary of State of California.
48. Certificate of the Secretary of Scanning Electron Analysis
Laboratories, Inc., certifying, among other things, (i) resolutions of the Board
of Directors authorizing the Agreement, the Notes and the Loan Documents to
which it is a party, (ii) the names and signatures of the officers of the
Company authorized on behalf of such company to execute the Agreement, the Notes
and the Loan Documents to which it is a party and the other instruments and
documents to be executed and delivered on behalf of such company, (iii) that
attached thereto is a true and correct copy of the By-laws of such company as in
effect on the date of such certification, and (iv) that there have been no
changes in the Certificate of Incorporation of such company since the date of
the most recent certification thereof by the Secretary of State of California.
49. Certificate of the Secretary of General Inspection Laboratories, Inc.,
certifying, among other things, (i) resolutions of the Board of Directors
authorizing the Agreement, the Notes and the Loan Documents to which it is a
9
<PAGE>
party, (ii) the names and signatures of the officers of the Company authorized
on behalf of such company to execute the Agreement, the Notes and the Loan
Documents to which it is a party and the other instruments and documents to be
executed and delivered on behalf of such company, (iii) that attached thereto is
a true and correct copy of the By-laws of such company as in effect on the date
of such certification, and (iv) that there have been no changes in the
Certificate of Incorporation of such company since the date of the most recent
certification thereof by the Secretary of State of California.
D. Opinions
50. Opinion of counsel for the Borrowers, Winston & Strawn, addressed to
the Agents and the Lenders.
51. Opinion of the following Local Counsel for the Borrowers in respect of
personal property matters, addressed to the Agents and the Lenders:
a. California
52. Opinion of Murray Devine & Co. addressed to the Agents and the Lenders
concerning the solvency of each Borrower after giving effect to the transactions
contemplated by the Transaction Documents.
E. Acquisition Documents
53. a copy of the Stock Purchase Agreement, dated as of August 29, 1997 by
and among TSMD Acquisition Corp., Watkins-Johnson Company and Stellex Microwave
Systems, Inc. (formerly known as W-J TSMC, Inc., together with all schedules
thereto, certified as a true and complete copy by an officer of Stellex
Industries, Inc.
F. Subordinated Note Documents
54. a copy of the Subordinated Note Indenture, together with all schedules
and exhibits thereto, certified as a true and complete copy by an officer of
Stellex Industries, Inc.
G. Other Agreements
55. a copy of the Management Participation Agreement.
56. a copy of the Management Agreement.
10
<PAGE>
57. a copy of the Tax Allocation and Indemnity Agreement dated as of
October 31, 1997 among Stellex Industries, Inc. and its Subsidiaries named
therein.
H. Miscellaneous
58. Publication Consent executed by each Borrower.
59. Notice of Borrowing for the Loans to be advanced on the Closing Date.
60. Letter from Process Agent, Mentmore Holdings Corporation, accepting an
appointment in New York as agent for service for service of process for each
Borrower.
61. Insurance Certificates or other insurance information satisfactory to
the Collateral Agent.
62. Borrowing Base Certificate.
63. Funds Flow Memorandum outlining the flow of funds to occur on the
Closing Date.
64. Certificate of the Chief Financial Officer certifying as to pro-forma
consolidated balance sheets of Stellex Industries, Inc. and its Subsidiaries as
of June 30, 1997 with adjustments as of the Closing Date, giving effect to the
transactions contemplated in the Transaction Documents.
65. Officer's Certificate of Stellex Industries, Inc. setting forth the
names of persons authorized to request Loans.
G. Postclosing Matters
66. Post-Closing Lien Search Reports of filings against each Borrower in
the offices with respect to each set forth on Schedule V hereto.
11
<PAGE>
SCHEDULE I
Jurisdictions Searched
STELLEX INDUSTRIES, INC.
California
Secretary of State UCC, TL, PSJ
Los Angeles County UCC, FF, TL, PSJ
STELLEX HOLDING CORP.
California
Secretary of State UCC
KII HOLDING CORP.
New York
Secretary of State UCC, TL, PSJ
New York County UCC, FF, TL, PSJ
TSMD ACQUISITION CORP.
California
Secretary of State UCC, TL, PSJ
Santa Clara County UCC, FF, TL, PSJ
KII ACQUISITION CORP.
California
Secretary of State UCC, TL, PSJ
Los Angeles County UCC, FF, TL, PSJ
W-J TSMD Inc. (now known as Stellex Microwave Systems, Inc.)
California
Secretary of State UCC, TL, PSJ
Santa Clara County UCC, FF, TL, PSJ
STELLEX AEROSPACE
California
Secretary of State UCC, TL, PSJ
Los Angeles County UCC, FF, TL, PSJ
12
<PAGE>
RICHARDSON X-RAY, INC.
California
Secretary of State UCC
PARAGON PRECISION PRODUCTS
California
Secretary of State UCC, TL, PSJ
Los Angeles County UCC, FF, TL, PSJ
BANDY MACHINING INTERNATIONAL
California
Secretary of State UCC, TL, PSJ
Los Angeles County UCC, FF, TL, PSJ
SCANNING ELECTRON ANALYSIS LABORATORIES, INC.
California
Secretary of State UCC, TL, PSJ
Los Angeles County UCC, FF, TL, PSJ
GENERAL INSPECTION LABORATORIES, INC.
California
Secretary of State UCC, TL, PSJ
Los Angeles County UCC, FF, TL, PSJ
WATKINS-JOHNSON COMPANY
California
Secretary of State UCC, TL, PSJ
Santa Clara County UCC, FF, TL, PSJ
EXPLANATION:
UCC = UCC-1s, UCC-2s and UCC-3s of Record
FF = Fixture Filings
TL = Federal and State Tax Liens and Judgements
PSJ = Pending Suits and Judgments
13
<PAGE>
SCHEDULE II
Jurisdictions Where UCC-3 Termination Statements will be Filed
KII ACQUISITION CORP.
California
Secretary of State
Los Angeles County
KII HOLDING CORP.
New York
Secretary of State
New York County
KLEINERT INDUSTRIES, INC.
California
Secretary of State
Los Angeles County
PARAGON PRECISION PRODUCTS
California
Secretary of State
Los Angeles County
BANDY MACHINING INTERNATIONAL
California
Secretary of State
Los Angeles County
SCANNING ELECTRON ANALYSIS LABORATORIES, INC.
California
Secretary of State
Los Angeles County
GENERAL INSPECTION LABORATORIES, INC.
California
Secretary of State
Los Angeles County
14
<PAGE>
SCHEDULE III
Jurisdictions Where UCC-1 Financing Statements will be Filed
STELLEX INDUSTRIES, INC.
New York
Secretary of State
New York County
KII HOLDING CORP.
New York
Secretary of State
New York County
TSMD ACQUISITION CORP.
California
Secretary of State
Santa Clara County
KII ACQUISITION CORP.
California
Secretary of State
Los Angeles County
STELLEX MICROWAVE SYSTEMS, INC.
California
Secretary of State
Santa Clara County
STELLEX AEROSPACE
California
Secretary of State
Los Angeles County
PARAGON PRECISION PRODUCTS
California
Secretary of State
Los Angeles County
BANDY MACHINING INTERNATIONAL
California
Secretary of State
Los Angeles County
15
<PAGE>
SCANNING ELECTRON ANALYSIS LABORATORIES, INC.
California
Secretary of State
Los Angeles County
GENERAL INSPECTION LABORATORIES, INC.
California
Secretary of State
Los Angeles County
16
<PAGE>
SCHEDULE IV
Good Standing Certificates
STELLEX INDUSTRIES, INC.
Delaware
KII HOLDING CORP.
Delaware
TSMD ACQUISITION CORP.
Delaware
KII ACQUISITION CORP.
Delaware
STELLEX MICROWAVE SYSTEMS, INC.
California
STELLEX AEROSPACE
California
PARAGON PRECISION PRODUCTS
California
BANDY MACHINING INTERNATIONAL
California
SCANNING ELECTRON ANALYSIS LABORATORIES, INC.
California
GENERAL INSPECTION LABORATORIES, INC.
California
A:\21796.WPD
December 5, 1997 (8:49pm)
17
<PAGE>
SCHEDULE V
Post-Closing Lien Search Reports
STELLEX INDUSTRIES, INC.
New York
Secretary of State
New York County
KII HOLDING CORP.
New York
Secretary of State
New York County
TSMD ACQUISITION CORP.
California
Secretary of State
Santa Clara County
KII ACQUISITION CORP.
California
Secretary of State
Los Angeles County
STELLEX MICROWAVE SYSTEMS, INC.
California
Secretary of State
Santa Clara County
STELLEX AEROSPACE
California
Secretary of State
Los Angeles County
PARAGON PRECISION PRODUCTS
California
Secretary of State
Los Angeles County
BANDY MACHINING INTERNATIONAL
California
Secretary of State
Los Angeles County
18
<PAGE>
SCANNING ELECTRON ANALYSIS LABORATORIES, INC.
California
Secretary of State
Los Angeles County
GENERAL INSPECTION LABORATORIES, INC.
California
Secretary of State
Los Angeles County
19
<PAGE>
EXHIBIT F-1
Form of Revolving Loan Note
REVOLVING LOAN NOTE
$__________ October __, 1997
New York, New York
For value received, the undersigned, STELLEX INDUSTRIES, INC., a Delaware
corporation, KII HOLDING CORP., a Delaware corporation, TSMD ACQUISITION CORP.,
a Delaware corporation, KII ACQUISITION CORP., a Delaware corporation, STELLEX
MICROWAVE SYSTEMS, INC., a California corporation, STELLEX AEROSPACE, a
California corporation, PARAGON PRECISION PRODUCTS, a California corporation,
BANDY MACHINING INTERNATIONAL, a California corporation, SCANNING ELECTRON
ANALYSIS LABORATORIES, INC., a California corporation, and GENERAL INSPECTION
LABORATORIES, INC., a California corporation (each a "Borrower" and
collectively, the "Borrowers"), jointly and severally promise to pay to the
order of ______________ (the "Lender"), on the Commitment Termination Date (as
defined in the Credit Agreement referred to below), the lesser of (i) the
principal amount of __________________________ ($__________) or (ii) the unpaid
principal amount of all Revolving Loans made by the Lender to the Borrowers
under the Credit Agreement (referred to below).
The Borrowers also promise to pay interest on the unpaid principal amount
borrowed hereunder from the date advanced until paid at the rates (which shall
not exceed the maximum rate permitted by applicable law) and at the times
determined in accordance with the provisions of the Credit Agreement dated as of
October __, 1997 (as amended, restated, supplemented or otherwise modified from
time to time, the "Credit Agreement") among the Borrowers, the financial
institutions from time to time parties thereto as lenders (the "Lenders"),
Societe Generale, in its capacity as administrative agent for the Lenders (in
such capacity, the "Administrative Agent"), and First Union Commercial
Corporation, in its capacities as collateral agent and syndication agent for the
Lenders. Terms defined in the Credit Agreement and not otherwise defined herein
are used herein with the meanings so defined.
This Note is issued pursuant to, and is entitled to the benefits of, the
Credit Agreement, to which reference is hereby
<PAGE>
made for a more complete statement of the terms and conditions under which the
Revolving Loans evidenced hereby are made and are to be repaid. This Note is
secured by certain of the Loan Documents, and reference is made to such Loan
Documents for the terms and conditions governing the collateral security for the
Obligations of the Borrowers hereunder.
All payments of principal and interest in respect of Revolving Loans shall
be made to the Administrative Agent's Account not later than 1:00 p.m. (New York
time) on the date due in lawful money of the United States of America in
immediately available funds.
This Note may be prepaid at the option of the Borrowers as provided in
Section 3.01(a) of the Credit Agreement and must be prepaid as provided in
Section 3.01(b) of the Credit Agreement.
The Lender shall record in accordance with its usual practice the date and
amount of each Revolving Loan made hereunder and the date and amount of each
payment of principal; provided, however, that the failure to record any such
amount shall not limit or otherwise affect the obligation of the Borrowers to
repay to the Lender the outstanding principal amount evidenced by this Note
together with accrued interest thereon in accordance with the terms of the
Credit Agreement.
Upon the occurrence of any one or more of certain Events of Default, the
unpaid balance of the principal amount of this Note may become, and upon the
occurrence and continuation of any one or more of certain other Events of
Default, such unpaid balance may be declared to be due and payable in the
manner, upon the conditions and with the effect provided in the Credit
Agreement.
No reference herein to the Credit Agreement and no provisions of this Note,
the Credit Agreement or the other Loan Documents shall alter or impair the
obligation of the Borrowers, which is absolute and unconditional, to pay the
principal of and interest on this Note at the place, at the respective times,
and in the currency herein prescribed.
The Borrowers promise to pay all costs and expenses, including reasonable
attorneys' fees and disbursements incurred in the collection and enforcement of
this Note or any appeal of a judgment rendered thereon all in accordance with
the provisions of the Credit Agreement. The Borrowers hereby waive diligence,
presentment, protest, demand and notice of every kind except as required
pursuant to the Credit Agreement.
-2-
<PAGE>
The Credit Agreement and this Note shall be governed by, and shall be
construed and enforced in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the Borrowers have caused this Note to be executed and
delivered by their duly authorized officers, as of the day and year and at the
place first above written.
STELLEX INDUSTRIES, INC.
By:_________________________________
Title:___________________________
KII HOLDING CORP.
By:_________________________________
Title:___________________________
TSMD ACQUISITION CORP.
By:_________________________________
Title:___________________________
KII ACQUISITION CORP.
By:_________________________________
Title:___________________________
STELLEX MICROWAVE SYSTEMS, INC.
By:_________________________________
Title:___________________________
-3-
<PAGE>
STELLEX AEROSPACE
By:_________________________________
Title:___________________________
PARAGON PRECISION PRODUCTS
By:_________________________________
Title:___________________________
BANDY MACHINING INTERNATIONAL
By:_________________________________
Title:___________________________
SCANNING ELECTRON ANALYSIS
LABORATORIES, INC.
By:_________________________________
Title:___________________________
GENERAL INSPECTION LABORATORIES, INC.
By:_________________________________
Title:___________________________
-4-
<PAGE>
EXHIBIT F-2
Form of Term Loan Note
TERM LOAN NOTE
$__________ October __, 1997
New York, New York
For value received, the undersigned, STELLEX INDUSTRIES, INC., a Delaware
corporation, KII HOLDING CORP., a Delaware corporation, TSMD ACQUISITION CORP.,
a Delaware corporation, KII ACQUISITION CORP., a Delaware corporation, STELLEX
MICROWAVE SYSTEMS, INC., a California corporation, STELLEX AEROSPACE, a
California corporation, PARAGON PRECISION PRODUCTS, a California corporation,
BANDY MACHINING INTERNATIONAL, a California corporation, SCANNING ELECTRON
ANALYSIS LABORATORIES, INC., a California corporation, and GENERAL INSPECTION
LABORATORIES, INC., a California corporation, jointly and severally promise to
pay to the order of ______________________________ (the "Lender") the principal
amount of _______________ ($__________) in fifteen (15) substantially equal
consecutive quarterly installments in the principal amount equal to 4.17% of the
Outstanding Term Loan Amount (as defined in the Credit Agreement referred to
below) on the first day of February, May, August and November in each year,
commencing on February 1, 2000 through and including August 1, 2003 and one (1)
installment in the principal amount equal to 37.45% of the Outstanding Term Loan
Amount (as defined in the Credit Agreement referred to below) on October 31,
2003 (the "Maturity Date"); provided, however, that the amount of the last such
installment shall be in the amount necessary to repay in full the outstanding
principal amount of the Term Loan represented by this Note.
The Borrowers also promise to pay interest on the unpaid principal amount
borrowed hereunder from the date advanced until paid at the rates (which shall
not exceed the maximum rate permitted by applicable law) and at the times
determined in accordance with the provisions of the Credit Agreement dated as of
October __, 1997 (as amended, restated, supplemented or otherwise modified from
time to time, the "Credit Agreement") among the Borrowers, the financial
institutions from time to time parties thereto as lenders (the "Lenders"),
Societe Generale, in its capacity as administrative agent for the Lenders (in
such capacity, the "Administrative Agent"), and First Union Commercial
Corporation, in its capacities as collateral agent and syndication agent for the
Lenders. Terms defined in the Credit Agreement and not otherwise defined herein
are used herein with the meanings so defined.
<PAGE>
This Note is issued pursuant to, and is entitled to the benefits of, the
Credit Agreement, to which reference is hereby made for a more complete
statement of the terms and conditions under which the Term Loan evidenced hereby
is made and is to be repaid. This Note is secured by certain of the Loan
Documents, and reference is made to such Loan Documents for the terms and
conditions governing the collateral security for the Obligations of the
Borrowers hereunder.
All payments of principal and interest in respect of this Note shall be
made to the Administrative Agent's Account not later than 1:00 p.m. (New York
time) on the date due in lawful money of the United States of America in
immediately available funds.
This Note may be prepaid at the option of the Borrowers as provided in
Section 3.01(a) of the Credit Agreement and must be prepaid as provided in
Section 3.01(b) of the Credit Agreement.
The Lender shall record in accordance with its usual practice the date and
amount of each Term Loan made hereunder and the date and amount of each payment
of principal; provided, however, that the failure to record any such amount
shall not limit or otherwise affect the obligation of the Borrowers to repay to
the Lender the outstanding principal amount evidenced by this Note together with
accrued interest thereon in accordance with the terms of the Credit Agreement.
Upon the occurrence of any one or more of certain Events of Default, the
unpaid balance of the principal amount of this Note may become, and upon the
occurrence and continuation of any one or more of certain other Events of
Default, such unpaid balance may be declared to be due and payable in the
manner, upon the conditions and with the effect provided in the Credit
Agreement.
No reference herein to the Credit Agreement and no provisions of this Note,
the Credit Agreement or the other Loan Documents shall alter or impair the
obligation of the Borrowers, which is absolute and unconditional, to pay the
principal of and interest on this Note at the place, at the respective times,
and in the currency herein prescribed.
The Borrowers promise to pay all costs and expenses, including reasonable
attorneys' fees and disbursements incurred in the collection and enforcement of
this Note or any appeal of a judgment rendered thereon all in accordance with
the provisions of the Credit Agreement. The Borrowers hereby waive diligence,
presentment, protest, demand and notice of every kind except as required
pursuant to the Credit Agreement.
-2-
<PAGE>
The Credit Agreement and this Note shall be governed by, and shall be
construed and enforced in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the Borrowers have caused this Note
to be executed and delivered by their duly authorized officers, as of the day
and year and at the place first above written.
STELLEX INDUSTRIES, INC.
By:_________________________________
Title:___________________________
KII HOLDING CORP.
By:_________________________________
Title:___________________________
TSMD ACQUISITION CORP.
By:_________________________________
Title:___________________________
KII ACQUISITION CORP.
By:_________________________________
Title:___________________________
STELLEX MICROWAVE SYSTEMS, INC.
By:_________________________________
Title:___________________________
-3-
<PAGE>
STELLEX AEROSPACE
By:_________________________________
Title:___________________________
PARAGON PRECISION PRODUCTS
By:_________________________________
Title:___________________________
BANDY MACHINING INTERNATIONAL
By:_________________________________
Title:___________________________
SCANNING ELECTRON ANALYSIS
LABORATORIES, INC.
By:_________________________________
Title:___________________________
GENERAL INSPECTION LABORATORIES, INC.
By:_________________________________
Title:___________________________
-4-
<PAGE>
EXHIBIT G
Form of Officer's Certificate to Accompany Reports
OFFICER'S CERTIFICATE
To: Societe Generale, in its capacity as administrative agent (with its
successors in such capacity, the "Administrative Agent") for the Lenders
(as defined below) under the Credit Agreement dated as of October __, 1997
(as amended, restated, supplemented or otherwise modified from time to
time, the "Credit Agreement") among Stellex Industries, Inc., a Delaware
corporation, KII Holding Corp., a Delaware corporation, TSMD Acquisition
Corp., a Delaware corporation, KII Acquisition Corp., a Delaware
corporation, Stellex Microwave Systems, Inc., a California corporation,
Stellex Aerospace, a California corporation Paragon Precision Products, a
California corporation, Bandy Machining International, a California
corporation, Scanning Electron Analysis Laboratories, Inc., a California
corporation, and General Inspection Laboratories, Inc., a California
corporation (collectively, the "Borrowers", and individually, a
"Borrower"), the financial institutions from time to time party thereto as
lenders (the "Lenders"), the Administrative Agent, and First Union
Commercial Corporation, in its capacities as collateral agent and
syndication agent for the Lenders.
Pursuant to Section 7.01(c) of the Credit Agreement, the __________________
of Stellex Industries, Inc. (the "Parent") hereby certifies that:
1. Unless otherwise defined herein, terms defined in the Credit Agreement
shall have the same meanings in this Certificate.
2. The undersigned has reviewed the terms of the Loan Documents and has
made, or caused to be made under [his][her] supervision, a review in reasonable
detail of the transactions and consolidated financial condition of the Parent
and its Subsidiaries during the accounting period(s) covered by the financial
statements identified below. Such review [has] [has not] disclosed the existence
during or at the end of such accounting period(s), and as at the date hereof the
undersigned [does] [does not] have knowledge of, any condition or event which
constitutes an Event of Default or Default. [If such condition or event exists
or existed, specify (i) nature and period of such condition or event and (ii)
action being taken and/or proposed to be taken with respect thereto.]
<PAGE>
3. The financial statements, reports and copies of certain instruments and
documents attached hereto, namely,
A. ___________________, dated ______________
B. ___________________, dated ______________
C. ___________________, dated ______________
are true and complete copies of the aforesaid which constitute part of the
customary books and reports of the Parent and its Subsidiaries.
STELLEX INDUSTRIES, INC.
By:________________________________
Name:
Title:
-2-
<PAGE>
EXHIBIT I
FORM OF REPLACEMENT CERTIFICATE
To: Societe Generale, in its capacity as administrative agent (with its
successors in such capacity, the "Administrative Agent") for the Lenders
(as defined below) under the Credit Agreement dated as of October __, 1997
(as amended, restated, supplemented or otherwise modified from time to
time, the "Credit Agreement") among Stellex Industries, Inc., a Delaware
corporation, KII Holding Corp., a Delaware corporation, TSMD Acquisition
Corp., a Delaware corporation, KII Acquisition Corp., a Delaware
corporation, Stellex Microwave Systems, Inc., a California corporation,
Stellex Aerospace, a California corporation, Paragon Precision Products, a
California corporation, Bandy Machining International, a California
corporation, Scanning Electron Analysis Laboratories, Inc., a California
corporation, and General Inspection Laboratories, Inc., a California
corporation (collectively, the "Borrowers", and individually, a
"Borrower"), the financial institutions from time to time party thereto as
lenders (the "Lenders"), the Administrative Agent, and First Union
Commercial Corporation, in its capacities as collateral agent and
syndication agent for the Lenders.
Pursuant to Section 7.01(e) of the Credit Agreement,
______________________, the Chief Financial Officer of STELLEX INDUSTRIES, INC.
(the "Parent") hereby certifies, as of _________________ __, 199_, as follows:
1. Unless otherwise defined herein, terms defined in the Credit Agreement
shall have the same meanings in this Certificate.
2. During the period from _________, 199_ to _______, 199_, the Borrowers
received Net Cash Proceeds in the aggregate amount of $_____ as a result of
sales of assets, issuance of Securities or receipt of insurance proceeds as
follows:
[For each sale of assets, issuance of Securities or receipt of insurance
proceeds, (i) indicate amount of Net Cash Proceeds received and date
received, (ii) describe sale, issuance or nature of loss suffered, (iii)
describe replacement asset acquired or Permitted Acquisition consummated
and cost of such asset or Permitted Acquisition.]
3. For each such sale of assets, issuance of Securities or receipt of
insurance proceeds, Net Cash Proceeds
1
<PAGE>
received which were not spent as specifically indicated above have been applied
to repay Loans in accordance with the Credit Agreement.
STELLEX INDUSTRIES, INC.
By:_________________________
Name:
Title: Chief Financial Officer
2
<PAGE>
EXHIBIT J
Form of Guaranty
GUARANTY
This GUARANTY (as amended, supplemented or otherwise modified from time to
time, this "Guaranty") is made as of _______ __, 199_, by STELLEX INDUSTRIES,
INC., a Delaware corporation, KII HOLDING CORP., a Delaware corporation, TSMD
ACQUISITION CORP., a Delaware corporation, KII ACQUISITION CORP., a Delaware
corporation, STELLEX MICROWAVE SYSTEMS, INC., a California corporation, STELLEX
AEROSPACE, a California corporation, PARAGON PRECISION PRODUCTS, a California
corporation, BANDY MACHINING INTERNATIONAL, a California corporation, SCANNING
ELECTRON ANALYSIS LABORATORIES, INC., a California corporation, and GENERAL
INSPECTION LABORATORIES, INC., a California corporation (each individually, a
"Guarantor", and collectively, the "Guarantors"), in favor of the Agents and the
Lenders under that certain Credit Agreement referred to below.
W I T N E S S E T H
WHEREAS, each of the Guarantors is a Borrower under the Credit Agreement
dated as of October __, 1997 (as amended, supplemented or otherwise modified
from time to time, the "Credit Agreement") among such Guarantors, as borrowers
(the "Borrowers"), Societe Generale, as administrative agent (the
"Administrative Agent"), First Union Commercial Corporation, as collateral agent
(the "Collateral Agent") and syndication agent (the "Syndication Agent", and
collectively, with the Administrative Agent and the Collateral Agent, the
"Agents"), and the financial institutions party thereto (the "Lenders").
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings ascribed to such terms in the Credit Agreement.
WHEREAS, the Lenders and the Agents have required as a condition, among
others, to entering into the Credit Agreement, that each Guarantor guarantee (x)
the Obligations of each other Guarantor as a Borrower under the Credit Agreement
and (y) the obligations of each such other Guarantor under this Guaranty (all
such Obligations and such obligations hereunder, the "Guaranteed Obligations");
NOW THEREFORE, in consideration of the premises set forth above, the terms
and conditions contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Guaranty. (i) For value received and in consideration of any loan,
advance or financial accommodation of any kind whatsoever heretofore, now or
hereafter made, given or
<PAGE>
granted to any Borrower by the Lenders, each Guarantor unconditionally
guarantees the full and prompt payment when due, whether at maturity or earlier,
by reason of acceleration or otherwise, and at all times thereafter, of all the
Guaranteed Obligations (including, without limitation, interest accruing
following the filing of a bankruptcy petition by or against any applicable
Borrower, at the applicable rate specified in the Credit Agreement, whether or
not such interest is allowed as a claim in bankruptcy).
(ii) At any time after the occurrence of an Event of Default, each
Guarantor shall pay to the Administrative Agent, for the ratable benefit of the
Agents and the Lenders, on demand and in immediately available funds, the full
amount of the Guaranteed Obligations. Each Guarantor further agrees to pay and
reimburse the Agents and the Lenders for, on demand and in immediately available
funds, (a) all reasonable fees, costs and expenses (including, without
limitation, all court costs and reasonable attorneys' fees, costs and expenses)
paid or incurred by such Person in: (1) endeavoring to collect all or any part
of the Guaranteed Obligations owing to such Person from, or in prosecuting any
action against, the applicable Borrower or Borrowers relating to the Credit
Agreement, this Guaranty or the transactions contemplated thereby; (2) taking
any action with respect to any security or collateral securing the Guaranteed
Obligations; and (3) preserving, protecting or defending the enforceability of,
or enforcing, this Guaranty or the Agents' or the Lenders' rights hereunder (all
such costs and expenses are hereinafter referred to as the "Expenses") and (b)
interest on the Expenses, from the date of demand under this Guaranty until paid
in full at the per annum rate of interest described in Section 4.01(d) of the
Credit Agreement. Each Guarantor hereby agrees that this Guaranty is an absolute
guaranty of payment and is not a guaranty of collection.
(iii) Notwithstanding anything contained in this Guaranty to the contrary,
the amount guaranteed by each Guarantor hereunder shall be limited to an
aggregate amount which, together with other amounts owing by such Guarantor to
the Agents and the Lenders, is equal to the largest amount that would not be
subject to avoidance under Section 548 of Title 11 of the United States Code (11
U.S.C. ss.ss. 101 et seq.) (the "Bankruptcy Code") or any applicable provisions
of any comparable state law.
2. Obligations Unconditional. Each Guarantor hereby agrees that its
obligations under this Guaranty shall be unconditional, irrespective of:
(i) the validity, enforceability, avoidance or subordination of any of
the Guaranteed Obligations or any of the Loan Documents;
(ii) the absence of any attempt by, or on behalf of, any of the Agents
or the Lenders to collect, or to take any other
-2-
<PAGE>
action to enforce, all or any part of the Guaranteed Obligations whether
from or against any applicable Borrower or any other Person;
(iii) the election of any remedy available under any Loan Document or
any applicable Requirement of Law by, or on behalf of, any of the Agents or
the Lenders with respect to all or any part of the Guaranteed Obligations;
(iv) the waiver, consent, extension, forbearance or granting of any
indulgence by, or on behalf of, any of the Agents or the Lenders with
respect to any provision of any Loan Document;
(v) the failure of any of the Agents or the Lenders to take any steps
to perfect and maintain its security interest in, or to preserve its rights
to, any security or collateral for the Guaranteed Obligations;
(vi) the election by, or on behalf of, any of the Agents or the
Lenders, in any proceeding instituted under Chapter 11 of the Bankruptcy
Code, of the application of Section 1111(b)(2) of the Bankruptcy Code;
(vii) any borrowing or grant of a security interest by any applicable
Borrower, as debtor-in-possession, under Section 364 of the Bankruptcy
Code;
(viii) the disallowance, under Section 502 of the Bankruptcy Code, of
all or any portion of the claims against any applicable Borrower held by
any of the Lenders or the Agents, for repayment of all or any part of the
Guaranteed Obligations or any Expenses; or
(ix) any other circumstance which might otherwise constitute a legal
or equitable discharge or defense of any applicable Borrower (other than
payment in full of the Guaranteed Obligations);
provided, however, that nothing contained in this Section 2 shall be deemed to
waive or modify any rights, defenses or claims which such Guarantor, in its
capacity as a Borrower under the Credit Agreement, as a Pledgor under a Pledge
Agreement or as a Grantor under a Security Agreement, may have and which it has
not expressly waived therein.
3. Enforcement; Application of Payments. Upon the occurrence and during the
continuance of an Event of Default, the Agents and/or the Lenders may proceed
directly and at once, without notice, against any Guarantor to obtain
performance of and to collect and recover the full amount, or any portion, of
the Guaranteed Obligations owing to such Person or Persons, without first
proceeding against any applicable Borrower or any other
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<PAGE>
Person, or against any security or collateral for the Guaranteed Obligations.
4. Waivers. (i) Each Guarantor hereby waives diligence, presentment, demand
of payment, filing of claims with a court in the event of receivership or
bankruptcy of any Borrower, protest or notice with respect to the Guaranteed
Obligations, all setoffs and all presentments, demands for performance, notices
of nonperformance, protests, notices of protest, notices of dishonor and notices
of acceptance of this Guaranty, and all other demands whatsoever (and shall not
require that the same be made on any Borrower as a condition precedent to such
Guarantor's obligations hereunder), and covenants that this Guaranty will not be
discharged, except by payment in full of the Guaranteed Obligations. Each
Guarantor further waives all notices of the existence, creation or incurring of
new or additional Indebtedness, arising either from additional loans extended to
any Borrower or otherwise, and also waives all notices that the principal
amount, or any portion thereof, and/or any interest on any instrument or
document evidencing all or any part of the Guaranteed Obligations is due,
notices of any and all proceedings to collect from the maker, any endorser or
any other guarantor of all or any part of the Guaranteed Obligations, or from
any other Person, and, to the extent permitted by law, notices of exchange,
sale, surrender or other handling of any security or collateral given to the
Collateral Agent or the Lenders to secure payment of all or any part of the
Guaranteed Obligations; provided, however, that nothing contained herein shall
be deemed to waive or modify any rights, defenses or claims which such
Guarantor, in its capacity as a Borrower under the Credit Agreement, as a
Pledgor under a Pledge Agreement or as a Grantor under a Security Agreement, may
have and which it has not expressly waived therein.
(ii) The Agents and/or the Lenders are hereby authorized, without notice or
demand and without affecting the liability of the Guarantors hereunder, from
time to time, (a) to renew, extend, accelerate or otherwise change the time for
payment of, or other terms relating to, all or any part of the Guaranteed
Obligations, or to otherwise modify, amend or change the terms of any of the
Loan Documents; (b) to accept partial payments on all or any part of the
Guaranteed Obligations; (c) to take and hold security or collateral for the
payment of all or any part of the Guaranteed Obligations, or any liabilities of
the Borrowers, (d) to exchange, enforce, waive and release any such security or
collateral; (e) to apply such security or collateral and direct the order or
manner of sale thereof as in its discretion it may determine; (f) to settle,
release, exchange, enforce, waive, compromise or collect or otherwise liquidate
all or any part of the Guaranteed Obligations, this Guaranty, or any other
guaranty, and any security or collateral for the Guaranteed Obligations or for
any such guaranty; provided, however, that nothing contained herein shall be
deemed to waive or modify any rights, defenses or claims which such Guarantor,
in its capacity as a Borrower under the Credit Agreement, as a Pledgor under a
Pledge Agreement or as
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<PAGE>
a Grantor under a Security Agreement, may have and which it has not expressly
waived therein. Any of the foregoing may be done in any manner, without
affecting or impairing the obligations of the Guarantors hereunder.
5. Setoff. Subject to Sections 13.07 and 13.08 of the Credit Agreement, at
any time after all or any part of the Guaranteed Obligations have become due and
payable (by acceleration or otherwise), the Lenders may, without notice to any
Guarantor and regardless of the acceptance of any security or collateral for the
payment hereof, appropriate and apply toward the payment of all or any part of
the Guaranteed Obligations owing to such Persons in accordance with the
provisions of Section 3.02(b)(ii) of the Credit Agreement (i) any Indebtedness
due or to become due from the Lenders to such Guarantor, and (ii) any moneys,
credits or other property belonging to such Guarantor, at any time held by or
coming into the possession of the Lenders or their respective affiliates.
6. Financial Information. Each Guarantor hereby assumes responsibility for
keeping itself informed of the financial condition of each Borrower (other than
such Guarantor) and any and all other endorsers and/or other guarantors of all
or any part of the Guaranteed Obligations, and of all other circumstances
bearing upon the risk of nonpayment of the Guaranteed Obligations, or any part
thereof, that diligent inquiry would reveal, and such Guarantor hereby agrees
that none of the Agents or the Lenders shall have any duty to advise any
Guarantor of information known to it regarding such condition or any such
circumstances. In the event any of the Agents or the Lenders, in its sole
discretion, undertakes at any time or from time to time to provide any
information to any Guarantor, such Agent or Lender shall be under no obligation
(i) to undertake any investigation not a part of its regular business routine,
(ii) to disclose any information which such Agent or Lender, pursuant to
accepted or reasonable commercial finance or banking practices, wishes to
maintain confidential or (iii) to make any other disclosures or updates relating
to such information or any other information to such Guarantor.
7. No Marshalling; Reinstatement. Each Guarantor consents and agrees that
none of the Agents or the Lenders or any Person acting for or on behalf of any
of them shall be under any obligation to marshall any assets in favor of any
Guarantor or against or in payment of any or all of the Guaranteed Obligations.
Each Guarantor further agrees that, to the extent that any Borrower (other than
such Guarantor) or any other guarantor of all or any part of the Guaranteed
Obligations makes a payment or payments to any Agent or Lender, or any Agent or
Lender receives any proceeds of Collateral, which payment, payments or proceeds,
or any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to any Borrower, any other
guarantor or any other Person, or their respective estates, trustees, receivers
or any other party,
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<PAGE>
including, without limitation, such Guarantor under any bankruptcy law, state or
federal law, common law or equitable cause, then, to the extent of such payment
or repayment, the part of the Guaranteed Obligations which has been paid,
reduced or satisfied by such amount shall be reinstated and continued in full
force and effect as of the time immediately preceding such initial payment,
reduction or satisfaction.
8. Subrogation. Until the Guaranteed Obligations shall have been paid in
full, each Guarantor hereby agrees that it (i) shall have no right of
subrogation with respect to such Guaranteed Obligations (under contract, Section
509 of the Bankruptcy Code or otherwise) or any other right of indemnity,
reimbursement or contribution, and (ii) hereby waives any right to enforce any
remedy which any of the Agents or the Lenders now have or may hereafter have
against any Borrower, any endorser or any other guarantor of all or any part of
the Guaranteed Obligations or any other Person, and each Guarantor hereby waives
any benefit of, and any right to participate in, any security or collateral
given to the Agents and the Lenders to secure the payment or performance of all
or any part of the Guaranteed Obligations or any other liability of the
Borrowers to the Agents and the Lenders.
9. Subordination. Each Guarantor agrees that any and all claims of such
Guarantor against the other Borrowers or any endorser or other guarantor of all
or any part of the Guaranteed Obligations, or against any of their respective
properties, shall be subordinated to all of the Guaranteed Obligations.
Notwithstanding any right of any Guarantor to ask for, demand, sue for, take or
receive any payment from any other Borrower, all rights and Liens of such
Guarantor, whether now or hereafter arising and howsoever existing, in any
assets of any other Borrower (whether constituting part of the Collateral or
otherwise) shall be and hereby are subordinated to the rights of the Agents or
the Lenders in those assets. Such Guarantor shall have no right to possession of
any such asset or to foreclose upon any such asset, whether by judicial action
or otherwise, unless and until all of the Guaranteed Obligations shall have been
paid in full and all of the Commitments have been terminated. If all or any part
of the assets of any Borrower, or the proceeds thereof, are subject to any
distribution, division or application to the creditors of such Borrower, whether
partial or complete, voluntary or involuntary, and whether by reason of
liquidation, bankruptcy, arrangement, receivership, assignment for the benefit
of creditors or any other action or proceeding, or if the business of any
Borrower is dissolved or if substantially all of the assets of any Borrower are
sold, then, and in any such event, any payment or distribution of any kind or
character, either in cash, securities or other property, which shall be payable
or deliverable upon or with respect to any Indebtedness of such Borrower to such
Guarantor ("Borrower Indebtedness") shall be paid or delivered directly to the
Lenders for application on the Guaranteed Obligations, due or to become due,
until such
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<PAGE>
Guaranteed Obligations shall have first been paid in full and all of the
Commitments have been terminated. Each Guarantor irrevocably authorizes and
empowers each of the Agents and the Lenders to demand, sue for, collect and
receive every such payment or distribution and give acquittance therefor and to
make and present for and on behalf of such Guarantor such proofs of claim and
take such other action, in such Agent's or Lender's own name or in the name of
such Guarantor or otherwise, as such Agent or Lender may deem reasonably
necessary or reasonably advisable for the enforcement of this Guaranty. After
the occurrence and during the continuance of an Event of Default, each Lender
may vote, with respect to the Guaranteed Obligations owed to it, such proofs of
claim in any such proceeding, receive and collect any and all dividends or other
payments or disbursements made thereon in whatever form the same may be paid or
issued and apply the same on account of any of the Guaranteed Obligations.
Should any payment, distribution, security or instrument or proceeds thereof be
received by any Guarantor upon or with respect to the Borrower Indebtedness
prior to the payment in full of all of the Guaranteed Obligations and the
termination of all of the Commitments, such Guarantor shall receive and hold the
same in trust, as trustee, for the ratable benefit of the Agents and the Lenders
and shall forthwith deliver the same to the Administrative Agent in precisely
the form received (accompanied by the endorsement or assignment of such
Guarantor where necessary), for application to the Guaranteed Obligations, due
or not due, and, until so delivered, the same shall be held in trust by such
Guarantor as the property of the Agents and the Lenders. After the occurrence
and during the continuance of an Event of Default, if any Guarantor fails to
make any such endorsement or assignment to the Agents or the Lenders, the Agents
or the Lenders or any of their officers or employees are hereby irrevocably
authorized to make the same. Each Guarantor agrees that until the Guaranteed
Obligations have been paid in full and all of the Commitments have been
terminated, such Guarantor will not assign or transfer to any Person any claim
such Guarantor has or may have against any other Borrower.
10. Enforcement; Amendments; Waivers. No delay on the part of any of the
Agents or the Lenders in the exercise of any right or remedy arising under this
Guaranty, the Credit Agreement, any of the other Loan Documents or otherwise
with respect to all or any part of the Guaranteed Obligations, the Collateral or
any other guaranty of or security for all or any part of the Guaranteed
Obligations shall operate as a waiver thereof, and no single or partial exercise
by any of the Agents or the Lenders of any such right or remedy shall preclude
any further exercise thereof. No modification or waiver of any of the provisions
of this Guaranty shall be binding upon any of the Agents or the Lenders, except
as expressly set forth in a writing duly signed and delivered by the Agents and
the Lenders. Failure by any of the Agents or the Lenders at any time or times
hereafter to require strict performance by any Borrower or any other guarantor
of all or any part of the Guaranteed Obligations or any other
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<PAGE>
Person of any of the provisions, warranties, terms and conditions contained in
any of the Loan Documents now or at any time or times hereafter executed by such
Persons and delivered to any of the Agents or the Lenders shall not waive,
affect or diminish any right of any of the Agents or the Lenders at any time or
times hereafter to demand strict performance thereof and such right shall not be
deemed to have been waived by any act or knowledge of any of the Agents or the
Lenders, or their agents, officers or employees, unless such waiver is contained
in an instrument in writing, directed and delivered to the Borrowers specifying
such waiver, and is signed by the Administrative Agent. No waiver of any Event
of Default by the Lenders shall operate as a waiver of any other Event of
Default or the same Event of Default on a future occasion, and no action by any
of the Agents or the Lenders permitted hereunder shall in any way affect or
impair any Agent's or Lender's rights and remedies or the obligations of the
Guarantors under this Guaranty. Any determination by a court of competent
jurisdiction of the amount of any principal and/or interest owing by the
Borrowers to the Agents and the Lenders shall be conclusive and binding on each
Guarantor irrespective of whether such Guarantor was a party to the suit or
action in which such determination was made.
11. Effectiveness; Termination. This Guaranty shall become effective
against any Guarantor upon its execution by such Guarantor and shall continue in
full force and effect and may not be terminated or otherwise revoked until the
Guaranteed Obligations have been paid in full in cash and all of the Commitments
have been terminated. If, notwithstanding the foregoing, any Guarantor shall
have any right under applicable law to terminate or revoke its obligations under
this Guaranty, such Guarantor agrees that such termination or revocation shall
not be effective until a written notice of such revocation or termination,
specifically referring hereto, signed by such Guarantor, is received by the
Agents and the Lenders. Such notice shall not affect the right and power of any
of the Agents or the Lenders to enforce rights arising prior to receipt thereof
by the Agents and the Lenders. If any of the Lenders grants loans or takes other
action after such Guarantor terminates or revokes its obligations under this
Guaranty but before the Agents and the Lenders receive such written notice, the
rights of such Lender with respect thereto shall be the same as if such
termination or revocation had not occurred.
12. Successors and Assigns. This Guaranty shall be binding upon each
Guarantor and upon the successors and permitted assigns of such Guarantor and
shall inure to the benefit of the Agents and the Lenders and their respective
successors and permitted assigns; all references herein to the Borrowers and to
the Guarantors shall be deemed to include their respective successors and
permitted assigns. The successors and permitted assigns of the Guarantors and
the Borrowers shall include, without limitation, their respective receivers,
trustees or
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<PAGE>
debtors-in-possession. All references to the singular shall be deemed to include
the plural where the context so requires.
13. Governing Law. This Guaranty shall be construed and enforced and the
rights and duties of the parties shall be governed in all respects in accordance
with the law of the State of New York.
14. Consent to Jurisdiction and Service of Process. Each of the Guarantors
agrees that the terms of Section 13.20 of the Credit Agreement with respect to
consent to jurisdiction and service of process shall apply equally to this
Security Agreement.
15. Waiver of Jury Trial. EACH OF THE GUARANTORS WAIVES ANY RIGHT TO TRIAL
BY JURY IN ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG
ANY OF THE AGENTS, THE LENDERS OR THE GUARANTORS ARISING OUT OF OR RELATED TO
THIS GUARANTY OR ANY OTHER LOAN DOCUMENT. ANY SUCH PERSON MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS GUARANTY WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
16. Waiver of Bond. Each Guarantor waives the posting of any bond otherwise
required of the Agents and the Lenders in connection with any judicial process
or proceeding to realize on the Collateral or any other security for the
Guaranteed Obligations, to enforce any judgment or other court order entered in
favor of the Agents and the Lenders, or to enforce by specific performance,
temporary restraining order, or preliminary or permanent injunction, this
Guaranty or any other agreement or document between the any Agent or any Lender
and such Guarantor.
16. Advice of Counsel. Each Guarantor represents and warrants to the
Administrative Agent that it has discussed this Guaranty and, specifically, the
provisions of Sections 13 through 15 hereof, with such Guarantor's lawyers.
17. Notices. All notices and other communications required or desired to be
served, given or delivered hereunder shall be in writing or by a
telecommunications device capable of creating a printed record and shall be
addressed to the party to be notified at the address indicated for each in
Section 13.10 of the Credit Agreement. All such notices and communications shall
be deemed to be validly served, given or delivered (i) ten (10) days following
deposit in the United States mails with proper postage prepaid; (ii) upon
delivery thereof if delivered by hand or by overnight courier service to the
party to be notified; or (iii) upon confirmation of receipt thereof if
transmitted by a telecommunications device.
18. Severability. Wherever possible, each provision of this Guaranty shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Guaranty shall be prohibited by or invalid under
such law,
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<PAGE>
such provision shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or the remaining
provisions of this Guaranty.
19. Collateral. Each Guarantor hereby acknowledges and agrees that its
obligations under this Guaranty are secured pursuant to the terms and provisions
of the applicable Loan Documents to which it is a party.
20. Merger. This Guaranty represents the final agreement of each Guarantor
with respect to the matters contained herein and may not be contradicted by
evidence of prior or contemporaneous agreements, and/or subsequent oral
agreements, between such Guarantor and any Agent or any Lender.
21. Execution in Counterparts. This Guaranty may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
22. No Waiver Under Certain Other Loan Documents. Nothing contained herein
shall be deemed to waive or modify any rights, defenses or claims which such
Guarantor, in its capacity as a Borrower under the Credit Agreement, as a
Pledgor under a Pledge Agreement or as a Grantor under a Security Agreement, may
have and which it has not expressly waived therein.
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<PAGE>
IN WITNESS WHEREOF, this Guaranty has been duly executed by each Guarantor
as of the day and year first set forth above.
STELLEX INDUSTRIES, INC.
By____________________________
Name:
Title:
KII HOLDING CORP.
By____________________________
Name:
Title:
TSMD ACQUISITION CORP.
By____________________________
Name:
Title:
KII ACQUISITION CORP.
By____________________________
Name:
Title:
STELLEX MICROWAVE SYSTEMS, INC.
By____________________________
Name:
Title:
STELLEX AEROSPACE
By____________________________
Name:
Title:
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<PAGE>
PARAGON PRECISION PRODUCTS
By____________________________
Name:
Title:
BANDY MACHINING INTERNATIONAL
By____________________________
Name:
Title:
SCANNING ELECTRON ANALYSIS
LABORATORIES, INC.
By____________________________
Name:
Title:
GENERAL INSPECTION
LABORATORIES, INC.
By____________________________
Name:
Title:
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<PAGE>
EXHIBIT K
EXECUTION COPY
CASH COLLATERAL
PLEDGE AND ASSIGNMENT AGREEMENT
THIS CASH COLLATERAL PLEDGE AND ASSIGNMENT AGREEMENT (as amended,
supplemented or otherwise modified from time to time, this "Agreement") dated as
of October 31, 1997, by and among STELLEX INDUSTRIES, INC., a Delaware
corporation, KII HOLDING CORP., a Delaware corporation, TSMD ACQUISITION CORP.,
a Delaware corporation, KII ACQUISITION CORP., a Delaware corporation, STELLEX
MICROWAVE SYSTEMS, INC., a California corporation, STELLEX AEROSPACE, a
California corporation, PARAGON PRECISION PRODUCTS, a California corporation,
BANDY MACHINING INTERNATIONAL, a California corporation, SCANNING ELECTRON
ANALYSIS LABORATORIES, INC., a California corporation, and GENERAL INSPECTION
LABORATORIES, INC., a California corporation,(each, individually, a "Pledgor"
and collectively, the "Pledgors") and FIRST UNION COMMERCIAL CORPORATION, in its
capacity as collateral agent (with its successors in such capacity, the
"Collateral Agent") for the Agents, the Lenders, and the other Holders, in each
case under and as defined in that certain Credit Agreement dated as of October
31, 1997 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement") among each of the Pledgors as borrowers (collectively, the
"Borrowers"), Societe Generale, as administrative agent (the "Administrative
Agent"), the Collateral Agent and First Union Commercial Corporation, as
syndication agent (the "Syndication Agent, and collectively with the
Administrative Agent and the Collateral Agent, the "Agents"), and the financial
institutions from time to time parties thereto (the "Lenders"). Capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings ascribed to such terms in the Credit Agreement.
PRELIMINARY STATEMENTS:
(1) The Pledgors have opened a special non- interest-bearing cash
collateral account (the "Account") with First Union National Bank at its office
at 1970 Chain Bridge Road, VA1942, McLean, VA 22102, Account No. _____________,
in the name of the Collateral Agent and under the sole control and dominion of
the Collateral Agent and subject to the terms of this Agreement.
(2) It is a condition precedent to the making of Loans by the Lenders under
the Credit Agreement that the Pledgors shall have made the pledge and assignment
contemplated by this Agreement.
NOW THEREFORE, in consideration of the premises and in order to induce the
Lenders to make the Loans under the Credit Agreement, each Pledgor hereby agrees
with the Collateral Agent
<PAGE>
for its benefit and the ratable benefit of the Lenders, the Agents and the other
Holders as follows:
SECTION 1. Pledge and Assignment. Each Pledgor hereby pledges and assigns
to the Collateral Agent for its benefit and the ratable benefit of the Lenders,
Agents and the other Holders, and grants to the Collateral Agent for its benefit
and the ratable benefit of the Lenders, the Agents and the other Holders a
security interest in, the following collateral (the "Collateral"):
(i) the Account, all funds held therein and all certificates and
instruments, if any, from time to time representing or evidencing the
Account;
(ii) all Investments (as hereinafter defined) from time to time, and
all certificates and instruments, if any, from time to time representing or
evidencing the Investments;
(iii) all notes, certificates of deposit, deposit accounts, checks and
other instruments from time to time hereafter delivered to or otherwise
possessed by the Collateral Agent for or on behalf of such Pledgor in
substitution for or in addition to any or all of the then existing
Collateral;
(iv) all interest, dividends, cash, instruments and other property
from time to time received, receivable or otherwise distributed in respect
of or in exchange for any or all of the then existing Collateral; and
(v) all proceeds of any and all of the foregoing Collateral.
SECTION 2. Security for Obligations. This Agreement secures the payment of
all Obligations and all obligations of the Pledgors now or hereafter existing
under this Agreement (all such obligations being the "Liabilities").
SECTION 3. Delivery of Collateral. All certificates or instruments, if any,
representing or evidencing the Collateral shall be delivered to and held by or
on behalf of the Collateral Agent pursuant hereto and shall be in suitable form
for transfer by delivery, or shall be accompanied by duly executed instruments
of transfer or assignment in blank, all in form and substance satisfactory to
the Collateral Agent. The Collateral Agent shall have the right, at any time in
its discretion and without notice to the Pledgor, to transfer to or to register
in the name of the Collateral Agent or any of its nominees any or all of the
Collateral. In addition, the Collateral Agent shall have the right at any time
to exchange certificates or instruments representing or evidencing Collateral
for certificates or instruments of smaller or larger denominations.
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<PAGE>
SECTION 4. Maintaining the Account. So long as any Lender has any
Commitment or any Note shall remain unpaid:
(a) The Pledgors will maintain the Account with First Union National
Bank.
(b) It shall be a term and condition of the Account, notwithstanding
any term or condition to the contrary in any other agreement relating to
the Account and except as otherwise provided by the provisions of Section 6
and Section 14, that no amount (including interest on the Account) shall be
paid or released to or for the account of, or withdrawn by or for the
account of, any Pledgor or any other person or entity from the Account.
The Account shall be subject to such applicable laws, and such applicable
regulations of the Board of Governors of the Federal Reserve System and of any
other appropriate banking or governmental authority, as may now or hereafter be
in effect.
SECTION 5. Investing of Amounts in the Account. If requested by the
Pledgors, the Collateral Agent will, subject to the provisions of Section 6 and
Section 14, from time to time (a) invest amounts on deposit in the Account in
such Cash Equivalents as the Pledgors may select and the Collateral Agent may
approve and (b) invest interest paid on the Cash Equivalents referred to in
clause (a) above, and reinvest other proceeds of any such Cash Equivalents which
may mature or be sold, in each case in such Cash Equivalents as the Pledgors may
select and the Collateral Agent may approve (the Cash Equivalents referred to in
clauses (a) and (b) above being collectively "Investments"), provided that all
such amounts (and all interest on such amounts) invested in Cash Equivalents
shall be available for and shall be deposited into the Account not later than
one year after such amounts were so invested. Interest and proceeds that are not
invested or reinvested in Investments as provided above shall be deposited and
held in the Account.
SECTION 6. Release of Amounts. So long as no Default or Event of Default
shall have occurred and be continuing, funds shall be released to the Pledgors
or their designee among the Loan Parties as follows:
(a) If the Collateral Agent receives a certificate, substantially in
the form of Exhibit A attached hereto, signed by any Pledgor that has
deposited Net Cash Proceeds into the Account on a Business Day within the
immediately preceding 365 day period (the "Deposited Amount"), the
Collateral Agent shall release the amount requested in such certificate to
such Pledgor.
(b) After the Commitments have been terminated and at the request of
the Pledgors, amounts of credit balance of the Account shall be released to
the Pledgors.
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<PAGE>
Each Pledgor authorizes the Collateral Agent to liquidate Investments if and as
necessary in order for the Collateral Agent to comply with clauses (a) and (b)
above.
SECTION 7. Payment of Amounts to Administrative Agent for Application. On
the first anniversary of the date on which each amount is deposited into the
Account, Investments shall be liquidated, if necessary, so that an amount equal
to such deposited amount, if such deposited amount has not previously been
released in accordance with the provisions of Section 6, shall be remitted by
the Collateral Agent to the Administrative Agent for application by the
Administrative Agent to outstanding Obligations in accordance with the
provisions of the Credit Agreement.
SECTION 8. Representations and Warranties. Each Pledgor represents and
warrants as follows:
(a) Such Pledgor is the legal and beneficial owner of the Collateral free
and clear of any lien, security interest, option or other charge or encumbrance
except for the security interest created by this Agreement.
(b) The pledge and assignment of the Collateral pursuant to this Agreement
creates a valid and perfected first priority security interest in the
Collateral, securing the payment of the Liabilities.
(c) No consent of any other person or entity and no authorization,
approval, or other action by, and no notice to or filing with, any governmental
authority or regulatory body is required (i) for the pledge and assignment by
such Pledgor of the Collateral pursuant to this Agreement or for the execution,
delivery or performance of this Agreement by such Pledgor, (ii) for the
perfection or maintenance of the security interest created hereby (including the
first priority nature of such security interest) or (iii) for the exercise by
the Collateral Agent of its rights and remedies hereunder.
SECTION 9. Further Assurances. Each Pledgor agrees that at any time and
from time to time, at the expense of the Pledgors, such Pledgor will promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or desirable, or that the Collateral Agent may
reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Collateral Agent to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral.
SECTION 10. Transfers and Other Liens. Each Pledgor agrees that it will not
(i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or
grant any option with respect to, any of the Collateral, or (ii) create or
permit to exist any lien, security interest, option or other charge or
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<PAGE>
encumbrance upon or with respect to any of the Collateral, except for the
security interest under this Agreement.
SECTION 11. Collateral Agent Appointed Attorney-in-Fact. Each Pledgor
hereby appoints the Collateral Agent such Pledgor's attorney-in-fact, with full
authority in the place and stead of such Pledgor and in the name of such Pledgor
or otherwise, from time to time in the Collateral Agent's discretion to take any
action and to execute any instrument which the Collateral Agent may deem
necessary or advisable to accomplish the purposes of this Agreement, including,
without limitation, to receive, indorse and collect all instruments made payable
to such Pledgor or Pledgors representing any interest payment, dividend or other
distribution in respect of the Collateral or any part thereof and to give full
discharge for the same.
SECTION 12. Collateral Agent May Perform. If any Pledgor fails to perform
any agreement contained herein, the Collateral Agent may itself perform, or
cause performance of, such agreement, and the expenses of the Collateral Agent
incurred in connection therewith shall be payable by the Pledgors under Section
15.
SECTION 13. The Collateral Agent's Duties. The powers conferred on the
Collateral Agent hereunder are solely to protect its interest in the Collateral
and shall not impose any duty upon it to exercise any such powers. Except for
the safe custody of any Collateral in its possession and the accounting for
moneys actually received by it hereunder, the Collateral Agent shall have no
duty as to any Collateral, as to ascertaining or taking action with respect to
calls, conversions, exchanges, maturities, tenders or other matters relative to
any Collateral, whether or not the Collateral Agent, any Lender or any other
Agent has or is deemed to have knowledge of such matters, or as to the taking of
any necessary steps to preserve rights against any parties or any other rights
pertaining to any Collateral. The Collateral Agent shall be deemed to have
exercised reasonable care in the custody and preservation of any Collateral in
its possession if such Collateral is accorded treatment substantially equal to
that which the Collateral Agent accords its own property.
SECTION 14. Remedies upon Default. If any Event of Default shall have
occurred and be continuing:
(a) The Collateral Agent may, without notice to the Pledgors except as
required by law and at any time or from time to time, charge, set-off and
otherwise apply all or any part of the Collateral in the Account against
the Liabilities or any part thereof.
(b) The Collateral Agent may also exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the
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<PAGE>
rights and remedies of a secured party on default under the Uniform
Commercial Code in effect in the State of New York at that time (the
"Code") (whether or not the Code applies to the affected Collateral), and
may also, without notice except as specified below, sell the Collateral or
any part thereof in one or more parcels at public or private sale, at any
of the Collateral Agent's offices or elsewhere, for cash, on credit or for
future delivery, and upon such other terms as the Collateral Agent may deem
commercially reasonable. Each Pledgor agrees that, to the extent notice of
sale shall be required by law, at least ten days' notice to the Pledgors of
the time and place of any public sale or the time after which any private
sale is to be made shall constitute reasonable notification. The Collateral
Agent shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. The Collateral Agent may adjourn any
public or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned.
(c) Any cash held by the Collateral Agent as Collateral and all cash
proceeds received by the Collateral Agent in respect of any sale of,
collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Collateral Agent, be held by the
Collateral Agent as collateral for, and/or then or at any time thereafter
be applied (after payment of any amounts payable to the Collateral Agent
pursuant to Section 15) in whole or in part by the Collateral Agent for the
ratable benefit of the Agents, the Lenders and the other Holders against,
all or any part of the Liabilities in such order as the Collateral Agent
shall elect. Any surplus of such cash or cash proceeds held by the
Collateral Agent and remaining after payment in full of all the Liabilities
shall be paid over to the Pledgors.
SECTION 15. Expenses. The Pledgors will upon demand pay to the Collateral
Agent the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, which the
Collateral Agent may incur in connection with (i) the administration of this
Agreement, (ii) the custody or preservation of, or the sale of, collection from,
or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of the Collateral Agent, the Lenders or the
other Agents hereunder or (iv) the failure by any Pledgor to perform or observe
any of the provisions hereof.
SECTION 16. Amendments, Etc. No amendment or waiver of any provision of
this Agreement, and no consent to any departure by any Pledgor herefrom shall in
any event be effective unless the same shall be in writing and signed by the
Collateral Agent, and then such waiver or consent shall be effective only in
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the specific instance and for the specific purpose for which given.
SECTION 17. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing (including telecopier, telegraphic,
telex or cable communication) and mailed, telecopied, telegraphed, telexed,
cabled or delivered to it, if to the Pledgors, at their respective addresses
specified in the Credit Agreement, and if to the Collateral Agent, at its
address specified in the Credit Agreement, or, as to either party, at such other
address as shall be designated by such party in a written notice to the other
party. All such notices and other communications shall, when mailed, telecopied,
telegraphed, telexed or cabled, be effective when deposited in the mails,
telecopied, delivered to the telegraph company, confirmed by telex answerback or
delivered to the cable company, respectively.
SECTION 18. Continuing Security Interest; Assignments under Credit
Agreement. This Agreement shall create a continuing security interest in the
Collateral and shall (i) remain in full force and effect until the later of (x)
the payment in full of the Liabilities and all other amounts payable under this
Agreement and (y) the Commitment Termination Date, (ii) be binding upon each
Pledgor, its successors and assigns, and (iii) inure to the benefit of, and be
enforceable by, the Collateral Agent, the other Agents, the Lenders, and the
other Holders, and each of their respective successors, transferees and assigns.
Without limiting the generality of the foregoing clause (iii), any Lender or any
Agent may assign or otherwise transfer all or any portion of its rights and
obligations under the Credit Agreement (including, without limitation, all or
any portion of its Commitment, the Loans owing to it and any Note held by it) to
any other person or entity, and such other person or entity shall thereupon
become vested with all the benefits in respect thereof granted to such Lender or
such Agent herein or otherwise. Upon the later of the payment in full of the
Liabilities and all other amounts payable under this Agreement and the
Commitment Termination Date, the security interest granted hereby shall
terminate and all rights to the Collateral shall revert to the Pledgors. Upon
any such termination, the Collateral Agent will, at the Pledgors' expense,
return to the Pledgors such of the Collateral as shall not have been sold or
otherwise applied pursuant to the terms hereof and execute and deliver to the
Pledgors such documents as the Pledgors shall reasonably request to evidence
such termination.
SECTION 19. Governing Law; Terms. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, except to the
extent that perfection of the security interest hereunder, or remedies
hereunder, in respect of any particular Collateral are governed by the laws of a
jurisdiction other than the State of New York. Unless otherwise defined herein
or in the Credit Agreement, terms
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<PAGE>
defined in Article 9 of the Code are used herein as therein defined.
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<PAGE>
IN WITNESS WHEREOF, each Pledgor has caused this Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
STELLEX INDUSTRIES, INC.
By____________________________
Name:
Title:
KII HOLDING CORP.
By____________________________
Name:
Title:
TSMD ACQUISITION CORP.
By____________________________
Name:
Title:
KII ACQUISITION CORP.
By____________________________
Name:
Title:
STELLEX MICROWAVE SYSTEMS, INC.
By____________________________
Name:
Title:
STELLEX AEROSPACE
By____________________________
Name:
Title:
PARAGON PRECISION PRODUCTS
By____________________________
Name:
Title:
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BANDY MACHINING INTERNATIONAL
By____________________________
Name:
Title:
SCANNING ELECTRON ANALYSIS
LABORATORIES, INC.
By____________________________
Name:
Title:
GENERAL INSPECTION
LABORATORIES, INC.
By____________________________
Name:
Title:
Acknowledged and agreed to as of October 31, 1997.
FIRST UNION COMMERCIAL CORPORATION, as Collateral Agent
By:_____________________________________
Name: Shaun V. Kelley
Title: Vice President
S-2
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EXHIBIT A
FORM OF OFFICER'S CERTIFICATE
I, __________________, the duly [appointed] [elected] _____________1 of
[Name of Pledgor] (the "Pledgor"), do hereby certify as follows in connection
with the Cash Collateral Pledge Agreement and the Credit Agreement (each, as
defined below):
1. Reference is made to that certain Cash Collateral Pledge and Assignment
Agreement(as amended, supplemented or otherwise modified from time to time, the
"Cash Collateral Pledge Agreement") dated as of October 31, 1997, by and among
the Pledgors named therein and First Union Commercial Corporation, in its
capacity as collateral agent (with its successors in such capacity, the
"Collateral Agent") for the Agents, the Lenders, and the other Holders, in each
case under and as defined in that certain Credit Agreement dated as of October
31, 1997 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement") among each of the Pledgors as borrowers (collectively, the
"Borrowers"), Societe Generale, as administrative agent (the "Administrative
Agent"), the Collateral Agent, and First Union Commercial Corporation, as
syndication agent (the "Syndication Agent, and collectively with the
Administrative Agent and the Collateral Agent, the "Agents"), and the financial
institutions from time to time parties thereto (the "Lenders"). Capitalized
terms used in this Certificate and not otherwise defined herein shall have the
respective meanings ascribed to such terms in the Cash Collateral Pledge
Agreement.
2. The Pledgor is requesting that $__________ (the "Requested Amount") be
released to it or its designee among the Loan Parties on __________________ (the
"Release Date") from the Account.
3. The Requested Amount has been deposited by the Pledgor within the 365
day period immediately preceding the Release Date.
4. The Pledgor or its designee among the Loan Parties is using the
Requested Amount [to acquire an asset on the Release Date] or [to fund the
purchase price of a Permitted Acquisition on the Release Date] in accordance
with the provisions of the Credit Agreement.
5. No Default or Event of Default under the Credit Agreement has occurred
and is continuing.
- --------
1/Chief Financial Officer, or other officer of the Pledgor with significant
supervisory responsibility for the financial affairs of the Pledgor.
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<PAGE>
6. All representatives and warranties of the Pledgor contained in the
Credit Agreement are true and correct as of today, other than those that
expressly speak as of a different date.
[5. All of the conditions precedent set forth in Section 5.03 of the Credit
Agreement have been satisfied or waived in writing by the Lenders.]2
WITNESS my hand this __ day of __________, 199_:
--------------------------
Name:
Title:
- --------
2/To be used if the Requested Amount is being requested in connection with a
Permitted Acquisition.
S-4
<PAGE>
EXHIBIT L
Form of Security Agreement
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (as amended, supplemented or otherwise modified
from time to time, this "Security Agreement") dated as of _______ __, 199_, by
and among [NAME OF GRANTOR] (with its successors and permitted assigns, the
"Grantor"), and FIRST UNION COMMERCIAL CORPORATION, in its capacity as
collateral agent (with its successors in such capacity, the "Collateral Agent")
for the Agents, the Lenders, and the other Holders, in each case under and as
defined in that certain Credit Agreement dated as of October __, 1997 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement") among the Grantor and the other borrowers named therein
(collectively, the "Borrowers"), Societe Generale, as administrative agent (the
"Administrative Agent"), the Collateral Agent, and First Union Commercial
Corporation, as syndication agent (the "Syndication Agent", and collectively
with the Administrative Agent and the Collateral Agent, the "Agents"), and the
financial institutions from time to time parties thereto (the "Lenders").
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings ascribed to such terms in the Credit Agreement.
WITNESSETH:
WHEREAS, the Grantor is a party to the Credit Agreement, pursuant to which
the Lenders have agreed, subject to certain conditions precedent, to make loans
and other financial accommodations to the Borrowers from time to time;
WHEREAS, in order to secure the prompt and complete payment, observance and
performance of (i) all of the Obligations and (ii) all of the Grantor's
obligations and liabilities hereunder and in connection herewith (all the
Obligations and such obligations and liabilities hereunder being hereinafter
referred to collectively as the "Liabilities"), the Agents and the Lenders have
required as a condition, among others, to entering into the Credit Agreement
that the Grantor execute and deliver this Security Agreement;
NOW, THEREFORE, in consideration of the premises set forth above, the terms
and conditions contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Defined Terms.
(a) Unless otherwise defined herein, each capitalized term used herein that
is defined in the Credit Agreement shall have the meaning specified for such
term in the Credit Agreement.
<PAGE>
Unless otherwise defined herein or in the Credit Agreement, all terms defined in
Article 8 and Article 9 of the Uniform Commercial Code in effect as of the date
hereof in the State of New York are used herein as defined therein as of the
date hereof.
(b) The words "hereby," "hereof," "herein" and "hereunder" and words of
like import when used in this Security Agreement shall refer to this Security
Agreement as a whole and not to any particular provision of this Security
Agreement, and section references are to this Security Agreement unless
otherwise specified.
(c) All terms defined in this Security Agreement in the singular shall have
comparable meanings when used in the plural, and vice versa, unless otherwise
specified.
2. Grant of Security Interest. To secure the prompt and complete payment,
observance and performance of all the Liabilities, the Grantor hereby grants to
the Collateral Agent for the ratable benefit of the Agents, the Lenders, and the
other Holders a security interest in all of the Grantor's rights, title and
interests in and to the following property, whether now owned or existing or
hereafter arising or acquired and wheresoever located (the "Collateral"):
(a) ACCOUNTS: All present and future accounts, accounts receivable and
other rights of the Grantor to payment for the sale or lease of goods or the
rendition of services (except those evidenced by instruments or chattel paper),
whether now existing or hereafter arising and wherever arising, and whether or
not they have been earned by performance (collectively, "Accounts");
(b) EQUIPMENT: All of the Grantor's present and future (i) equipment and
fixtures, including, without limitation, wherever located, all machinery,
manufacturing, distribution, selling, data processing and office equipment,
furniture, furnishings, assembly systems, tools, tooling, molds, dies,
appliances and vehicles, (ii) other tangible personal property (other than the
Grantor's Inventory) and (iii) any and all accessions, parts and appurtenances
attached to any of the foregoing or used in connection therewith, and any
substitutions therefor and replacements, products and proceeds thereof
(collectively, "Equipment");
(c) GENERAL INTANGIBLES: All of the Grantor's present and future general
intangibles, choses in action, causes of action, and all other intangible
personal property of every kind and nature including, without limitation,
corporate, partnership and other business books and records, inventions,
designs, patents, patent applications, trademarks, service marks, trademark
applications, service mark applications, trade names,
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trade secrets, goodwill, registrations, copyrights, licenses, franchises,
customer lists, computer programs, software and other computer materials, tax
refunds, tax refund claims, rights and claims against charters, carriers,
shippers, franchisees, lessors, and lessees, and rights to indemnification,
intercompany receivables, and any security documents executed in connection
therewith, deposit accounts (excluding tax, payroll and trust accounts),
proceeds of any letters of credit, indemnity, warranty or guaranty payable to
the Grantor from time to time with respect to the foregoing or proceeds of any
insurance policies on which the Grantor is named as beneficiary, claims against
third parties for advances and other financial accommodations and any other
obligations whatsoever owing to the Grantor, contract rights, customer and
supplier contracts, rights in and to all security agreements, security interests
or other security held by the Grantor to secure payment of the Grantor's
accounts, all right, title and interest under leases, subleases, and concessions
and other agreements relating to real or personal property (including, without
limitation, all rents, issues and profits related thereto), rights in and under
guarantees, instruments, securities, documents of title and other contracts
securing, evidencing, supporting or otherwise relating to any of the foregoing,
together with all rights in any goods, merchandise or Inventory (as defined
below) which any of the foregoing may represent (collectively, "General
Intangibles");
(d) INVENTORY: All of the Grantor's present and future (i) inventory, (ii)
goods, merchandise and other personal property furnished or to be furnished
under any contract of service or intended for sale or lease, and all goods
consigned by the Grantor and all other items which have previously constituted
Equipment but are then currently being held for sale or lease in the ordinary
course of the Grantor's business, (iii) raw materials, work-in-process and
finished goods, (iv) materials, components and supplies of any kind, nature or
description used or consumed in the Grantor's business or in connection with the
manufacture, production, packing, shipping, advertising, finishing or sale of
any of the Property described in clauses (i) through (iii) above, (v) goods in
which the Grantor has a joint or other interest to the extent of the Grantor's
interest therein or right of any kind (including, without limitation, goods in
which the Grantor has an interest or right as consignee), and (vi) goods which
are returned to or repossessed by the Grantor; in each case whether in the
possession of the Grantor, a bailee, a consignee, or any other Person for sale,
storage, transit, processing, use or otherwise, and any and all documents for or
relating to any of the foregoing (collectively, "Inventory");
(e) CHATTEL PAPER, INSTRUMENTS AND DOCUMENTS: All chattel paper, all
instruments (as defined in Article 9 of the Uniform Commercial Code) and
securities (as defined in Article 8 of the Uniform Commercial Code), all bills
of lading, warehouse receipts and other documents of title and documents, in
each
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instance whether now owned or hereafter acquired by the Grantor (collectively,
"Chattel Paper, Instruments and Documents");
(f) OTHER PROPERTY: To the extent not included in the foregoing (and except
to the extent expressly excluded from the foregoing), all property or interests
in property now owned or hereafter acquired by the Grantor, whether in the
possession, custody or control of any Agent, any Lender, or any other Holder, or
any agent or affiliate of any of them in any way or for any purpose (whether for
safekeeping, deposit, custody, pledge, transmission, collection or otherwise),
including, without limitation, all rights and interests of the Grantor, now
existing or hereafter arising and however and wherever arising, in respect of
any and all (v) investment property; (w) notes, drafts, letters of credit,
stocks, bonds, and debt and equity securities, whether or not certificated, and
warrants, options, puts and calls and other rights to acquire or otherwise
relating to the same; (x) money; (y) proceeds of loans, including, without
limitation, all the Loans made to the Grantor under the Credit Agreement; and
(z) insurance proceeds and books and records relating to any of the property
covered by this Security Agreement (collectively, "Other Property");
together with respect to each of the items set forth in paragraphs (a) through
(f) above with all accessions and additions thereto, substitutions therefor, and
replacements, proceeds and products thereof.
3. Continuing Liability. The Grantor hereby expressly agrees that,
notwithstanding anything set forth herein to the contrary, the Grantor shall
remain solely responsible under each contract, agreement, interest or obligation
as to which a Lien has been granted to the Collateral Agent hereunder for the
observance and performance of all of the conditions and obligations to be
observed and performed by the Grantor thereunder, all in accordance with and
pursuant to the terms and provisions thereof, and the exercise by the Collateral
Agent, any other Agent or any Lender of any rights under this Security
Agreement, the Credit Agreement or any other Loan Document shall not release the
Grantor from any of the Grantor's duties or obligations hereunder and under each
such contract, agreement, interest or obligation. None of the Collateral Agent,
any other Agent or any Lender shall have any duty, responsibility, obligation or
liability under any such contract, agreement, interest or obligation by reason
of or arising out of this Security Agreement or the assignment thereof by the
Grantor to the Collateral Agent or the granting by the Grantor to the Collateral
Agent of a Lien thereon or the receipt by the Collateral Agent, any other Agent
or any Lender of any payment relating to any such contract, agreement, interest
or obligation pursuant hereto, nor shall the Collateral Agent, any other Agent
or any Lender be required or obligated (nor to the extent prohibited by the
terms of such contract, agreement, interest or
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<PAGE>
obligation or applicable law, rule or regulation, shall the Collateral Agent,
any other Agent or any Lender be permitted), in any manner, to (a) perform or
fulfill any of the obligations of the Grantor thereunder or pursuant thereto,
(b) make any payment, or to make any inquiry as to the nature or the sufficiency
of any payment received by the Grantor or the sufficiency of any performance by
any party under any such contract, agreement, interest or obligation, or (c)
present or file any claim, or take any action to collect or enforce any
performance or payment of any amounts which may have been assigned to the
Grantor, on which the Grantor has been granted a Lien to which the Grantor may
be entitled at any time or times.
4. Representations, Warranties and Covenants. The Grantor hereby
represents, warrants and covenants that as of the date of the execution of this
Security Agreement, and until the termination of this Security Agreement
pursuant to Section 14 below:
(a) All of the Equipment and Inventory (other than Inventory and
Equipment sold in accordance with the terms of the Credit Agreement,
Equipment being repaired or serviced, Inventory in transit or in the
possession and control of subcontractors of the Grantor or any other Person
for processing and vehicles) are located at the places specified in
Schedule 1 attached hereto and such location is an owned, leased, bailment
or other location as specified in Schedule 1 attached hereto. As of the
date hereof, the correct corporate name, the principal place of business,
the chief executive office, and the federal tax identification number of
the Grantor and the places where the Grantor's books and records concerning
the Collateral are currently kept are set forth in Schedule 2 attached
hereto and made a part hereof, and the Grantor will not change such
principal place of business or chief executive office or remove such
records without (i) providing the Collateral Agent with at least thirty
(30) days' prior written notice of such change, and (ii) making all filings
under the Uniform Commercial Code necessary or appropriate to preserve the
perfection of the security interests described herein to the extent such
security interest may be perfected by such filings. The Grantor will not
change its name, identity or corporate structure in any manner which might
make any financing statement filed hereunder misleading, unless the Grantor
shall have (A) given the Collateral Agent at least thirty (30) days' prior
written notice thereof (and received any consent that may be required under
the terms of the Credit Agreement), and (B) certified to the Collateral
Agent that all filings reflecting such new name, identity or structure have
been made which are necessary or appropriate to preserve the perfection of
the security interests described herein. The Grantor will hold and preserve
such records and chattel paper and will permit representatives of the
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Collateral Agent at any time during normal business hours to inspect and
make abstracts from such records and chattel paper.
(b) The Grantor has exclusive possession and control of the Equipment
and Inventory, except for (i) Inventory in the possession and control of a
bailee or warehouseman of the Grantor as specified in Schedule 1 attached
hereto; (ii) Inventory in the possession and control of subcontractors of
the Grantor or any other Person for processing; (iii) Equipment being
repaired or serviced; and (iv) Equipment and Inventory in transit with
common or other carriers.
(c) The Grantor is the legal and beneficial owner of the Collateral
free and clear of all Liens except as permitted under Section 9.03 of the
Credit Agreement. The Grantor has not, during the five (5) years preceding
the date hereof, been known as or used any other corporate or fictitious
name, except as disclosed on Schedule 3 hereto, nor acquired all or
substantially all the assets, capital stock or operating unit of any
Person, except as disclosed on Schedule 3 hereto and each predecessor in
interest of the Grantor during the five (5) years preceding the Closing
Date is disclosed on Schedule 3 hereto.
(d) This Security Agreement creates in favor of the Collateral Agent a
legal, valid and enforceable security interest in the Collateral, securing
the payment of the Liabilities. When financing statements have been filed
in the appropriate offices in the locations listed on Schedules 1 and 2
hereto, the Collateral Agent will have a fully perfected first priority
Lien on the Collateral to the extent such Lien may be perfected by Uniform
Commercial Code filings, except, in the case of priority, for Liens
permitted by Section 9.03 of the Credit Agreement.
5. Covenants. The Grantor covenants and agrees with the Collateral Agent
that from and after the date of this Secur ity Agreement and until the
termination of this Security Agreement pursuant to Section 14 below:
(a) At any time and from time to time, upon the Collateral Agent's
written request and at the expense of the Grantor, the Grantor will
promptly and duly execute and deliver any and all such further instruments
and documents and take such further action as the Collateral Agent
reasonably may deem desirable in order to perfect and protect any Lien
granted or purported to be granted hereby or to enable the Collateral Agent
to exercise and enforce its rights and remedies hereunder with respect to
the Collateral. Without limiting the generality of the foregoing, the
Grantor will: (i) upon the occurrence and
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<PAGE>
during the continuance of an Event of Default, at the request of the
Collateral Agent, mark conspicuously each item of chattel paper included in
the Collateral and each related contract and, each of its records
pertaining to the Collateral, with a legend, in form and substance
satisfactory to the Collateral Agent, indicating that such document,
chattel paper, related contract or Collateral is subject to the security
interest granted hereby; (ii) if any Collateral shall be evidenced by a
promissory note or other instrument (other than checks or drafts received
in the ordinary course of the Grantor's business), deliver and pledge to
the Collateral Agent hereunder such note or instrument duly endorsed and
accompanied by duly executed instruments of transfer or assignment, all in
form and substance satisfactory to the Collateral Agent; and (iii) execute
and file such financing or continuation statements, or amendments thereto,
and such other instruments or notices as the Collateral Agent may request,
as may be necessary or desirable, in order to perfect and preserve the
security interest granted or purported to be granted hereby. The Grantor
hereby authorizes the Collateral Agent to file any such financing or
continuation statements without the signature of the Grantor to the extent
permitted by applicable law. The Grantor hereby agrees that a carbon,
photographic, photostatic or other reproduction of this Security Agreement
or of a financing statement is sufficient as a financing statement to the
extent permitted by applicable law.
(b) The Grantor shall keep the Equipment and Inventory (other than
Inventory and Equipment sold in accordance with the terms of the Credit
Agreement, Equipment being repaired or serviced, Inventory in transit or in
the possession and control of subcontractors of the Grantor or any other
person for Processing and vehicles) at the places specified in Schedule 1
hereto and deliver written notice to the Collateral Agent at least 30 days
prior to establishing any other location at which it reasonably expects to
maintain Inventory and/or Equipment (it being understood and agreed that
all action required by Section 5(a)(iii) hereof shall have been taken in
the relevant jurisdiction with respect to all such Equipment and/or
Inventory prior to the establishment of any such location). Upon the
establishment of any such location, and after notice thereof to the
Collateral Agent as required in the preceding sentence, Schedule 1 hereto
shall be deemed amended to add such location thereto without further action
by the Collateral Agent or the Grantor and the Grantor hereby authorizes
the Collateral Agent to substitute a new Schedule 1 hereto to reflect such
additional location(s).
(c) The Grantor will keep and maintain at the Grantor's own cost and
expense satisfactory and complete
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records of the Collateral in a manner reasonably acceptable to the
Collateral Agent, including, without limitation, a record of all payments
received and all credits granted with respect to such Collateral and a
record of the Collateral Agent's security interest in the Collateral. Upon
the occurrence and during the continuance of an Event of Default, the
Grantor shall, for the Collateral Agent's further security, deliver and
turn over to the Collateral Agent or the Collateral Agent's designated
representatives at any time upon three (3) days' notice from the Collateral
Agent or the Collateral Agent's designated representative, copies of any
such books and records (including, without limitation, subject to
limitations in applicable licensing or similar arrangements, any and all
computer tapes, programs and source codes relating to the Collateral or any
part or parts thereof).
(d) In any suit, proceeding or action brought by the Collateral Agent
under any account comprising part of the Collateral, the Grantor will save,
indemnify and keep the Collateral Agent and each Lender harmless from and
against all expense, loss or damages suffered by reason of any defense,
setoff, counterclaim, recoupment or reduction of liability whatsoever of
the obligor thereunder, arising out of a breach by the Grantor of any
obligation or arising out of any other agreement, indebtedness or liability
at any time owing to or in favor of such obligor or its successors from the
Grantor, and all such obligations of the Grantor shall be and shall remain
enforceable against and only against the Grantor and shall not be
enforceable against the Collateral Agent or any Lender; provided, however,
the Grantor shall have no obligation to the Collateral Agent with respect
to the matters indemnified pursuant to this subsection (d) resulting from
the willful misconduct or gross negligence of the Collateral Agent, as
determined in a final non-appealable judgment by a court of competent
jurisdiction.
(e) The Grantor will not create, permit or suffer to exist, and will
defend the Collateral against and take such other action as is necessary to
remove, any Lien on such Collateral, other than Liens permitted under
Section 9.03 of the Credit Agreement, and will defend the right, title and
interest of the Collateral Agent in and to the Grantor's rights to such
Collateral, including, without limitation, the proceeds and products
thereof, against the claims and demands of all Persons whatsoever other
than claims secured by liens permitted under Section 9.03 of the Credit
Agreement.
(f) The Grantor will not, without the Collateral Agent's prior written
consent, except in the ordinary course of business and for amounts which
are not material to the
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<PAGE>
Grantor in the aggregate, (i) grant any extension of the time of payment of
any of the Collateral or compromise, compound or settle the same for less
than the full amount thereof; (ii) release, wholly or partly, any Person
liable for the payment thereof; or (iii) allow any credit or discount
whatsoever thereon other than trade discounts granted in the ordinary
course of business.
(g) The Grantor will advise the Collateral Agent promptly, in
reasonable detail, of (i) any material Lien or claim made by or asserted
against any or all of the Collateral (other than Liens existing on the
Closing Date and listed on Schedule 1.01(A) to the Credit Agreement and
Liens permitted under Section 9.03 of the Credit Agreement), and (ii) the
occurrence of any other event which would have a material adverse effect on
the aggregate value of the Collateral or on the Liens with respect to such
Collateral created hereunder.
6. Collections. Except as otherwise provided in this Section 6, the Grantor
shall continue to collect, at its own expense, all amounts due or to become due
to the Grantor under the Accounts. In connection with such collections, the
Grantor may take (and, after the occurrence of an Event of Default, at the
Collateral Agent's direction, must take) such action as the Grantor or, after
the occurrence and during the continuation an Event of Default, the Collateral
Agent may deem necessary or advisable to enforce collection of the Accounts;
provided, however, that the Collateral Agent shall have the right at any time,
upon the occurrence and during the continuance of an Event of Default, (i) to
require the Grantor to prepare notices of assignment for each government
contract to which the Grantor is a party and to file such notices of assignment
with the appropriate contracting officer of the United States Government and
(ii) to otherwise notify the account debtors or obligors under any Accounts of
the assignment of such Accounts to the Collateral Agent and to direct such
account debtors or obligors to make payment of all amounts due or to become due
to the Grantor thereunder directly to the Collateral Agent and, upon such
notification and at the expense of the Grantor, to enforce collection of any
such Accounts, and to adjust, settle or compromise the amount or payment
thereof, in the same manner and to the same extent as the Grantor might have
done. After receipt by the Grantor of notice from the Collateral Agent requiring
performance of any of the acts referred to in the proviso to the preceding
sentence, (i) all amounts and proceeds (including instruments) received by the
Grantor in respect of the Accounts shall be received in trust for the ratable
benefit of the Collateral Agent, the Lenders, and the other Holders hereunder,
shall be segregated from other funds of the Grantor and shall be forthwith paid
over to the Collateral Agent in the same form as so received (with any necessary
endorsement) to be applied to the Obligations in accordance with the Credit
Agreement (including,
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<PAGE>
without limitation, Section 3.02(b)(ii) thereof) and (ii) the Grantor shall not
adjust, settle or compromise the amount or payment of any Account, release
wholly or partly any account debtor or obligor thereof, or allow any credit or
discount thereon.
7. Remedies, Application of Proceeds, Rights upon Event of Default.
(a) Upon the occurrence and during the continuance of an Event of Default,
the Collateral Agent may exercise in respect of the Collateral, in addition to
all other rights and remedies provided for herein or otherwise available to it,
all the rights and remedies provided for in the Credit Agreement and all the
rights and remedies of a secured party under the Uniform Commercial Code, and
all other applicable law as in effect in any relevant jurisdiction. In addition,
the Collateral Agent may, upon the occurrence and during the continuance of an
Event of Default:
(i) require the Grantor to, and the Grantor hereby agrees that it will
at its expense and upon request of the Collateral Agent, promptly assemble
all, or such part, of the Collateral as directed by the Collateral Agent
and make such Collateral available to the Collateral Agent at a place
designated by the Collateral Agent, which place shall be reasonably
convenient to the Collateral Agent, whether at the premises of the Grantor
or otherwise;
(ii) enter, with or without process of law and without breach of the
peace, any premises where any of the Collateral or the books and records of
the Grantor related thereto are or may be located and, without charge or
liability to the Collateral Agent, seize and remove such Collateral and
such books and records from such premises, or remain upon such premises and
use the same for the purpose of enforcing any and all rights and remedies
of the Collateral Agent under this Security Agreement, the Credit Agreement
or any of the other Loan Documents; and
(iii) without notice, except as specified below, sell, lease, assign,
grant an option or options to purchase or otherwise dispose of all or any
part of the Collateral in one or more parcels, at public or private sale or
sales, at any exchange, broker's board or at any of the Collateral Agent's
offices or elsewhere, at such prices as the Collateral Agent may deem best,
for cash, on credit or for future delivery, and upon such other terms as
the Collateral Agent may deem commercially reasonable; provided, however,
that the Grantor shall not be credited with the net proceeds of any such
credit sale, future delivery or lease of the Collateral until the cash
proceeds thereof are actually received by the Collateral Agent and
provided, further that
10
<PAGE>
any such sale, lease assignment, option to purchase or other disposition
(each a "disposition") shall be subject to any prohibition or restriction
thereon contained in any agreement, contract, interest or right comprising
a part of the Collateral subject to such disposition and any applicable
law, rule or regulation. The Grantor agrees that, to the extent notice of
sale shall be required by law, ten (10) or more Business Days' notice, or
such longer period as may be required by law, to the Grantor of the time
and place of any public sale, or the time after which any private sale is
to be made, shall constitute reasonable notification. No notification
required by law need be given to the Grantor if the Grantor has signed,
after the occurrence of an Event of Default, a statement renouncing any
right to notification of sale or other intended disposition. The Collateral
Agent shall not be obligated to make any sale of any of the Collateral
regardless of notice of sale having been given. The Collateral Agent may
adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned. The Collateral
Agent, each other Agent and each Lender shall have the right upon any such
public sale or sales and, to the extent permitted by law, upon any such
private sale or sales, to purchase the whole or any part of the Collateral
so sold, free of any right or equity of redemption in the Grantor, which
right or equity is hereby expressly waived and released. In the event of a
sale of any Collateral, or any part thereof, to a Lender, the Collateral
Agent or any other Agent upon the occurrence and during the continuance of
an Event of Default, such Lender or Agent shall not deduct or offset from
any part of the purchase price to be paid therefor any indebtedness owing
to it by the Grantor. Any and all proceeds received by the Collateral Agent
with respect to any sale of, collection from or other realization upon all
or any part of the Collateral, whether consisting of monies, checks, notes,
drafts, bills of exchange, money orders or commercial paper of any kind
whatsoever, shall be held by the Collateral Agent and distributed by the
Collateral Agent in accordance with the Credit Agreement (including,
without limitation, Section 3.02(b)(ii) thereof) and the Grantor shall
remain liable for any deficiency following the sale of the Collateral.
Subject to the terms of any applicable license agreement to which the
Grantor is a party, the Collateral Agent is hereby granted an irrevocable
license or other right to use, without charge, the Grantor's labels,
copyrights, patents, rights of use of any name, trade names, general
intangibles, trademarks and advertising matter, or any property of a
similar nature, in completing production of, advertising for sale and
selling any Collateral.
11
<PAGE>
(b) To the extent permitted by applicable law, the Grantor waives all
claims, damages and demands against the Collateral Agent, any other Agent or any
Lender arising out of the repossession, retention or sale of the Collateral, or
any part or parts thereof, except as provided in Section 9 hereof.
(c) The Grantor recognizes that in the event the Grantor fails to perform,
observe or discharge any of its obligations or liabilities under this Security
Agreement, no remedy at law will provide adequate relief to the Collateral Agent
and the Collateral Agent shall be entitled to temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages.
(d) The rights and remedies provided under this Security Agreement are
cumulative and may be exercised singly or concurrently, and are not exclusive of
any rights and remedies provided by law or equity.
8. The Collateral Agent May Perform. If the Grantor fails to perform any
agreement contained herein, the Collateral Agent, after giving notice in
accordance with the Credit Agreement, may itself perform, or cause performance
of, such agreement, and the expenses of the Agent incurred in connection
therewith shall constitute an Obligation payable by the Grantor in accordance
with the terms of the Credit Agreement.
9. The Collateral Agent's Duty of Care. The Collateral Agent shall not be
liable for any acts, omissions, errors of judgment or mistakes of fact or law
including, without limitation, acts, omissions, errors or mistakes with respect
to the Collateral, except for those arising out of or in connection with the
Collateral Agent's (i) gross negligence or willful misconduct, or (ii) failure
to use reasonable care with respect to the safe custody of the Collateral in the
Collateral Agent's possession. Without limiting the generality of the foregoing,
the Collateral Agent shall be under no obligation to take any steps necessary to
preserve rights in the Collateral against any other parties but may do so at its
option. All expenses incurred in connection therewith shall be for the sole
account of the Grantor, and shall constitute part of the Liabilities secured
hereby.
10. Marshalling, Payments Set Aside; Collateral Agent Appointed
Attorney-in-Fact. The Collateral Agent shall be under no obligation to marshal
any assets in favor of the Grantor or against or in payment of any or all of the
Liabilities. To the extent that the Grantor makes a payment or payments to the
Collateral Agent or the Collateral Agent receives any payment or proceeds of the
Collateral for the ratable benefit of the Collateral Agent, any other Agent, any
Lender, or any other Holder, which payment(s) or proceeds or any part thereof
are subsequently invalidated, declared to be fraudulent or
12
<PAGE>
preferential, set aside and/or required to be repaid to a trustee, receiver or
any party under any bankruptcy law, state or federal law, common law or
equitable cause, then, to the extent of such payment or proceeds received, the
Liabilities or any part thereof intended to be satisfied shall be revived and
continue in full force and effect, as if such payment or proceeds had not been
received by the Collateral Agent.
The Grantor agrees, promptly upon all requests of the Collateral Agent, to
take any action and execute any instrument which the Collateral Agent may deem
necessary or advisable to accomplish the purposes of this Security Agreement.
The Grantor hereby irrevocably constitutes and appoints the Collateral Agent and
any officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full power and authority in the name of the
Grantor, or in its own name, from time to time in the Collateral Agent's
discretion, for the purpose of carrying out the terms of this Security
Agreement, to take any and all appropriate action and to execute any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes hereof and, without limiting the generality of the foregoing, hereby
gives the Collateral Agent the power and right on behalf of the Grantor, without
notice to or assent by the Grantor, to the extent permitted by applicable law,
to do the following:
(i) to obtain and adjust insurance required to be paid to the
Collateral Agent subject to and in accordance with Section 8.05 of the
Credit Agreement;
(ii) upon the occurrence and during the continuance of an Event of
Default, ask, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipt for monies due and to become due under or in
respect of any of the Collateral;
(iii) upon the occurrence and during the continuance of an Event of
Default, receive, take, endorse, assign and deliver any and all checks,
notes, drafts, acceptances, documents and other negotiable and
nonnegotiable instruments, documents and chattel paper taken or received by
the Collateral Agent in connection with this Security Agreement;
(iv) upon the occurrence and during the continuance of an Event of
Default, to commence, file, prosecute, defend, settle, compromise or adjust
any claim, suit, action or proceeding with respect to the Collateral;
(v) upon the occurrence and during the continuance of an Event of
Default, to sell, transfer, assign or otherwise deal in or with the
Collateral or any part thereof pursuant to the terms and conditions of this
Security Agreement; and
13
<PAGE>
(vi) upon the occurrence and during the continuance of an Event of
Default, to do, at its option and at the expense and for the account of the
Grantor, at any time or from time to time, all acts and things which the
Agent deems necessary to protect or preserve the Collateral and to realize
upon the Collateral.
11. Severability. If any provision of this Security Agreement is held to be
prohibited or unenforceable in any jurisdiction the substantive laws of which
are held to be applicable hereto, such prohibition or unenforceability shall not
affect the validity or enforceability of the remaining provisions hereof and
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
12. Amendments, Waivers and Consents. None of the terms or provisions of
this Security Agreement may be waived, altered, modified or amended, and no
consent to any departure by the Grantor herefrom shall be effective, except by
or pursuant to an instrument in writing which (i) is duly executed by the
Grantor and the Collateral Agent and (ii) complies with the requirements of the
Credit Agreement. Any such waiver shall be valid only to the extent set forth
therein. A waiver by the Collateral Agent of any right or remedy under this
Security Agreement on any one occasion shall not be construed as a waiver of any
right or remedy which the Collateral Agent would otherwise have on any future
occasion. No failure to exercise or delay in exercising any right, power or
privilege under this Security Agreement on the part of the Collateral Agent
shall operate as a waiver thereof; and no single or partial exercise of any
right, power or privilege under this Security Agreement shall preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege.
13. Binding Effect; Successors and Assigns. This Security Agreement shall
be binding upon the Grantor and its successors, and upon any assign(s) of the
Grantor in accordance with Section 13.19 of the Credit Agreement, and shall
inure to the ratable benefit of the Collateral Agent, the other Agents, the
Lenders, and the other Holders, and their respective successors and assigns.
Nothing set forth herein or in any other Loan Document is intended or shall be
construed to give any other Person any right, remedy or claim under, to or in
respect of this Security Agreement, the Credit Agreement or any other Loan
Document or any Collateral. The Grantor's successors shall include, without
limitation, a receiver, trustee or debtor-in-possession of or for the Grantor.
14. Termination of this Security Agreement; Release of Collateral.
(a) The security interest granted by the Grantor under this Security
Agreement shall terminate against all the
14
<PAGE>
Collateral upon final payment in full in cash of the Liabilities and termination
of the Revolving Loan Commitments and of the Term Loan Commitments. Upon such
termination and at the written request of the Grantor, and at the cost and
expense of the Grantor, the Collateral Agent shall execute in a timely manner a
satisfaction of this Security Agreement and such instruments, documents or
agreements as are necessary or desirable to terminate and remove of record any
documents constituting public notice of this Security Agreement and the security
interests and assignments granted hereunder and shall assign and transfer or
cause to be assigned and transferred, and shall deliver or cause to be
delivered, to the Grantor all property, including all monies, instruments and
securities of the Grantor then held by the Collateral Agent.
(b) Notwithstanding anything in this Security Agree ment to the contrary,
the Grantor may, to the extent permitted by Section 9.02 of the Credit Agreement
sell, assign, transfer or otherwise dispose of any Collateral. In addition, the
Collateral shall be subject to release from time to time (with the Collateral
referred to in the immediately preceding sentence, the "Released Collateral") in
7accordance with Section 12.09(b) of the Credit Agreement. The Liens under this
Security Agreement shall terminate with respect to the Released Collateral upon
such sale, transfer, assignment, disposition or release, and upon the request of
the Grantor, the Collateral Agent shall execute and deliver such instrument or
document as may be necessary to release the Liens granted hereunder; provided,
however, that (i) the Collateral Agent shall not be required to execute any such
documents on terms which, in the Collateral Agent's opinion, would expose the
Collateral Agent to liability or create any obligation or entail any consequence
other than the release of such Liens without recourse or warranty, and (ii) such
release shall not in any manner discharge, affect or impair the Liabilities or
any Liens on (or obligations of the Grantor in respect of) all interests
retained by the Grantor, including without limitation, the proceeds of any sale,
all of which shall continue to constitute part of the Collateral unless and
until released strictly in accordance with the Loan Documents.
15. The Collateral Agent's Exercise of Rights and Remedies upon the
Occurrence and during the Continuance of an Event of Default. Notwithstanding
anything set forth herein to the contrary, it is hereby expressly agreed that
upon the occurrence and during the continuance of an Event of Default, the
Collateral Agent may, and upon the written direction of the Requisite Lenders
shall, exercise any of the rights and remedies provided in this Security
Agreement, the Credit Agreement and any of the other Loan Documents.
16. Notices. Any notice, demand, request or any other communication
required or desired to be served, given or delivered hereunder shall be in
writing and shall be served,
15
<PAGE>
given or delivered as provided in Section 13.10 of the Credit Agreement.
17. Section Headings. The section headings herein are for convenience of
reference only, and shall not affect in any way the interpretation of any of the
provisions hereof.
18. GOVERNING LAW. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND BE
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK,
EXCEPT FOR PERFECTION AND ENFORCEMENT OF SECURITY INTERESTS AND LIENS IN OTHER
JURISDICTIONS WHICH SHALL BE GOVERNED BY THE LAWS OF THOSE JURISDICTIONS.
19. Further Indemnification. The Grantor agrees to pay, and to save the
Collateral Agent and each Lender harmless from, any and all liabilities with
respect to, or resulting from any delay in paying, any and all excise, sales or
other taxes which may be payable or determined to be payable with respect to any
of the Collateral or in connection with any of the transactions contemplated by
this Security Agreement.
20. Counterparts. This Security Agreement may be executed in separate
counterparts, each of which shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
21. Consent to Jurisdiction and Service of Process. The Grantor agrees that
the terms of Section 13.20 of the Credit Agreement with respect to consent to
jurisdiction and service of process shall apply equally to this Security
Agreement.
22. Waiver of Bond. The Grantor waives the posting of any bond otherwise
required of the Collateral Agent in connection with any judicial process or
proceeding to realize on the Collateral or any other security for the
Liabilities, to enforce any judgment or other court order entered in favor of
the Collateral Agent, or to enforce by specific performance, temporary
restraining order, or preliminary or permanent injunction, this Security
Agreement or any other agreement or document between the Collateral Agent and
the Grantor.
23. Advice of Counsel. The Grantor represents and warrants to the
Collateral Agent and the Lenders that it has discussed this Security Agreement
and, specifically, the provisions of Sections 18, 21, 22 and 25 hereof, with the
Grantor's attorneys.
24. Further Assurances. The Grantor agrees that it will cooperate with the
Collateral Agent and will execute and deliver, or cause to be executed and
delivered, all such other stock powers, proxies, instruments and documents, and
will take all such other actions, including, without limitation, the
16
<PAGE>
execution and filing of financing statements, as the Collateral Agent may
reasonably request from time to time in order to carry out the provisions and
purposes of this Security Agreement.
25. WAIVER OF JURY TRIAL. EACH OF THE GRANTOR AND THE COLLATERAL AGENT
WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY DISPUTE, WHETHER SOUNDING IN CONTRACT,
TORT, OR OTHERWISE, BETWEEN THE COLLATERAL AGENT AND THE GRANTOR ARISING OUT OF
OR RELATED TO THE TRANSACTIONS CONTEMPLATED BY THIS SECURITY AGREEMENT OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH. EITHER THE GRANTOR OR THE COLLATERAL AGENT MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECURITY AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Security
Agreement or caused this Security Agreement to be executed and delivered by
their duly authorized officers as of the date first set forth above.
[NAME OF GRANTOR]
By____________________________
Name:
Title:
FIRST UNION COMMERCIAL CORPORATION,
as Collateral Agent
By____________________________
Name:
Title:
18
<PAGE>
SCHEDULE 1
TO
SECURITY AGREEMENT
([Name of Grantor])
Dated as of October __, 1997
Locations of Inventory and Equipment
and Status
Location Status
<PAGE>
SCHEDULE 2
TO
SECURITY AGREEMENT
([Name of Grantor])
Dated as of October __, 1997
Locations of Books and Records
1. Correct Corporate Name
2. Chief Executive Office
3. Principal Place of Business
4. Federal Tax Identification Number
5. Location(s) of the Grantor's Books and Records Concerning the Collateral
<PAGE>
SCHEDULE 3
TO
SECURITY AGREEMENT
([Name of Grantor])
Dated as of October __, 1997
I. Previous Grantor Names
II. Acquisitions of all or substantially all of the assets, capital stock or
operating unit of any Person
III. Predecessor in interest of the Grantor during the five preceding years
<PAGE>
EXHIBIT M
Form of Pledge Agreement
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (as amended, supplemented or otherwise modified from
time to time, this "Pledge Agreement") dated as of _______ __, 199_, by and
among [NAME OF PLEDGOR] (with its successors and permitted assigns, the
"Pledgor"), and FIRST UNION COMMERCIAL CORPORATION, in its capacity as
collateral agent (with its successors in such capacity, the "Collateral Agent")
for the Agents, the Lenders, and the other Holders, in each case under and as
defined in that certain Credit Agreement dated as of October __, 1997 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement") among the Pledgor and the other borrowers named therein
(collectively, the "Borrowers"), Societe Generale, as administrative agent (the
"Administrative Agent"), the Collateral Agent, and First Union Commercial
Corporation, as syndication agent (the "Syndication Agent", and collectively
with the Administrative Agent and the Collateral Agent, the "Agents"), and the
financial institutions from time to time parties thereto (the "Lenders").
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings ascribed to such terms in the Credit Agreement.
WITNESSETH:
WHEREAS, the Pledgor is a party to the Credit Agreement, pursuant to which
the Lenders have agreed, subject to certain conditions precedent, to make loans
and other financial accommodations to the Pledgor and the other Borrowers from
time to time;
WHEREAS, the Pledgor owns [(i)] the shares of capital stock described in
Exhibit A hereto and issued by the issuers named therein [and (ii) the
indebtedness described in Exhibit C hereto and issued by the obligors named
therein]1; and
WHEREAS, in order to secure the prompt and complete payment, observance and
performance of (i) the Obligations and (ii) all of the Pledgor's obligations and
liabilities hereunder and in connection herewith (all Obligations and such
obligations and liabilities hereunder being hereinafter referred to collectively
as the "Liabilities"), the Lenders have required, as a condition, among others,
to entering into the Credit Agreement
- --------
1 This and subsequent references to the Pledged Debt will be included in the
Stellex Industries, Inc. Pledge Agreement.
<PAGE>
with the Borrowers, that the Pledgor execute and deliver this Pledge Agreement;
NOW, THEREFORE, for and in consideration of the foregoing and of any
financial accommodations or extensions of credit (including, without limitation,
any loan or advance by renewal, refinancing or extension of the agreements
described hereinabove or otherwise) heretofore, now or hereafter made to or for
the benefit of the Borrowers pursuant to the Credit Agreement or any other
agreement, instrument or document executed pursuant to or in connection
therewith, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Pledgor and the Collateral
Agent hereby agree as follows:
1. Defined Terms.
(a) Unless otherwise defined herein, all terms defined in Article 8 and
Article 9 of the Uniform Commercial Code in effect as of the date hereof in the
State of New York are used herein as defined therein.
(b) The words "hereby," "hereof," "herein" and "hereunder" and words of
like import when used in this Pledge Agreement shall refer to this Pledge
Agreement as a whole and not to any particular provision of this Pledge
Agreement. Section references herein are to this Pledge Agreement unless
otherwise specified.
(c) All terms defined in this Pledge Agreement in the singular shall have
comparable meanings when used in the plural, and vice versa, unless otherwise
specified.
2. Pledge. The Pledgor hereby pledges to the Collateral Agent, for the
ratable benefit of the Agents, the Lenders and the other Holders (each
individually a "Secured Party", and collectively, the "Secured Parties"), and
grants to the Collateral Agent, for the ratable benefit of the Secured Parties,
a security interest in the following (collectively, the "Pledged Collateral"):
(a) The shares of the capital stock described in Exhibit A hereto, and
the certificates representing the shares of such capital stock, all options
and warrants for the purchase of shares of such capital stock held in the
name of the Pledgor (all of said capital stock, options and warrants and
all capital stock held in the name of the Pledgor as a result of the
exercise of such options or warrants being hereinafter collectively
referred to as the "Pledged Stock"), herewith delivered to the Collateral
Agent accompanied by stock powers in the form of Exhibit B hereto and made
a part hereof (the "Stock Powers") duly executed in
-2-
<PAGE>
blank, and all dividends, cash, instruments and other property from time to
time received, receivable or otherwise distributed in respect of, or in
exchange for, any or all of the Pledged Stock;
(b) All additional shares of stock of any issuer referred to in
Exhibit A hereto from time to time acquired by the Pledgor in any manner,
and all of the shares of the capital stock issued to the Pledgor by any
other wholly owned Subsidiary of the Pledgor which is organized under the
laws of the United States or any state or other political subdivision
thereof after the date hereof, and the certificates representing such
additional shares (any such additional shares shall constitute part of the
Pledged Stock and the Collateral Agent is irrevocably authorized to amend
Exhibit A from time to time to reflect such additional shares), and all
options, warrants, dividends, cash, instruments and other rights and
options from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such shares;
[(c) The indebtedness of each issuer referred to in Exhibit C attached
hereto (the "Pledged Debt") and the instruments evidencing such Pledged
Debt, duly endorsed and in transferable form, all payments of principal
thereof and interest thereon, due and to become due thereunder, and all
books and records applicable thereto, herewith delivered to the Collateral
Agent;]
[(d) All additional instruments evidencing indebtedness which is from
time to time owed to the Pledgor by any Person, duly endorsed and in
transferable form, and all payments of principal thereof and interest
thereon, due and to become due thereunder, and all books and records
applicable thereto (such additional obligations shall constitute part of
the Pledged Debt and the Collateral Agent is irrevocably authorized to
amend Exhibit C from time to time to reflect such additional obligations);]
(e) The property and interests in property described in Section 4
below; and
(f) All proceeds of the foregoing.
3. Security for Obligations. The Pledged Collateral secures the prompt
payment, performance and observance of the Liabilities.
4. Pledged Collateral Adjustments. If, during the term of this Pledge
Agreement:
-3-
<PAGE>
(a) Any stock dividend, reclassification, readjustment or other change
is declared or made in the capital structure of any issuer of Pledged
Stock, or any option included within the Pledged Collateral is exercised,
or both, or
(b) Any subscription warrants or any other rights or options shall be
issued to the Pledgor in connection with the Pledged Collateral, [or
(c) Any additional indebtedness owing to the Pledgor is incurred by
any of the obligors of the Pledged Debt,]
then all new, substituted and additional shares, warrants, rights, options,
notes or other securities, issued by reason of any of the foregoing, shall be
promptly delivered to and held by the Collateral Agent under the terms of this
Pledge Agreement and shall constitute Pledged Collateral hereunder; provided,
however, that nothing contained in this Section 4 shall be deemed to permit any
stock dividend, issuance of additional stock, warrants, rights or options,
reclassification, readjustment or other change in the capital structure of any
issuer of Pledged Stock which is prohibited in the Credit Agreement.
5. Subsequent Changes Affecting Pledged Collateral. The Pledgor represents
and warrants that it has made its own arrangements for keeping informed of
changes or potential changes affecting the Pledged Collateral (including, but
not limited to, rights to convert, rights to subscribe, payment of dividends,
reorganization or other exchanges, tender offers and voting rights), and the
Pledgor agrees that, subject to Section 22, none of the Secured Parties shall
have any obligation to inform the Pledgor of any such changes or potential
changes or to take any action or omit to take any action with respect thereto.
The Collateral Agent may, upon the occurrence and during the continuation of an
Event of Default, without notice and at its option, transfer or register the
Pledged Collateral or any part thereof into its or its nominee's name with or
without any indication that such Pledged Collateral is subject to the security
interest hereunder, and the Pledgor will cause each issuer of Pledged Stock to
cooperate with the Collateral Agent in effecting any such transfer or
registration. In addition, the Collateral Agent may at any time exchange
certificates or instruments representing or evidencing Pledged Collateral for
certificates or instruments of smaller or larger denominations and the Pledgor
will cause each issuer of Pledged Stock to cooperate with the Agent in effecting
any such exchange.
6. Representations and Warranties. The Pledgor represents and warrants as
follows:
(a) The Pledgor is the sole legal and beneficial owner of the
percentage of the issued and outstanding shares of
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<PAGE>
capital stock of the respective issuers thereof listed on Exhibit A hereto,
free and clear of any Lien except for the security interest created by this
Pledge Agreement, and the Pledged Stock constitutes that percentage of the
issued and outstanding shares of capital stock of the respective issuers
thereof set forth in Exhibit A hereto;
[(b) The Pledgor is the sole legal and beneficial owner of the Pledged
Debt, free and clear of any Lien except for the security interest created
by this Pledge Agreement, and the Pledged Debt is a valid and binding
obligation of its obligor, enforceable in accordance with its terms;]
(c) The Pledgor has, as applicable, full corporate power and authority
to execute, deliver and perform this Pledge Agreement;
(d) There are no restrictions upon the voting rights associated with,
or upon the transfer of, any of the Pledged Collateral, other than pursuant
to this Pledge Agreement or as otherwise may be expressly permitted by any
of the other Loan Documents;
(e) The Pledgor has the right to vote, pledge and grant a security
interest in or otherwise transfer such Pledged Collateral free of any
Liens;
(f) No authorization, approval, or other action by, and no notice to
or filing with, any Governmental Authority or regulatory body is required
either (i) for the pledge of the Pledged Collateral pursuant to this Pledge
Agreement or for the execution, delivery or performance of this Pledge
Agreement by the Pledgor or (ii) for the exercise by the Collateral Agent
of the voting or other rights provided for in this Pledge Agreement or the
remedies in respect of the Pledged Collateral pursuant to this Pledge
Agreement (except as may be required in connection with such disposition by
laws affecting the offering and sale of securities generally);
(g) The pledge of the Pledged Collateral pursuant to this Pledge
Agreement creates a valid and perfected first priority security interest in
the Pledged Collateral, in favor of the Collateral Agent for the benefit of
the Secured Parties securing the payment and performance of the
Liabilities;
(h) The Stock Powers are duly executed and give the Agent the
authority they purport to confer; and
(i) The grant and perfection of the security interests in the Pledged
Collateral for the ratable benefit of the
-5-
<PAGE>
Secured Parties, in accordance with the terms herein, are not made in
violation of the registration requirements of the Securities Act of 1933
(the "Securities Act"), any applicable provisions of other federal
securities laws, state securities or "Blue Sky" law, foreign securities
law, or applicable general corporation law or any other applicable law.
7. Voting Rights. During the term of this Pledge Agreement, and except as
provided in this Section 7 below, the Pledgor shall have the right to vote the
Pledged Stock on all corporate questions in a manner not inconsistent with the
terms of this Pledge Agreement, the Credit Agreement and any other agreement,
instrument or document executed pursuant thereto or in connection therewith.
Upon the occurrence and during the continuance of an Event of Default, the
Collateral Agent may, at the Collateral Agent's option and following written
notice from the Collateral Agent to the Pledgor, exercise all voting powers
pertaining to the Pledged Collateral, including the right to take action by
shareholder consent.
8. Dividends and Other Distributions. (a) So long as no Event of Default
shall have occurred and be continuing:
(i) The Pledgor shall be entitled to receive and retain any and all
dividends, including dividends in connection with a reduction of capital,
capital surplus or paid-in surplus and interest paid in respect of the
Pledged Collateral, provided, however, that, except as otherwise provided
in the Credit Agreement, any and all
(A) dividends and interest paid or payable other than in cash
with respect to, and instruments and other property received,
receivable or otherwise distributed with respect to, or in exchange
for, any of the Pledged Collateral;
(B) dividends and other distributions paid or payable in cash
with respect to any of the Pledged Collateral on account of a partial
or total liquidation or dissolution; and
(C) cash paid, payable or otherwise distributed with respect to
principal of, or in redemption of, or in exchange for, any of the
Pledged Collateral;
shall be Pledged Collateral, and shall be forthwith delivered to the
Collateral Agent to hold, for the ratable benefit of the Secured Parties,
as Pledged Collateral and shall, if received by the Pledgor, be received in
trust for the Collateral Agent, for the ratable benefit of the Secured
Parties, and shall be segregated from the other property or
-6-
<PAGE>
funds of the Pledgor. All such Pledged Collateral so received in the form
of monies, checks, notes, drafts or funds shall be delivered promptly to
the Collateral Agent (with any necessary endorsement) as proceeds of
Collateral in accordance with the applicable provisions of the Credit
Agreement, and all other such Pledged Collateral so received shall be
delivered promptly to the Collateral Agent as Pledged Collateral in the
same form as so received (with any necessary endorsement); and
(ii) The Collateral Agent shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may reasonably request for the purpose of
enabling the Pledgor to receive the dividends or interest payments which
the Pledgor is authorized to receive and retain pursuant to clause (i)
above.
(b) Upon the occurrence and during the continuance of an Event of Default:
(i) All rights of the Pledgor to receive the dividends and interest
payments which it would otherwise be authorized to receive and retain
pursuant to Section 8(a)(i) hereof shall cease, and all such rights shall
thereupon become vested in the Collateral Agent, for the ratable benefit of
the Secured Parties, which shall thereupon have the sole right to receive
and hold as Pledged Collateral such dividends and interest payments; and
(ii) All dividends and interest payments which are received by the
Pledgor contrary to the provisions of clause (i) of this Section 8(b) shall
be received in trust for the Collateral Agent, for the ratable benefit of
the Secured Parties, shall be segregated from other funds of the Pledgor
and shall be paid over immediately to the Collateral Agent as Pledged
Collateral in the same form as so received (with any necessary
endorsements);
(iii) The Pledgor shall, upon the request of the Collateral Agent, at
Pledgor's expense, execute and deliver all such instruments and documents,
and do or cause to be done all such other acts and things, as may be
reasonably necessary or, in the opinion of the Collateral Agent, the
Pledgor or either of their counsel, reasonably advisable to register the
applicable Pledged Collateral under the provisions of the Securities Act in
order to sell the same, and to exercise its best efforts to cause the
registration statement relating thereto to become effective and to remain
effective for such period as prospectuses are required by law to be
furnished, and to make all amendments and supplements thereto and to the
related prospectus which, in
-7-
<PAGE>
the opinion of the Collateral Agent, the Pledgor or either of their
counsel, are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto;
(iv) The Pledgor shall, upon the reasonable request of the Collateral
Agent, at Pledgor's expense, use its best efforts to qualify the Pledged
Collateral under state securities or "Blue Sky" laws and to obtain all
necessary governmental approvals for the sale of the Pledged Collateral, as
requested by the Collateral Agent;
(v) The Pledgor shall, upon the request of the Collateral Agent, at
the Pledgor's expense, make available to the holders of its securities, as
soon as practicable, earnings statements which will satisfy the provisions
of Section 11(a) of the Securities Act; and
(vi) The Pledgor shall, upon the request of the Collateral Agent, at
the Pledgor's expense, do or cause to be done all such other acts and
things as may be reasonably necessary to make such sale of the Pledged
Collateral or any part thereof valid and binding and in compliance with
applicable law.
The Pledgor will reimburse the Collateral Agent for all reasonable expenses
incurred by the Collateral Agent, including, without limitation, reasonable
attorneys' and accountants' fees and expenses, in connection with the foregoing.
Upon or at any time after the occurrence and during the continuance of an Event
of Default, if the Collateral Agent determines that, prior to any public
offering of any securities constituting part of the Pledged Collateral, such
securities should be registered under the Securities Act and/or registered or
qualified under any other federal or state law and such registration and/or
qualification is not practicable, then the Pledgor agrees that it will be deemed
commercially reasonable if a private sale, upon at least ten (10) Business Days'
notice to the Pledgor, is arranged so as to avoid a public offering, even though
the sales price established and/or obtained at such private sale may be
substantially less than prices which could have been obtained for such security
on any market or exchange or in any other public sale.
9. Transfers and Other Liens. The Pledgor agrees that it will not (i) sell
or otherwise dispose of, or grant any option with respect to, any of the Pledged
Collateral without the prior written consent of the Collateral Agent, other than
as permitted by the Credit Agreement, or (ii) create or permit to exist any Lien
upon or with respect to any of the Pledged
-8-
<PAGE>
Collateral, except for the security interest under this Pledge Agreement.
10. Remedies; Application of Proceeds. (a) The Collateral Agent shall have,
in addition to any other rights given under this Pledge Agreement or by law, all
of the rights and remedies with respect to the Pledged Collateral of a secured
party under the Uniform Commercial Code as in effect in the State of New York.
In addition, upon the occurrence and during the continuance of an Event of
Default, the Collateral Agent shall have such powers of sale and other powers as
may be conferred by applicable law. With respect to the Pledged Collateral or
any part thereof which shall then be in or shall thereafter come into the
possession or custody of the Collateral Agent or which the Collateral Agent
shall otherwise have the ability to transfer under applicable law, the
Collateral Agent may, in its sole discretion, without notice except as specified
below, after the occurrence of an Event of Default, sell or cause the same to be
sold at any exchange, broker's board or at public or private sale, in one or
more sales or lots, at such price as the Collateral Agent may reasonably deem
best, for cash or on credit or for future delivery, without assumption of any
credit risk, and the purchaser of any or all of the Pledged Collateral so sold
shall thereafter own the same, absolutely free from any claim, encumbrance or
right of any kind whatsoever. Any Secured Party may, in its own name, or in the
name of a designee or nominee, buy the Pledged Collateral at any public sale
and, if permitted by applicable law, buy the Pledged Collateral at any private
sale. In the event of a sale of any Collateral, or any part thereof, to a
Secured Party upon the occurrence and during the continuance of an Event of
Default, such Secured Party shall not deduct or offset from any part of the
purchase price to be paid therefor any indebtedness owing to it by the Pledgor.
The Pledgor will pay to the Collateral Agent all reasonable expenses (including,
without limitation, court costs and reasonable attorneys' and paralegals' fees
and expenses) of, or incidental to, the enforcement of any of the provisions
hereof. The Collateral Agent agrees to distribute any proceeds of the sale of
the Pledged Collateral in accordance with the Credit Agreement (including,
without limitation, Section 3.02 thereof) and the Pledgor shall remain liable
for any deficiency following the sale of the Pledged Collateral.
(b) Unless any of the Pledged Collateral threatens to decline speedily in
value or is or becomes of a type sold on a recognized market, the Collateral
Agent will give the Pledgor reasonable notice of the time and place of any
public sale thereof, or of the time after which any private sale or other
intended disposition is to be made. Any sale of the Pledged Collateral conducted
in conformity with reasonable commercial practices of banks, commercial finance
companies, insurance companies or other financial institutions disposing of
property
-9-
<PAGE>
similar to the Pledged Collateral shall be deemed to be commercially reasonable.
Notwithstanding any provision to the contrary contained herein, the Pledgor
agrees that any requirements of reasonable notice shall be met if such notice is
received by the Pledgor as provided in Section 23 below at least ten (10)
Business Days before the time of the sale or disposition; provided, however,
that the Collateral Agent may give any shorter notice that is commercially
reasonable under the circumstances. Any other requirement of notice, demand or
advertisement for sale is waived, to the extent permitted by law.
(c) In view of the fact that federal and state securities laws may impose
certain restrictions on the method by which a sale of the Pledged Collateral may
be effected after an Event of Default, the Pledgor agrees that upon the
occurrence and during the continuance of an Event of Default, the Collateral
Agent may, from time to time, attempt to sell all or any part of the Pledged
Collateral by means of a private placement restricting the bidders and
prospective purchasers to those who are qualified and will represent and agree
that they are purchasing for investment only and not for distribution. In so
doing, the Collateral Agent may solicit offers to buy the Pledged Collateral, or
any part of it, from a limited number of investors deemed by the Collateral
Agent, in its reasonable judgment, to be financially responsible parties who
might be interested in purchasing the Pledged Collateral. If the Collateral
Agent solicits and receives such offers from not less than four (4) such
investors, then the acceptance by the Collateral Agent of the highest offer
obtained therefrom shall be deemed to be a commercially reasonable method of
disposing of such Pledged Collateral; provided, however, that this Section does
not impose a requirement that the Collateral Agent solicit offers from four or
more investors in order for the sale to be commercially reasonable.
11. Collateral Agent Appointed Attorney-in-Fact. The Pledgor hereby
appoints the Collateral Agent its attorney-in-fact, with full authority, in the
name of the Pledgor or otherwise, upon the occurrence and during the continuance
of an Event of Default, from time to time in the Collateral Agent's sole
discretion, to take any action and to execute any instrument which the
Collateral Agent may deem reasonably necessary or reasonably advisable to
accomplish the purposes of this Pledge Agreement, including, without limitation
(subject to Section 8 hereof), to receive, endorse and collect all instruments
made payable to the Pledgor representing any dividend, interest payment or other
distribution in respect of the Pledged Collateral or any part thereof and to
give full discharge for the same and to arrange for the transfer of all or any
part of the Pledged Collateral on the books of each of the issuers of such
Pledged Stock to the name of the Collateral Agent or the Collateral Agent's
nominee.
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<PAGE>
12. Waivers. The Pledgor waives presentment and demand for payment of any
of the Obligations, protest and notice of dishonor or Event of Default with
respect to any of the Obligations and all other notices to which the Pledgor
might otherwise be entitled except as otherwise expressly provided herein or in
the Credit Agreement.
13. Termination of This Pledge Agreement; Release of Pledged Collateral.
The pledge made and the security interest granted by the Pledgor under this
Pledge Agreement shall terminate against all the Collateral upon final payment
in full in cash of the Obligations and termination of the Commitments. Upon such
termination (other than as a result of the sale of the Pledged Collateral) and
at the written request of the Pledgor or its successors or assigns, and at the
cost and expense of the Pledgor or its successors or assigns, the Collateral
Agent shall execute in a timely manner such instruments, documents or agreements
as are reasonably necessary or reasonably desirable to terminate the Collateral
Agent's security interest in the Pledged Collateral and deliver the Pledged
Stock and the Stock Powers, subject to any disposition made by the Collateral
Agent pursuant to the Pledge Agreement.
14. Successors and Assigns. This Pledge Agreement shall be binding upon the
Pledgor and its successors, and upon any assign(s) of the Pledgor, and shall
inure to the benefit of the Secured Parties and their respective successors and
assigns. Nothing set forth herein or in any other Loan Document is intended or
shall be construed to give any other Person any right, remedy or claim under, to
or in respect of this Pledge Agreement, the Credit Agreement or any other Loan
Document or any Pledged Collateral. The Pledgor's successors shall include,
without limitation, a receiver, trustee or debtor-in-possession of or for the
Pledgor.
15. APPLICABLE LAW. THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY, AND BE
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS AND DECISIONS OF THE
STATE OF NEW YORK, EXCEPT FOR PERFECTION AND ENFORCEMENT OF SECURITY INTERESTS
AND LIENS IN OTHER JURISDICTIONS WHICH SHALL BE GOVERNED BY THE LAWS OF THOSE
JURISDICTIONS.
16. Consent to Jurisdiction and Service of Process. The Pledgor agrees that
the terms of Section 13.20 of the Credit Agreement with respect to consent to
jurisdiction and service of process shall apply equally to the Pledgor under
this Pledge Agreement.
17. WAIVER OF JURY TRIAL. EACH OF THE PLEDGOR AND THE COLLATERAL AGENT
WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY DISPUTE, WHETHER SOUNDING IN CONTRACT,
TORT, OR OTHERWISE, BETWEEN THE COLLATERAL AGENT AND THE PLEDGOR ARISING OUT OF
OR
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<PAGE>
RELATED TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY OTHER
INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH.
EITHER THE PLEDGOR OR THE COLLATERAL AGENT MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
18. Waiver of Bond. The Pledgor waives the posting of any bond otherwise
required of the Collateral Agent in connection with any judicial process or
proceeding to realize on the Pledged Collateral or any other security for the
Obligations, to enforce any judgment or other court order entered in favor of
the Collateral Agent, or to enforce by specific performance, temporary
restraining order, or preliminary or permanent injunction, this Pledge Agreement
or any other agreement or document between the Collateral Agent and the Pledgor.
19. Advice of Counsel. The Pledgor represents and warrants to the Secured
Parties that it has discussed this Pledge Agreement and, specifically, the
provisions of Sections 15 through 18 hereof, with the Pledgor's attorneys.
20. Severability. Whenever possible, each provision of this Pledge
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but, if any provision of this Pledge Agreement shall be held to
be prohibited or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Pledge Agreement.
21. Further Assurances. The Pledgor agrees that it will cooperate with the
Collateral Agent and will execute and deliver, or cause to be executed and
delivered, all such other stock powers, proxies, instruments and documents, and
will take all such other actions, including, without limitation, the execution
and filing of financing statements, as the Collateral Agent may reasonably
request from time to time in order to carry out the provisions and purposes of
this Pledge Agreement.
22. The Collateral Agent's Duty of Care. The Collateral Agent shall not be
liable for any acts, omissions, errors of judgment or mistakes of fact or law
including, without limitation, acts, omissions, errors or mistakes with respect
to the Pledged Collateral, except for those arising out of or in connection with
the Collateral Agent's (i) gross negligence or willful misconduct, (ii) material
breach of a material provision of this Pledge Agreement, or (iii) failure to use
reasonable care with respect to the safe custody of the Pledged Collateral in
the Collateral Agent's possession. Without limiting the generality of the
foregoing, the Collateral Agent shall be under no obligation to take any steps
necessary to preserve rights in the
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<PAGE>
Pledged Collateral against any other parties but may do so at its option. All
reasonable expenses incurred in connection therewith shall be for the sole
account of the Pledgor, and shall constitute part of the Obligations secured
hereby.
23. Notices. All notices and other communications required or desired to
be served, given or delivered hereunder shall be in writing and shall be served,
given or delivered as provided in Section 13.10 of the Credit Agreement.
24. Amendments, Waivers and Consents. None of the terms or provisions of
this Pledge Agreement may be waived, altered, modified or amended, and no
consent to any departure by the Pledgor herefrom shall be effective, except by
or pursuant to an instrument in writing which (i) is duly executed by the
Pledgor and the Collateral Agent and (ii) complies with the requirements of
Section 13.09 of the Credit Agreement. Any such waiver shall be valid only to
the extent set forth therein. A waiver by the Collateral Agent of any right or
remedy under this Pledge Agreement on any one occasion shall not be construed as
a waiver of any right or remedy which the Collateral Agent would otherwise have
on any future occasion. No failure to exercise or delay in exercising any right,
power or privilege under this Pledge Agreement on the part of the Collateral
Agent shall operate as a waiver thereof; and no single or partial exercise of
any right, power or privilege under this Pledge Agreement shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege.
25. Section Titles. The section titles herein are for convenience of
reference only, and shall not affect in any way the interpretation of any of the
provisions hereof.
26. Execution in Counterparts. This Pledge Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF, the Pledgor and the Collateral Agent have executed this
Pledge Agreement as of the date set forth above.
[NAME OF PLEDGOR]
By:
Name:
Title:
FIRST UNION COMMERCIAL CORPORATION,
as Collateral Agent
By:
Name:
Title:
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<PAGE>
FORM OF
ACKNOWLEDGMENT
The undersigned hereby acknowledges receipt of a copy of the foregoing
Pledge Agreement, agrees promptly to note on its books the security interests
granted under such Pledge Agreement, and waives any rights or requirement at any
time hereafter to receive a copy of such Pledge Agreement in connection with the
registration of any Pledged Collateral in the name of the Collateral Agent or
its nominee or the exercise of voting rights by the Collateral Agent.
[NAME OF ISSUER]
By:
Name:_______________________________
Title: _____________________________
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<PAGE>
EXHIBIT A
to
PLEDGE AGREEMENT
([Name of Pledgor])
dated as of October __, 1997
Pledged Stock
<TABLE>
<CAPTION>
Percentage of Issued Percentage of Shares of Capital
and Outstanding Capital Stock owned Stock owned by
Capital Stock owned by the Pledgor the Pledgor
Stock Issuer by the Pledgor Subject to Pledge Subject to Pledge
- ------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
100%
100%
100%
</TABLE>
<PAGE>
EXHIBIT B
to
PLEDGE AGREEMENT
([Name of Pledgor])
dated as of October __, 1997
Form of Stock Power
STOCK POWER
FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer
to _____________________________________ ____ Shares of Common Stock of
____________________ represented by Certificate[s] No. _____ [and _____] (the
"Stock"), standing in the name of the undersigned on the books of said
corporation and does hereby irrevocably constitute and appoint
________________________ as the undersigned's true and lawful attorney, for and
in name and stead, to sell, assign and transfer all or any of the Stock, and for
that purpose to make and execute all necessary acts of assignment and transfer
thereof; and to substitute one or more persons with like full power, hereby
ratifying and confirming all that said attorney or substitute or substitutes
shall lawfully do by virtue hereof.
Dated: _______________
[NAME OF PLEDGOR]
By: _________________________
Name:
Title:
<PAGE>
[EXHIBIT C
to
PLEDGE AGREEMENT
([Name of Pledgor])
dated as of October __, 1997
Pledged Debt]
<PAGE>
EXHIBIT N
EXECUTION COPY
PATENT SECURITY AGREEMENT
THIS PATENT SECURITY AGREEMENT (as amended, supplemented or otherwise
modified from time to time, this "Agreement"), dated as of October 31, 1997, by
and among STELLEX MICROWAVE SYSTEMS, INC. (with its successors and permitted
assigns, the "Borrower"), and FIRST UNION COMMERCIAL CORPORATION, in its
capacity as collateral agent (with its successors in such capacity, the
"Collateral Agent") for the Agents, the Lenders, and the other Holders, in each
case under and as defined in that certain Credit Agreement dated as of October
31, 1997 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement") among the Borrower and the other borrowers named therein
(collectively, the "Borrowers"), Societe Generale, as administrative agent (the
"Administrative Agent"), the Collateral Agent, and First Union Commercial
Corporation, as syndication agent (the "Syndication Agent, and collectively with
the Administrative Agent and the Collateral Agent, the "Agents"), and the
financial institutions from time to time parties thereto (the "Lenders").
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings ascribed to such terms in the Credit Agreement.
W I T N E S S E T H:
WHEREAS, the Borrower is a party to the Credit Agreement, pursuant to which
the Lenders have agreed, subject to certain conditions precedent, to make loans
and other financial accommodations to the Borrowers from time to time;
WHEREAS, the Borrower and the Collateral Agent are parties to that certain
Security Agreement of even date herewith (as the same may hereafter be amended,
restated, supplemented or otherwise modified from time to time, the "Security
Agreement"), pursuant to which the Borrower has granted a security interest in
certain of its assets to the Collateral Agent for the ratable benefit of the
Agents, the Lenders, and the other Holders; and
WHEREAS, in order to secure the prompt and complete payment, observance and
performance of (i) all of the Obligations and (ii) all of the Borrower's
obligations and liabilities hereunder and in connection herewith (all the
Obligations and such obligations and liabilities hereunder being hereinafter
referred to collectively as the "Liabilities"), the Agents and the Lenders have
required as a condition, among others, to entering into the Credit Agreement
that the Borrower execute and deliver this Agreement;
NOW, THEREFORE, in consideration of the premises set forth above, the terms
and conditions contained herein, and other
<PAGE>
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms.
(a) Unless otherwise defined herein, each capitalized term used herein that
is defined in the Credit Agreement shall have the meaning specified for such
term in the Credit Agreement.
(b) The words "hereby," "hereof," "herein" and "hereunder" and words of
like import when used in this Agreement shall refer to this Agreement as a whole
and not to any particular provision of this Agreement, and section references
are to this Agreement unless otherwise specified.
(c) All terms defined in this Agreement in the singular shall have
comparable meanings when used in the plural, and vice versa, unless otherwise
specified.
2. Incorporation of Credit Agreement. The Credit Agreement and the terms
and provisions thereof are hereby incorporated herein in their entirety by this
reference thereto.
3. Incorporation of Premises. The premises set forth above are incorporated
into this Agreement by this reference thereto and are made a part hereof.
4. Security Interest in Patents. To secure the complete and timely payment,
performance and satisfaction of all of the Liabilities, the Borrower hereby
grants to the Collateral Agent, for the ratable benefit of the Agents, the
Lenders, and the other Holders, a security interest in, as and by way of a first
mortgage and security interest having priority over all other security
interests, with power of sale to the extent permitted by applicable law, all of
the Borrower's now owned and hereafter acquired:
(a) patents and patent applications, and the inventions and
improvements described and claimed therein, including, without limitation,
those patents and patent applications listed on Schedule A attached hereto
and made a part hereof, and (i)the reissues, divisions, continuations,
renewals, extensions and continuations-in-part thereof, (ii) all income,
royalties, damages and payments now and hereafter due and/or payable under
and with respect thereto, including, without limitation, payments under all
licenses entered into in connection therewith and damages and payments for
past or future infringements thereof, (iii) the right to sue for past,
present and future infringements thereof, (iv) all patented technology and
know-how, and (v) all of the Borrower's rights corresponding thereto
throughout the world (all of the foregoing patents and
2
<PAGE>
applications, together with the items described in clauses (i)-(v) in this
paragraph 4(a) are sometimes hereinafter individually and/or collectively
referred to as the "Patents"); and
(b) rights under or interest in any patent license agreements with any
other party, whether the Borrower is a licensee or licensor under any such
license agreement, including, without limitation, those patent license
agreements listed on Schedule B attached hereto and made a part hereof, in
each case to the extent assignable without violation thereof, and the right
to prepare for sale and sell any and all Inventory now or hereafter owned
by the Borrower and now or hereafter covered by such licenses (all of the
foregoing are hereinafter referred to collectively as the "Licenses").
The Borrower hereby authorizes the Collateral Agent to file this Agreement, or a
duplicate thereof, with the United States Patent and Trademark Office or with
any other authority the Collateral Agent deems appropriate, and the Borrower
agrees to cooperate with the Collateral Agent as the Collateral Agent may
request in order to effectuate such filing or filings.
5. Restrictions on Future Agreements. The Borrower agrees that it will not
take any action, and will use its best efforts not to permit any action to be
taken by others, including, without limitation, licensees, or fail to take any
action, which could reasonably be expected to have a material adverse effect on
the validity or enforcement of the rights collaterally assigned to the
Collateral Agent under this Agreement or the rights associated with any material
Patents or Licenses, and in particular, the Borrower will not permit to lapse or
become abandoned, any Patent or License if such lapse or abandonment could
reasonably be expected to have a Material Adverse Effect.
6. New Patents and Licenses. The Borrower represents and warrants that, as
of the Closing Date, to the best of its knowledge, after reasonable inquiry, (a)
the Patents listed on Schedule A include all of the patents and patent
applications now owned or held by the Borrower, (b) the Licenses listed on
Schedule B include all of the patent license agreements under which the Borrower
is the licensee or licensor which are material individually or in the aggregate
to the operation of the business of the Borrower and (c) other than the rights
of any party to the Licenses with respect to the Patents, no liens, claims or
security interests in such Patents and Licenses have been granted by the
Borrower to any Person other than the Collateral Agent. If, prior to the
termination of this Agreement, the Borrower shall (i) obtain rights to any new
patentable inventions, (ii) become entitled to the benefit of any patent, patent
application, license or any reissue, division, continuation, renewal,
3
<PAGE>
extension or continuation-in-part of any Patent or any improvement on any Patent
or License, or (iii) enter into any new patent license agreement where the
Borrower is the licensee, the provisions of paragraph 4 above shall
automatically apply thereto (but only to the extent such licenses are assignable
without violation thereof, it being understood and agreed that the Borrower
shall use commercially reasonable efforts to insure that such licenses are
assignable for security purposes). The Borrower shall give to the Collateral
Agent written notice of events described in clauses (i), (ii) and (iii) of the
preceding sentence not less frequently than on an annual basis. The Borrower
hereby authorizes the Collateral Agent to modify this Agreement unilaterally (i)
by amending Schedule A to include any future patents and patent applications
owned or held by the Borrower, and by amending Schedule B to include any patent
license agreements (A) to which the Borrower becomes a party and (B), which are
Patents or Licenses under paragraph 4 above or under this paragraph 6, and (ii)
by filing, in addition to and not in substitution for this Agreement, either a
duplicate original of, or a Notice of Amendment to, this Agreement containing on
Schedule A or B thereto, as the case may be, such future patents, patent
applications and license agreements.
7. Royalties. The Borrower hereby agrees that when an Event of Default has
occurred and is continuing the use by the Collateral Agent of the Patents and
Licenses as authorized hereunder in connection with the Collateral Agent's
exercise of its rights and remedies under paragraph 15 or pursuant to Section 7
of the Security Agreement shall be coextensive with the Borrower's rights
thereunder and with respect thereto and without any liability for royalties or
other related charges from the Collateral Agent, the Agents, the Lenders, or the
other Holders to the Borrower.
8. Further Assignments and Security Interests. Except as permitted under
Section 9.02 of the Credit Agreement, the Borrower agrees not to sell or assign
its respective interests in, or grant any license under, the Patents or the
Licenses without the prior and express written consent of the Collateral Agent.
9. Nature and Continuation of the Collateral Agent's Security Interest;
Termination of the Collateral Agent's Security Interest; Release of Collateral.
(a) This Agreement is made for collateral security purposes only. This
Agreement shall create a continuing security interest in the Patents and
Licenses and shall terminate only when the Liabilities have been paid in full in
cash and the Credit Agreement has been terminated. Upon such termination and at
the written request of the Borrower or its successors or assigns, and at the
cost and expense of the Borrower or its successors or assigns, the Collateral
Agent shall execute in a
4
<PAGE>
timely manner such instruments, documents or agreements as are necessary or
desirable to terminate the Collateral Agent's security interest in the Patents
and the Licenses, subject to any disposition thereof which may have been made by
the Collateral Agent pursuant to this Agreement or the Security Agreement.
(b) Notwithstanding anything in this Agreement to the contrary, the
Borrower may, to the extent permitted by Section 9.02 of the Credit Agreement
sell, assign, transfer or otherwise dispose of any Patents and any Licenses. In
addition, the Patents and Licenses shall be subject to release from time to time
(with the Patents and Licenses referred to in the immediately preceding
sentence, the "Released Collateral") in accordance with Section 12.09(b) of the
Credit Agreement. The Liens under this Agreement shall terminate with respect to
the Released Collateral upon such sale, transfer, assignment, disposition or
release, and upon the request of the Borrower, the Collateral Agent shall
execute and deliver such instrument or document as may be necessary to release
the Liens granted hereunder; provided, however, that (i) the Collateral Agent
shall not be required to execute any such documents on terms which, in the
Collateral Agent's opinion, would expose the Collateral Agent to liability or
create any obligation or entail any consequence other than the release of such
Liens without recourse or warranty, and (ii) such release shall not in any
manner discharge, affect or impair the Liabilities or any Liens on (or
obligations of the Borrower in respect of) all interests retained by the
Borrower, including without limitation, the proceeds of any sale, all of which
shall continue to constitute part of the Collateral.
10. Duties of the Borrower. The Borrower shall have the duty, to the extent
desirable in the normal conduct of the Borrower's business, to: (i) prosecute
diligently any material patent application that is part of the Patents pending
as of the date hereof or hereafter until the termination of this Agreement, and
(ii) make application on unpatented but patentable inventions. The Borrower
further agrees (i) not to abandon any Patent or License if such abandonment
could reasonably be expected to have a Material Adverse Effect without the prior
written consent of the Collateral Agent, and (ii) to use its reasonable best
efforts to obtain and maintain in full force and effect the Patents and the
Licenses that are or shall be necessary or economically desirable in the
operation of the Borrower's business. Any expenses incurred in connection with
the foregoing shall be borne by the Borrower. None of the Agents or the Lenders
shall have any duty with respect to the Patents and Licenses. Without limiting
the generality of the foregoing, none of the Agents or the Lenders shall be
under any obligation to take any steps necessary to preserve rights in the
Patents or Licenses against any other parties, but the Collateral Agent may do
so at its option from and after the occurrence of an Event of Default, and all
expenses incurred in connection therewith shall
5
<PAGE>
be for the sole account of the Borrower and shall be added to the
Liabilities secured hereby.
11. The Collateral Agent's Right to Sue. From and after the occurrence of
an Event of Default, the Collateral Agent shall have the right, but shall not be
obligated, to bring suit in its own name to enforce the Patents and the Licenses
and, if the Collateral Agent shall commence any such suit, the Borrower shall,
at the request of the Collateral Agent, do any and all lawful acts and execute
any and all proper documents required by the Collateral Agent in aid of such
enforcement. The Borrower shall, upon demand, promptly reimburse the Collateral
Agent for all costs and expenses incurred by the Collateral Agent in the
exercise of its rights under this paragraph 11 (including, without limitation,
reasonable fees and expenses of attorneys and paralegals for the Collateral
Agent).
12. Amendments, Waivers and Consents. None of the terms or provisions of
this Agreement may be waived, altered, modified or amended, and no consent to
any departure by the Borrower herefrom shall be effective, except by or pursuant
to an instrument in writing which (i) is duly executed by the Borrower and the
Collateral Agent and (ii) complies with the requirements of the Credit
Agreement. Any such waiver shall be valid only to the extent set forth therein.
A waiver by the Collateral Agent of any right or remedy under this Agreement on
any one occasion shall not be construed as a waiver of any right or remedy which
the Collateral Agent would otherwise have on any future occasion. No failure to
exercise or delay in exercising any right, power or privilege under this
Agreement on the part of the Collateral Agent shall operate as a waiver thereof;
and no single or partial exercise of any right, power or privilege under this
Agreement shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege.
13. Severability. If any provision of this Agreement is held to be
prohibited or unenforceable in any jurisdiction the substantive laws of which
are held to be applicable hereto, such prohibition or unenforceability shall not
affect the validity or enforceability of the remaining provisions hereof and
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
14. Modification. This Agreement cannot be altered, amended or modified in
any way, except as specifically provided in paragraph 6 hereof or by a writing
signed by the parties hereto.
15. Cumulative Remedies; Power of Attorney. The Borrower hereby irrevocably
designates, constitutes and appoints the Collateral Agent (and all Persons
designated by the Collateral Agent in its sole and absolute discretion) as the
Borrower's true and lawful attorney-in-fact, and authorizes the
6
<PAGE>
Collateral Agent and any of the Collateral Agent's designees, in the Borrower's
or the Collateral Agent's name, to take any action and execute any instrument
which the Collateral Agent may deem necessary or advisable to accomplish the
purposes of this Agreement, including, without limitation, from and after the
occurrence of an Event of Default and the giving by the Collateral Agent of
notice to the Borrower of the Collateral Agent's intention to enforce its rights
and claims against the Borrower, to (i) endorse the Borrower's name on all
applications, documents, papers and instruments necessary or desirable for the
Collateral Agent in the use, prosecution or protection of the Patents or the
Licenses, (ii) assign, pledge, convey or otherwise transfer title in or dispose
of the Patents or the Licenses to anyone on commercially reasonable terms (but
subject to the terms thereof), (iii) grant or issue any exclusive or
nonexclusive license under the Patents or under the Licenses, to anyone on
commercially reasonable terms (but only, in the case of Licenses, to the extent
permitted under such Licenses) and (iv) take any other actions with respect to
the Patents or the Licenses as the Collateral Agent deems in its own best
interest or in the best interest of the Agents or the Lenders. The Borrower
hereby ratifies all that such attorney shall lawfully do or cause to be done by
virtue hereof. This power of attorney is coupled with an interest and shall be
irrevocable until all of the Liabilities shall have been paid in full in cash
and the Credit Agreement shall have been terminated. The Borrower acknowledges
and agrees that this Agreement is not intended to limit or restrict in any way
the rights and remedies of the Collateral Agent, the other Agents or the Lenders
under the Loan Documents, but rather is intended to facilitate the exercise of
such rights and remedies.
The Collateral Agent shall have, in addition to all other rights and
remedies given it by the terms of this Agreement, all rights and remedies
allowed by law and the rights and remedies of a secured party under the Uniform
Commercial Code as enacted in any jurisdiction in which the Patents or the
Licenses may be located or deemed located. Upon the occurrence of an Event of
Default and the election by the Collateral Agent to exercise any of its remedies
under Section 9-504 or Section 9-505 of the Uniform Commercial Code with respect
to the Patents and Licenses, the Borrower agrees to assign, convey and otherwise
transfer title in and to the Patents and the Licenses to the Collateral Agent or
any transferee of the Collateral Agent and to execute and deliver to the
Collateral Agent or any such transferee all such agreements, documents and
instruments as may be necessary, in the Collateral Agent's sole discretion
exercised in a commercially reasonable manner, to effect such assignment,
conveyance and transfer. All of the Collateral Agent's rights and remedies with
respect to the Patents and the Licenses, whether established hereby, by the
Security Agreement, by any other agreements or by law, shall be cumulative and
may be exercised separately or concurrently. Notwithstanding anything set forth
herein to the contrary, it is hereby expressly agreed
7
<PAGE>
that upon the occurrence of an Event of Default, the Collateral Agent may
exercise any of the rights and remedies provided in this Agreement, the Security
Agreement and any of the other Loan Documents. The Borrower agrees that any
notification of intended disposition of any of the Patents and Licenses required
by law shall be deemed reasonably and properly given if given at least ten (10)
days before such disposition; provided, however, that the Collateral Agent may
give any shorter notice that is commercially reasonable under the circumstances.
16. Successors and Assigns. This Agreement shall be binding upon the
Borrower and its successors and assigns, and shall inure to the benefit of each
of the Agents and the Lenders, and each of all of their nominees, successors and
assigns. The Borrower's successors and assigns shall include, without
limitation, a receiver, trustee or debtor-in-possession of or for the Borrower;
provided, however, that the Borrower shall not voluntarily assign or transfer
its rights or obligations hereunder without the Collateral Agent's prior written
consent.
17. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND BE CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, EXCEPT FOR
PERFECTION AND ENFORCEMENT OF SECURITY INTERESTS AND LIENS IN OTHER
JURISDICTIONS WHICH SHALL BE GOVERNED BY THE LAWS OF THOSE JURISDICTIONS.
18. Notices. Any notice, demand, request or any other communication
required or desired to be served, given or delivered hereunder shall be in
writing and shall be served, given or delivered as provided in Section 13.10 of
the Credit Agreement.
19. Section Headings. The section headings herein are for convenience of
reference only, and shall not affect in any way the interpretation of any of the
provisions hereof.
20. Counterparts. This Agreement may be executed in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which shall constitute one and the same agreement.
21. Consent to Jurisdiction and Service of Process. The Borrower agrees
that the terms of Section 13.20 of the Credit Agreement with respect to consent
to jurisdiction and service of process shall apply equally to this Agreement.
22. WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE COLLATERAL AGENT
WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY DISPUTE, WHETHER SOUNDING IN CONTRACT,
TORT, OR OTHERWISE, BETWEEN THE COLLATERAL AGENT AND THE BORROWER ARISING OUT OF
OR RELATED TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH.
EITHER THE BORROWER OR THE COLLATERAL AGENT
8
<PAGE>
MAY FILE AN ORIGINAL COUNTERPART OR COPY OF THIS AGREEMENT WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR
RIGHT TO TRIAL BY JURY.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
STELLEX MICROWAVE SYSTEMS, INC.
By: ______________________________
Name:
Title:
Accepted and agreed to as of the day and
year first above written.
FIRST UNION COMMERCIAL CORPORATION
as Collateral Agent
By:_______________________________
Name: Shaun V. Kelley
Title: Vice President
<PAGE>
SCHEDULE A
TO
PATENT SECURITY AGREEMENT
(STELLEX MICROWAVE SYSTEMS, INC.)
Dated as of October 31, 1997
Patents and Patent Applications
Serial/Patent
Project No/ No. Filing/
Status Title Inventor Issued Date
- ------ ----- -------- -----------
Pending Patent Disclosures
Case # Title Status
-11-
<PAGE>
SCHEDULE B
TO
PATENT SECURITY AGREEMENT
(STELLEX MICROWAVE SYSTEMS, INC.)
Dated as of October 31, 1997
License Agreements
LICENSES FROM THE BORROWER TO OTHER COMPANIES
Company Subject Term Royalties
- ------- ------- ---- ---------
LICENSES FROM OTHER COMPANIES TO THE BORROWER
Company Subject/Type Term Royalties
- ------- ------------ ---- ---------
-12-
<PAGE>
STATE OF ________ )
) SS
COUNTY OF ________ )
On the ___ day of October, 1997, before me personally came
________________, to me known, who being by me duly sworn, did depose and say
that he/she resides at _________________________________________________; that
he/she is a ____________________ of STELLEX MICROWAVE SYSTEMS, INC., the
corporation described in and which accepted and agreed to the foregoing
instrument; and that he/she signed his/her name thereto by authority of the
Board of Directors of said corporation.
----------------------------
Notary Public
<PAGE>
STATE OF NEW YORK )
) SS
COUNTY OF NEW YORK )
On the ___ day of October, 1997, before me personally came
________________, to me known, who being by me duly sworn, did depose and say
that he/she resides at ______________________ ______________________; that
he/she is a __________________ of First Union Commercial Corporation, the
corporation described in and which accepted and agreed to the foregoing
instrument; and that he/she signed his/her name thereto by authority of the
board of directors of said corporation.
-----------------------------
Notary Public
<PAGE>
SCHEDULE 1.01(A)
PERMITTED EXISTING INDEBTEDNESS
1. Note (the "Farm Bureau Note") Secured by Deed of Trust, dated
September 6, 1991, and First Loan Modification Agreement,
dated November 1, 1996, by Paragon Precision Products, Inc.
("Paragon") to Farm Bureau Life Insurance Company ("Farm
Bureau") in the original principal amount of $2,850,000.
2. Guaranty (including the subordination of rights to payment) of
Stellex Aerospace ("Aerospace"), formerly known as Kleinert
Industries, Inc., dated September 6, 1991, and Reaffirmation
of Guaranty, dated November 1, 1996, in favor of Farm Bureau
with respect to Paragon's obligation under the Farm Bureau
Note.
3. Guaranty of Lease by Aerospace, dated November 21, 1989, in
favor of Grand Nash Company (as lessor) with respect to the
performance by Scanning Electron Analysis Laboratories, Inc.
("SEAL") (as lessee) of its obligations under the Industrial
Real Estate Lease, dated September, 1989, by and between Grand
Nash Company and SEAL, as modified by certain Riders and by
certain amendments, dated June 19, 1990 and June 12, 1995,
respectively, for premises located at 250 North Nash Street,
El Segundo, California 90245.
4. Stellex Aerospace - Success Sharing Plan, dated June 1989.
5. Cost Per Copy Rental Agreement between SEAL and Astro Office
Products, Inc., dated June 29, 1994, for GP-55 and NP6030.
6. Management Incentive Plan (M.I.P.) Incentive Bonus Program.
7. The Promissory Note issued by KII Acquisition Corp. ("KII") in
favor of Kleinert Industries Holding AG in the principal
amount of $1,750,000.
8. In connection with and upon the consummation of the
acquisition of Stellex Microwave Systems, Inc., TSMD
Acquisition Corp. has agreed to adopt a 401(k) Plan.
9. Capital Lease for AS-400 computer and application software
with DKM.
10. Capital Lease for Catia-CADM Application Software and certain
hardware equipment with Dassault systems.
11. Various intercompany loans between the Borrowers as described
in the attached list.
<PAGE>
SCHEDULE 1.01(A)(11)
List of Intercompany Loans as of October 24, 1997
<TABLE>
<CAPTION>
OBLIGOR OBLIGEE AGGREGATE AMOUNT
<S> <C> <C>
Bandy Machining International Aerospace $ 11,654,800
("Bandy")
Paragon Aerospace $ 7,752,600
SEAL Aerospace $ 1,018,900
General Inspection Aerospace $ 1,046,200
Laboratories, Inc.
</TABLE>
<PAGE>
SCHEDULE 1.01(B)
PERMITTED EXISTING LIENS
1. Uniform Commercial Code Financing Statement No. 9710060886,
filed April 4, 1997 in favor of Machinery Sales Co., as
Secured Party, against Paragon, as Debtor, securing one
Charmilles Roboform 40 CNC Diesinking EDM machine with all
standard equipment wired 230/3/60 including Hi Inertia C- Axis
and 2 Ton Chiller and any additions, etc., as more
particularly described thereon. (The Chief Financial Officer
of Aerospace has advised that all payments have been made and
that a UCC termination statement has been requested of the
Secured Party.)
2. Deed of Trust with Assignment of Rents and Fixture Filing
dated September 6, 1991, in the original principal amount of
$2,850,000, by Paragon, as Maker, in favor of Farm Bureau,
filed for record on October 16, 1991 with the Los Angeles
County Registrar-Recorder/County Clerk as Instrument No. 91-
1635037 (the "Farm Bureau Deed of Trust").
3. Assignment of Leases and Rents dated September 6, 1991, by
Paragon in favor of Farm Bureau, filed for record on October
16, 1991 with the Los Angeles County Registrar-Recorder/County
Clerk as Instrument No. 91- 1635038.
4. Uniform Commercial Code Financing Statement No. 91233708,
filed October 30, 1991 in favor of Farm Bureau, as Secured
Party, against Paragon, as Debtor, as continued July 19, 1996,
securing goods which are located at Paragon's real property
and which are used in the operation or occupancy of the real
property (excepting any personal property, equipment and
fixtures which are used in the trade or business conducted on
the real property), general intangibles relating to the
development or use of the real property, documents of
membership, and proceeds and claims.
5. Cost Per Copy Rental Agreement between SEAL and Astro Office
Products, Inc., dated June 29, 1994, for GP-55 and NP6030.
6. The Guarantee, dated September 6, 1991, in favor of Farm
Bureau contains a provision granting Farm Bureau a lien upon
and right of set-off against all monies, securities and other
property of Aerospace now or hereafter in the actual or
constructive possession of Farm Bureau. To the knowledge of
Aerospace, Farm Bureau does not have possession of any monies,
securities or any other property of Aerospace.
<PAGE>
SCHEDULE 1.05
KNOWLEDGE
Chairman of Stellex Industries, Inc. ("Stellex")
Vice President of Stellex
President of Stellex
Chief Financial Officer of Stellex
President of each Borrower other than Stellex
<PAGE>
SCHEDULE 6.01(C)
OWNERSHIP
<TABLE>
<S> <C>
Borrowers Ownership
Stellex Industries, Inc. 10.0% of common stock by Askrigg Trust
90.0% of common stock by Cottingham Trust
100% of Series A Preferred Stock by
Sunderland Industrial Holdings Corporation
KII Holding Corp. 80.1% of common stock by Stellex Industries, Inc.
19.9% of common stock by Management Group
100% of Series A Preferred by Stellex Industries,
Inc.
Kll Acquisition Corp. 100% by Kll Holding Corp.
Stellex Aerospace 100% by Kll Acquisition Corp.
Paragon 100% by Stellex Aerospace
SEAL 100% by Stellex Aerospace
Bandy Machining International 100% by Stellex Aerospace
General Inspection Laboratories, Inc. 100% by Stellex Aerospace
TSMD Acquisition Corp. 100% by Stellex Industries, Inc.
Stellex Microwave Systems, Inc. 100% by TSMD Acquisition Corp.
</TABLE>
<PAGE>
SCHEDULE 6.01(D)
VIOLATIONS OF AND CONFLICTS WITH
GOVERNING DOCUMENTS, REQUIREMENTS
OF LAW OR MATERIAL CONTRACTUAL OBLIGATIONS
Reference is made to Schedule 5.01(A) with respect to:
(a) Consents, approvals, contract novations and assignments or new
issuances of various governmental permits that have not been
obtained, as of the date of this Agreement, in each case from
certain governmental authorities specified therein; and
(b) Consents that have not been obtained, as of the date of this
Agreement, under contracts and agreements referred to therein
from the other parties thereto, all in connection with the
consummation of the Watkins-Johnson Acquisition.
The operation by Stellex Microwave Systems, Inc. of its portion of the
Business without having obtained such consents, approvals, contract novations,
assignments and/or new issuances, and/or such consents from other parties to
contracts and agreements, may constitute a violation of certain Requirements of
Law and/or of certain material Contractual Obligations to which such matters
pertain.
<PAGE>
SCHEDULE 6.01(J)(i)
LITIGATION; ADVERSE EFFECTS
None
<PAGE>
SCHEDULE 6.01(J)(ii)
MATERIAL LOSS CONTINGENCIES
NOT REFLECTED IN FINANCIAL STATEMENTS
1. Reference is made to the letter dated September 30, 1997 from Hughes
Missile Systems Company to Watkins-Johnson Company, a copy of which is attached
hereto. The $566,000 item referred to in paragraph 1 thereof may constitute a
"material loss contingency," as such term is used in the second sentence of
Section 6.01(j) of the Agreement (an "MLC").
2. Reference is made to Schedule 2.5(m) of the Watkins-Johnson
Acquisition Agreement, a copy of which is attached hereto. The items set forth
therein may constitute MLC's.
3. The following projects of Stellex Microwave Systems, Inc. acquired
from Watkins-Johnson, may constitute MLC's:
<TABLE>
<CAPTION>
Projected Conservative
Additional Additional Provisional
Project # Project Provisional Loss Loss
--------- ------- ---------------- ----
<S> <C> <C> <C>
W06545000 MFE LRIP 3 $ (80,000) $ (200,000)
W06554000 Sparrow (80,000) (115,000)
W06558000 ELF NRE (25,000) (40,000)
</TABLE>
<PAGE>
[Letterhead of Hughes Aircraft Company]
30 September 1997
In Reply Refer To: WJ-097-DCR-003
Watkins-Johnson Company
3333 Hillview Avenue
Stanford Research Park
Palo Alto, CA 94304
Attention: Mr. Tim Boland
Subject: HMSC/WJ Enterprise Cost Reduction Initiatives (ECRI)
Reference: 1. Telecon between Tim Boland, WJ, and John Stenger, HMSC,
same subject, dated 29 September 1997.
2. AMRAAM Memorandum of Agreement, Ref. 400-RJT-5020,
dated 9 March 1995.
3. HMSC Letter 097-DCR-001, Same Subject, dated
11 August 1997.
Dear Tim,
This letter serves to formalize the agreement reached in Reference 1, whereby
Hughes Missile Systems Company (HMSC) and Watkins-Johnson (WJ) mutually agree to
the following regarding ECRIs:
o WJ will credit HMSC $1,000,000, as a result of business volume credits
earned in accordance with Reference 2, in accordance with the
following:
1. The AMRAAM Lot 11 purchase order price of $12,077,765
will be reduced by $566,000 to $11,511,765. HMSC will
incorporate this change on a percentage basis over
the four subassemblies in the final purchase order
which is anticipated to be completed on 30 October
1997.
<PAGE>
2. WJ will issue a check to HMSC in the amount of
$434,000, not later than 30 October 1997.
o The remaining $1,301,000 ECRI dollars delineated in Reference 3 will be
credited to WJ in support WJ activities relating to FOTT, Special
Access Program, Standard Missile C15, and AMRAAM.
o HMSC will finalize the FOTT purchase order for $250,000 not later than
30 October 1997 and release a second purchase order in the amount of
$90,000 for FOTT phase three not later than 30 October 1997.
The parties agree these actions represent the final completion and closure of
any and all ECRI obligations and commitments between the parties contemplated by
Reference 2. These actions also close out the remaining open items of Reference
2, and therefore the agreement is considered complete.
HMSC request WJ's acknowledgment of this agreement be returned to the
undersigned by 30 September 1997.
HUGHES MISSILE SYSTEMS COMPANY
/s/ D.C. Raby
- -----------------
D.C. Raby
WATKINS-JOHNSON ACKNOWLEDGMENT
/s/ Albert T. Isaacs
- ----------------------
Albert T. Isaacs
Director, New Business Development
Tactical Subsystems Sector
<PAGE>
SCHEDULE 6.01(L)
PAYMENT OF TAXES
1 . Paragon failed to file either a "top hat" notice or annual Form 5500
report with respect to certain income continuation agreements to which
Paragon is a party. In June, 1997, Paragon filed a Top Hat Plan
Notice, and tendered $2,500 with the required documentation in
satisfaction of any potential civil penalty relating to filing
obligations, pursuant to the U.S. Department of Labor's Delinquent
Filer Voluntary Compliance Program with respect thereto. The receipt
of such payment has been acknowledged.
2. Aerospace failed to file either a "top hat" notice or annual Form 5500
reports with respect to certain deferred compensation agreements to
which Aerospace is a party. In June, 1997, Aerospace filed a Top Hat
Plan Notice, and tendered $2,500 with the required documentation in
satisfaction of any potential civil penalty relating to filing
obligations, pursuant to the U.S. Department of Labor's Delinquent
Filer Voluntary Compliance Program with respect thereto. The receipt of
such payment has been acknowledged.
<PAGE>
SCHEDULE 6.01(P)
ENVIRONMENTAL MATTERS
1. All matters, including, but not limited to, compliance issues, orders,
agreements, violations or alleged violations, Remedial Actions,
Liabilities and Costs, Releases or threatened Releases, notices,
underground storage tanks, surface impoundments, asbestos-containing
materials (confirmed or suspected) and polychlorinated biphenyls
("PCBs"), disclosed in the following, all of which have been provided
to the Agent (collectively, the "Environmental Assessments"):
a. Draft Report Phase I Environmental Site Assessment, Seal
Laboratories, 250 North Nash Street, El Segundo, California,
Dames and Moore, dated October 21, 1996;
b. Draft Report Phase I Environmental Site Assessment and Phase
11 Limited Subsurface Investigation, General Inspection
Laboratories, 8427 Atlantic Avenue, Cudahy, California, Dames
and Moore, dated October 21, 1996;
c. Revised Environmental Compliance Assessment Findings, General
Inspection Laboratories, 8427 Atlantic Avenue, Cudahy,
California, Dames and Moore, dated December 12, 1996;
d. Draft Report Phase I Environmental Site Assessment, Paragon
Precision Products, Inc., 26150 West Technology Drive,
Valencia, California, Dames and Moore, dated October 18, 1996;
e. Draft Report Phase I Environmental Site Assessment and Phase
11 Limited Subsurface Investigation, Bandy Machining
International, Inc., 3400 San Fernando Boulevard and 3086 Avon
Street, Burbank, California, Dames and Moore, dated October
22, 1996;
f. Environmental Assessment of Subsidiaries of Stellex Aerospace,
ENSR Consulting and Engineering, dated May, 1997;
g. Memorandum (Additional Investigative Activities and Findings),
ENSR Consulting and Engineering, dated June 3, 1997;
h. Memorandum (Additional Investigative Activities re: Aerospace,
formerly known as Kleinert Industries, Inc.) ENSR Consulting
and Engineering, dated October 27, 1997;
<PAGE>
i. Commercial Sub-Sublease (Buildings 3/4/5) dated October 31,
1997 between W-J TSMD Inc., as Tenant and Watkins-Johnson
Company ("WJ"), as Landlord.
j. Commercial Sub-Sublease (Building 6) dated October 31, 1997
between W-J TSMD Inc., as Tenant and WJ, as Landlord.
k. An EPA Notification of Regulated Waste Activity (EPA Form
8700-12) has been filed with the EPA concerning the generation
and disposal of hazardous waste. No waste is to be stored in
excess of 90 days.
l. Information concerning ACMs and other matters as set forth in
Phase I Environmental Site Assessment and Compliance Audit of
WJ, Palo Alto, California dated October 1997 prepared by ENSR
under its Document Number 8713-095.
m. The following information has been obtained concerning the
leased property:
(i) The California EPA issued an order finding that WJ is
a responsible party for groundwater contamination
which flows through WJ's Palo Alto Plant site on the
site itself. A number of other companies in the area
as well as Stanford University, the land owner, have
been included in the order which required the
responsible parties to conduct an investigation into
the cause of the contamination. The order further
required the parties to submit recommendations on the
actions to remediate the contamination. This
regional order applies to what has been designated by
the State as the "Hillview/Porter site." The primary
sources of contamination were found to have migrated
onto WJ's property from off-site. Subsequent to a
mediation among the responsible parties to the
Hillview/Porter site, a formula for allocation of
costs for investigation and remediation based on a
determination of liability for such costs was
developed. The parties are in compliance with orders
relating to this cleanup effort.
In 1991 WJ established a reserve for expected costs
associated with this effort, and nothing has occurred
since that time which would cause WJ to change that
reserve.
(ii) The California EPA also ordered responsible or
potentially responsible parties to the
Hillview/Porter site, in addition to participating in
the total site remediation, to investigate and
remediate contamination that is specific to their
properties ("site specific"). The State has, in that
regard, ordered WJ to take necessary measures to
clean up certain contamination which the State
believes was caused by WJ and not by contaminants
flowing on-site from other sources. WJ has likewise
established a reserve for expected costs associated
with this effort,
<PAGE>
and nothing has occurred since that time which would
cause WJ to change that reserve.
n. Preliminary Site Assessment and Limited Site Characterization,
Pure Cote, Inc. and Paragon Precision Products, Pacoima,
California, Thorne Environmental, Inc., June 13, 1989.
o. The documents identified in Paragraph 2 of this Schedule
6.01(P) relating to the Pacoima Site (as defined below),
together with all matters disclosed in the reports, studies,
assessments, findings, filings, records and other data
referenced therein.
2. Prior to the purchase of either Paragon or Paragon's former site at
11035 Sutter Avenue, Pacoima, California (the "Pacoima Site") by
Aerospace, a brick-lined vault (the "Vault") located on the
southwestern side of the Pacoima Site was used for the disposal of
waste oils from the Pacoima Site's operation. During an environmental
audit conducted by Aerospace in 1989, soil impacted by hydrocarbons and
halogenated organic compounds was found at the Vault location.
Groundwater test results also showed that gasoline, aromatic volatile
compounds, and several halogenated organic compounds were present in
the groundwater.
The contamination was reported to the Los Angeles County Department of
Health Services ("DHS"), and, subsequently, to the California Regional
Water Quality Control Board ("RWQCB"), Los Angeles Region, which
assumed jurisdiction over the remediation of the Pacoima Site. A
remediation program consisting of vapor extraction of the volatile
compounds from the soils was proposed, approved by the RWQCB, and
implemented (the "Remediation Program"). The Remediation Program is
described further in the following documents:
a. Project Summary Report prepared by CET Environmental Services,
Inc. dated January, 1993;
b. The Soil Remediation Closure Report submitted to the RWQCB
dated May, 1993 (the "Closure Report"); and
c. A letter from the RWQCB dated August 30, 1993 (the "No Action
Letter").
Several years after Paragon sold the Pacoima Site to D&M Steel
("D&M") (a copy of the purchase agreement with D&M has been
provided to the Agent) and after the RWQCB issued the No
Action Letter, Aerospace learned that the California
Department of Toxic Substances Control ("DTSC"), acting under
the authority of the United States Environmental Protection
Agency ("U.S. EPA") contacted D&M for the purpose of
investigating whether a release of hazardous substances had
occurred at the Site which poses a threat to public health or
the environment (the "DTSC Investigation"). Although neither
Aerospace nor Paragon have been contacted by either
<PAGE>
DTSC or U.S. EPA concerning the DTSC Investigation, Aerospace
continues to receive telephone calls from D&M and has been
advised that DTSC recently inspected the Pacoima Site.
In connection with the prior use of the Vault and the
potential presence of discharges and releases caused by the
previous owners of the Pacoima Site, Aerospace and certain
affiliates filed a lawsuit against the prior owners in Los
Angeles County Superior Court (Case No. PCO07199X) (the
"Familian Litigation"). The Familian Litigation and various
claims associated with potential existing and future hazardous
materials claims relating to the Pacoima Site were settled
pursuant to a Settlement and Release Agreement dated on or
about July 5, 1994 by and among Aerospace, Paragon, Paragon
Tool, Die and Engineering, Novo-Paragon, Inc., Novo Leasing,
Ltd., Isadore Familian, Gary Familian, Arnold Familian, Marv
Smalley, Leonard Shapiro, Robert Wyser, Wyser Industries,
Inc., General Accident Insurance Company of America, Utica
Mutual Insurance Co., Allianz Insurance Co., Sentry Insurance
A Mutual Company, Fireman's Fund Insurance Co., Atlantic
Mutual Insurance Co., and The Travelers (a copy of the
Settlement and Release Agreement has been provided to the
Agent).
3. As reflected in the Draft Report Phase I Environmental Site Assessment,
Paragon Precision Products, Inc., 26150 West Technology Drive,
Valencia, California, prepared by Dames and Moore and dated October 18,
1996, the activated carbon filters used in the Remediation Program (as
defined above) were transported to Yakima, Washington for regeneration
and reprocessing. The filters allegedly were mishandled in the process
of regeneration and reprocessing by Cameron-Yakima, Inc.
("Cameron-Yakima"), the company responsible for regeneration and
reprocessing of the filters, resulting in a release of hazardous
materials on or near Cameron-Yakima's facility at Yakima. In August
1994, Paragon received a letter from Cameron-Yakima indicating that the
Washington State Department of Ecology had notified some of
Cameron-Yakima's customers that they may be potentially liable for
remediation costs associated with the release.
4. On or about January 27, 1993, SEAL received a letter from the
Sanitation Districts of Los Angeles County ("SDLAC") stating that
SEAL's metal etching and photographic wastestreams were both subject to
pretreatment standards for new sources in the EPA Metal Finishing Point
Source Category and that SEAL was required to apply for and obtain an
Industrial Waste Discharge Permit from SDLAC. SEAL submitted an
application for an Industrial Waste Discharge Permit to SDLAC on or
about July 13, 1993. On May 24, 1993 and again on July 15, 1993, SEAL
received notices of violation from SDLAC alleging that SEAL had failed
to submit self-monitoring reports required by SDLAC in relation to
SEAL's metal etching and photographic wastestreams. Following a
meeting between SEAL and SDLAC personnel in late 1993, SDLAC notified
SEAL in a letter dated February 9, 1994 that SEAL is not required to
obtain an Industrial Waste Discharge Permit.
<PAGE>
5. In 1994 or 1995, Aerospace received a letter addressed to G.W. Bandy,
Inc. ("G.W. Bandy"), the predecessor to Bandy Machining International
("Bandy"), indicating the existence of legal proceedings arising from
the failure of a hazardous materials transporter formerly used by G.W.
Bandy to transport and dispose of machine coolants. Apparently, the
transporter had illegally disposed of the coolants and other materials
handled by it, and had subsequently declared bankruptcy. The
transporter was engaged by G.W. Bandy during periods prior to
Aerospace's acquisition of Bandy and was not utilized by either
Aerospace or Bandy at any time subsequent to Aerospace's acquisition of
Bandy in 1990. The letter noticing the legal proceedings was forwarded
by Aerospace to G.W. Bandy, as it is Aerospace's view that any
liability arising from the proceedings would be the responsibility of
G.W. Bandy, as seller under the purchase agreement pursuant to which
Aerospace acquired Bandy (a copy of which has been provided to the
Agent). No copies of the letter noticing the legal proceedings were
retained by Aerospace and Aerospace has not received any subsequent
correspondence or other notices regarding this matter.
6. By copy of a letter dated February 26, 1992 to the Los Angeles County
Department of Public Works ("LADPVV"), the SDLAC notified Paragon that
Paragon was exempt from industrial waste permitting requirements under
SDLAC's then-current policy and, accordingly, Industrial Wastewater
Discharge Permit No. 12845 for Paragon's Valencia, California facility
was "void." Subsequently, sometime during the first-half of 1993, LADPW
conducted a survey of Paragon to determine if Paragon would be required
to obtain an Industrial Wastewater Discharge Permit from LADPW. During
the LADPW survey, LADPW advised Paragon that its non-destructive
penetrant inspection process could be considered a source of industrial
waste and that Paragon would be required to apply for an Industrial
Wastewater Discharge Permit. The process in question involves
application with a brush of a non-toxic penetrant dye on machined parts
and inspection of such parts under blacklight conditions for any
evidence of metal defects. Following the inspection, the dye is rinsed
under tap water in a conventional sink and flushed into the sanitary
sewer. Paragon was advised by the LADPW that as part of Paragon's
application for an Industrial Wastewater Discharge Permit, Paragon
would need to propose installation of a sampling box to test the pH of
the dye discharge on a periodic basis. On March 24, 1993, SDLAC issued
a temporary Industrial Waste Discharge Permit to Paragon.
On June 21, 1993 and again on November 4, 1993, Paragon received from
SDLAC notices of violation dated June 1, 1993 and October 12, 1993,
respectively, stating that Paragon was in violation of SDLAC's
Wastewater Ordinance by failing to submit an application for an
Industrial Wastewater Discharge Permit. Following several months of
discussions between Paragon and SDLAC personnel, on November 29, 1993
Paragon filed an application for an Industrial Wastewater Discharge
Permit with LADPW. By letter dated January 11, 1994 from LADPW,
Paragon's application was disapproved on the grounds that additional
information was required to process the application. Among other
things, the letter indicated that Paragon may be required to install a
gravity separation interceptor. Due to temporary dislocations caused by
the Northridge Earthquake on January 17, 1994, Paragon's revisions to
<PAGE>
the application were delayed and a notice of violation was issued by
LADPW on May 2, 1994 stating that Paragon had failed to supply the
additional information required by LADPW in its January 11, 1994
letter.
By letter to SDLAC dated June 30, 1994, Paragon requested an extension
to August 19, 1994 to complete its Industrial Wastewater Discharge
Permit application. In a response, by letter dated July 7, 1994, SDLAC
extended the application deadline to September 1, 1994. On or about
that date, Paragon sent a letter to LADPW requesting that Paragon be
permitted to install a sampling box in lieu of the gravity separation
interceptor requested by LADPW. After an initial request from LADPW for
some additional information, no further correspondence was received
from LADPW during 1994.
On February 10, 1995, Paragon received a letter dated February 8, 1995
from SDLAC notifying Paragon that its temporary Industrial Wastewater
Discharge Permit 12845 issued March 24, 1993 has been "voided" on the
grounds that Paragon's only industrial discharge is from zyglo dye
testing and the daily discharge volumes are less than 200 gallons.
Paragon assumed that this letter concluded the need for further
revisions to its Industrial Wastewater Discharge Permit application;
however, on September 6, 1995, Paragon received a final delinquency
notice from LADPW indicating that it must immediately file a revised
application. This application was filed on October 19, 1995 and was
disapproved with a request for additional information on November 9,
1995. The additional information requested did not include a request
for installation of a gravity separation interceptor. Paragon submitted
the additional information on December 12, 1995 along with a permit
fee. Since that time, Paragon has received no further correspondence
from either SDLAC or LADPW regarding this matter.
7. The respective Borrowers' facilities at El Segundo, Cudahy and Burbank,
California, were all constructed by third parties prior to the time
they were initially occupied by such Borrowers in the mid-1970's.
Although neither Aerospace nor the other Borrowers have any knowledge
of the presence of asbestos in these facilities, it is possible that,
because of their age, some or all of the facilities could have been
constructed using asbestos-based insulation or other materials. Please
refer to the Environmental Assessments for any recognized environmental
conditions associated with the presence of asbestos-containing
materials at these facilities.
8. A power transformer formerly used in connection with X-ray machines
formerly located at the General Inspection Laboratories ("GIL")
facility in Cudahy, California was found to contain PCBs. The
transformer, which is currently not in use, will be transported by a
licensed hazardous waste transporter for proper treatment and/or
disposal.
9. Bandy and GIL have each filed a Notification of Hazardous Waste
Activity under Section 3OlO of the federal Resource Conservation and
Recovery Act. GIL has filed an Onsite Hazardous Waste Treatment
Notification Renewal Form, dated April
<PAGE>
10, 1997, with the Los Angeles County Fire Department and the
California Department of Toxic Substances Control with respect to its
Haviland wastewater treatment equipment and process.
<PAGE>
SCHEDULE 6.01(Q)
ERISA
1. The Stellex Aerospace 401 (k) Profit Sharing Plan has not been
determined by the IRS to be qualified. Aerospace has relied upon the
favorable determination letter issued to the prototype plan sponsor,
401 (k) Plans, Inc. On October 16, 1997, the IRS requested additional
information. The IRS has indicated that once such additional
information has been received, a favorable determination letter will be
delivered.
<PAGE>
SCHEDULE 6.01(U)
OWNERSHIP OF ALL NECESSARY
GOVERNMENTAL PERMITS
Reference is made to Schedule 5.01(A) with respect to consents,
approvals, contract novations and assignments or new issuances of various
governmental permits that have not been obtained, as of the date of this
Agreement, in each case from certain governmental authorities specified therein.
The failure to have obtained such items, as of the date of this Agreement,
qualifies the first sentence of Section 6.01(u)(i) of this Agreement.
<PAGE>
SCHEDULE 6.01(W)
INSURANCE
1. See attached Insurance Summaries.
<PAGE>
Stellex Aerospace/Stellex Microwave Systems, Inc.
Schedule of Insurance
<TABLE>
<CAPTION>
INSURER EFFECTIVE
COVERAGE Policy Number DATES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Workers' Comp Stellex Aerospace 10/1/97 to 10/1/00
Employers Liability Stellex Microwave Systems, Inc. 10/31/97 to 10/1/00
Travelers-Indemnity Company of Illinois
---------------------------------------
Policy # UJ-UB-161D142-9-97
General Liability - Non Aviation Stellex Aerospace 10/1/97 to 10/1/98
Stellex Microwave Systems, Inc. 10/31/97 to 10/1/98
Travelers - Indemnity Company of Illinois
-----------------------------------------
Policy # UJ-GLSA-161D1466-TIL-97
General Liability - Aviation Products Stellex Aerospace 10/31/97 to 10/01/98
Stellex Microwave Systems, Inc.
USAIG
-----
Policy # TBD
Foreign Liability Package Stellex Microwave Systems, Inc. 10/31/97 to 10/01/98
General Liability CNA
---
Policy # TBD
Automobile Liability
Note: Limit for Owned, Non-Owned
& Hired Liability. Coverage is
DIC/Excess of either $10,000
SIR or local compulsory limits
Foreign Voluntary Workers'
Compensation / EL
<CAPTION>
INSURER
COVERAGE Policy Number LIMITS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Workers' Comp Stellex Aerospace $ 500,000 BI Each Accident
Employers Liability Stellex Microwave Systems, Inc. $ 500,000 BI Disease Policy Limit
Travelers-Indemnity Company of Illinois $ 500,000 BI Disease Each EB
---------------------------------------
Policy # UJ-UB-161D142-9-97 $ 100,000 Repatriation & Eodemic Disease
General Liability - Non Aviation Stellex Aerospace $ 5,000,000 General Aggregate (Non Aviation)
Stellex Microwave Systems, Inc. $ 1,000,000 Each Occurrence
Travelers - Indemnity Company of Illinois $ 1,000,000 Personal/Advertising Injury
-----------------------------------------
Policy # UJ-GLSA-161D1466-TIL-97 $ 1,000,000 Fire Damage/any one fire
$ 5,000 Medical Expense/per person
$ 1,000,000 Employee Benefits (claims made)
General Liability - Aviation Products Stellex Aerospace $ 25,000,000 Products Liability Aggregate
Stellex Microwave Systems, Inc.
USAIG
-----
Policy # TBD
Foreign Liability Package Stellex Microwave Systems, Inc. $ 5,000,000 General Aggregate
General Liability CNA $ 1,000,000 Each Occurrence
---
Policy # TBD $ 1,000,000 Products/Completed Ops. Occ/
Agg
$ 1,000,000 Personal/Advertising Injury
$ 1,000,000 Premises Damage / any one fire/
Agg
$ 10,000 Medical Expense / any one person
$ 20,000 Medical Expense / Aggregate
$ 1,000,000 Employee Benefits Liability
$ 1,000 Deductible
Automobile Liability $ 1,000,000 Combined Single Limit per
Occurrence
Note: Limit for Owned, Non-Owned $ 10,000 Medical Expense / each person
& Hired Liability. Coverage is
DIC/Excess of either $10,000 $ 20,000 Medical Expense / each accident
SIR or local compulsory limits
Hired Car Physical Damage
-------------------------
$ 1,000 Any one Accident
$ 10,000 Any one Policy Period
Foreign Voluntary Workers' $ 1,000,000 BI Each Accident
Compensation / EL $ 1,000,000 BI Disease Policy Limit
$ 1,000,000 BI Disease Each EE
$ 50,000 Repatriation & Eodemic Disease
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INSURER EFFECTIVE
COVERAGE Policy Number DATES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automobile Stellex Aerospace 10/1/97 to 10/1/98
Stellex Microwave Systems, Inc. 10/31/97 to 10/1/98
Travelers-Indemnity Company of Illinois
---------------------------------------
Policy # UI-CAP-161D1546-TTL-97
Umbrella/Excess Liability Stellex Aerospace 10/1/97 to 10/1/98
Stellex Microwave Systems, Inc. 10/31/97 to 10/1/98
American Home Assurace Company
------------------------------
Policy #309-46-01
Ocean Cargo/Marine Stellex Microwave Systems, Inc. 10/31/97 to 10/01/98
Fireman's Fund
--------------
Policy # TBD
Property Stellex Aerospace 10/1/97 to 10/1/98
Stellex Microwave Systems, Inc. 10/31/97 to 10/1/98
Kemper -American Protection Insurance Co.
-----------------------------------------
Policy #3ZG 005 484-00
<CAPTION>
INSURER
COVERAGE Policy Number LIMITS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Automobile Stellex Aerospace $ 1,000,000 Symbol 1 Liability Coverage
Stellex Microwave Systems, Inc. $ 1,000,000 Symbol 2 Uninsured/
Travelers-Indemnity Company of Illinois Underinsured Motorist
---------------------------------------
Policy # UI-CAP-161D1546-TTL-97 $ 5,000 Medical Expense Benefit
ACV Physical Damage
$ 50 day/30 days Rental Reimbursement
$ 50 Towing & Labor - e/ occurrence
$ 500 Deductible - Comprehensive/
Collision (each auto)
Umbrella/Excess Liability Stellex Aerospace $ 25,000,000 Each Occurrence
Stellex Microwave Systems, Inc. $ 25,000,000 General Aggregate per location
American Home Assurace Company $ 25,000,00 Completed Operation
------------------------------
Policy #309-46-01 Aggregate Limit
$ 10,000 SIR
Ocean Cargo/Marine Stellex Microwave Systems, Inc. $ 5,000,000 Any one Vessel or Aircraft
Fireman's Fund $ 5,000,000 Any one Truck or Rail Car (Intl.
--------------
Transit)
Policy # TBD $ 2,000,000 Domestic Transit
$ 2,000,000 Exhibition Liability - Strikes,
Riots, Civil Commotions, War
Risk
$ 10,000 Deductible
Property Stellex Aerospace $ 34,127,579 All Risk incl. Earth Movement
& Flood, Real and Personal Property
Stellex Microwave Systems, Inc. $ 71,000,000 All Risk incl. Earth Movement
Kemper-American Protection Insurance Co & Flood, Real and Personal Property
---------------------------------------
Policy #3ZG 005 484-00 $ 100,000,000 Per Occurrence/Aggregate - Flood (1)
$ 100,000,000 Per Occurence/Aggregate - Earth
Movement excl. California
$ 10,000,000 Newly Acquired Locations (180 days)
$ 10,000,000 Unnamed Locations
$ 10,000,000 Unintentional Errors & Ommissions
$ 1,000,000 Pollution - Annual Aggregate
$ 1,000,000 Contingent Business Interruption
$ 5,000,000 Extra Expense, Valuable Papers, A/R
Deductibles
$ 10,000 Property - Per Occurrence except
$ 500 Transit, Valuable Papers, A/R
$ 25,000 EQ - Outside CA
$ 25,000 Flood excl. Zone A
1% of Values Wind - Tier One Counties in the
state of FL subj. to $25,000
min.
</TABLE>
<PAGE>
Stellex Aerospace / Stellex Microwave Systems, Inc.
Schedule of Insurance
<TABLE>
<CAPTION>
INSURER EFFECTIVE
COVERAGE POLICY NUMBER DATES LIMITS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Boiler & Machinery Stellex Aerospace 10/1/97 to 10/1/98 $ 34,127,579 Total Blanket Limit
Stellex Microwave Systems, Inc. 10/31/97 to 10/1/98 $ 71,000,000
Kemper - American Protection Insurance Co. Included Hazardous Substance
Policy #3ZG 005 484-00 Included Water Damage
$ 1,000,000 Ammonia Contamination
$ 1,000,000 Expediting Expense
$ 1,000,000 Consequential Damage
Deductibles
$ 10,000 Property Damage
1 X 100% Daily Value Time Element
Difference in
Conditions (DIC) Stellex Aerospace 8/29/97 to 8/29/98 $ 5,000,000 Per Occurrence
incl. EQ, Incl. Flood
$5MM xs $1MM Stellex Microwave Systems Inc. 10/31/97 to 8/29/98 $ 5,000,000 Annual Aggregate
Primary Pacific Insurance Company, Ltd.
Policy # ZG0009842
First Excess Layer Agricultural Insurance Company $ 5,000,000 XS of $5MM - Per
Policy # CPP1803792 Occurrence
$ 5,000,000 XS of $5MM - Annual
Aggregate
Deductibles
$ 50,000 Per Occurrence except
5% of Values at time &
place of loss - EQ
Directors & Officers Stellex Microwave Systems, Inc. 10/31/97 to 10/31/98 $ 10,000,000 Each Loss/Each Policy
Gulf Insurance Company Period
$ 50,000 Deductible
Fidelity/Crime $ 5,000,000 Each Loss/Each Policy
Period
$ 25,000 Deductible
Fiduciary $ 10,000,000 Each Loss/Each Policy
Period
$ 5,000 Deductible
Special Accident Coverage Available upon request
</TABLE>
(1) National Flood Insurance Program (NFIP) coverage will be placed at closing
for first $500,000 limit. Excess coverage remains the same.
<PAGE>
SCHEDULE 6.01(Z)
BANK ACCOUNTS
<TABLE>
<CAPTION>
ACCOUNT NUMBER BANK SIGNATORIES
<S> <C> <C>
Stellex Industries, Inc.
967-335272 Chase R. Kramer, W. Remley, G. Nolff
Manhattan
TSMD Acquisition Corp.
967-248892 Chase R. Kramer, W. Remley, G. Nolff
Manhattan
Stellex Microwave Systems, Inc.
12330-26244 Bank of America K. Gilbert, P. Roger Byer, E.
Richardson
12334-26242 Bank of America
12332-26243 Bank of America
12336-26241 Bank of America
Stellex Aerospace
1465550703 Bank of America* B. Call, J. Hodge
1465350704 Bank of America (2 signors if $10,000 or more)
Bandy Machining International
1465950706 Bank of America B. Call, L. Stacy, E. Marcale, J. Hodge
0217304809 Bank of America (2 signors if $1,500 or more)
1465550708 Bank of America
Paragon Precision Products
1465450713 Bank of America L. Smith, B. Dore, R. Bassett,
0092700289 Bank of America J. Hodge
</TABLE>
- --------
* All references to Bank of America are to: Bank of America,
Commercial Banking Office, 5945 Canoga Avenue, Woodland
Hills, CA 91367; Phone: 818.704.2329.
<PAGE>
<TABLE>
<CAPTION>
ACCOUNT NUMBER BANK SIGNATORIES
- -------------- ---- -----------
<S> <C> <C>
1465250714 Bank of America (2 signors if $1500 or more)
General Inspection Laboratories, Inc.
1465350709 Bank of America J. Barriatua, L. Brown, J. Hodge
1465050710 Bank of America M. Keshani (2 signors)
Scanning Electron Analysis Laboratories, Inc.
1465850711 Bank of America R. Marti, A. Kumar, T. Tan, J. Hodge
1465650712 Bank of America (2 signors)
</TABLE>
<PAGE>
TSMD ACQUISITION CORP.
PURCHASE OF ALL OF THE OUTSTANDING
CAPITAL STOCK OF W-J TSMD INC.
August 29, 1997
INDEX
1. Stock Purchase Agreement dated as of August 29, 1997 ("Stock Purchase
Agreement") by and among TSMD Acquisition Corp., Watkins-Johnson
Company and W-J TSMD Inc.
A. GaAs/Thin Film Supply Agreement Term Sheet.
B. Form of Cross License Agreement.
C. Marketing Agreement Term Sheet.
D. MIM/Glass Seal/Hybrid Assembly Supply Agreement Term Sheet.
E. Sublease Term Sheets.
F. Form of Trademark License Agreement.
G. Matters to be Covered in Opinion of Counsel to Seller and
Company.
H. Matters to be Covered in Opinion of Counsel to Buyer.
2. Schedule 3.3 (Buyer Approvals and Permits) to Stock Purchase Agreement.
- -----------------
* Indicates that certain material has been omitted pursuant to a request for
confidential treatment. Such material is contained in a copy of this document
provided to the Securities and Exchange Commission.
<PAGE>
STOCK PURCHASE AGREEMENT
dated as of
August 29, 1997,
by and among
TSMD ACQUISITION CORP.,
WATKINS-JOHNSON COMPANY
and
W-J TSMD INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
ARTICLE I
<S> <C> <C>
DEFINITIONS/PURCHASE & SALE/CLOSING.................................................. 2
1.1 Definitions.......................................................................... 2
1.2 Sale of the Stock by Seller.......................................................... 12
1.3 Purchase of the Stock by Buyer;
Total Purchase Price................................................................. 13
1.4 The Closing.......................................................................... 13
1.6 Purchase Price Adjustment............................................................ 14
1.7 Retention Plan Escrow................................................................ 17
1.8 Deposit; Deposit Escrow.............................................................. 17
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER............................................. 19
2.1 Organization and Related Matters..................................................... 19
2.2 Equity Securities.................................................................... 19
2.3 Financial Statements; Changes;
Contingencies........................................................................ 20
2.4 Tax and Other Returns and Reports.................................................... 21
2.5 Material Contracts................................................................... 22
2.6 Real and Personal Property;
Government-Furnished and
Government-Owned Property or
Equipment............................................................................ 23
2.7 Intangible Property.................................................................. 25
2.8 Authorization; No Conflicts.......................................................... 26
2.9 Legal Proceedings and Certain
Labor Matters........................................................................ 27
2.10 Minute Books......................................................................... 28
2.11 Accounting Records; Internal
Controls............................................................................. 28
2.12 Insurance............................................................................ 28
2.13 Permits.............................................................................. 29
2.14 Compliance with Law.................................................................. 29
2.15 Dividends and Other Distributions.................................................... 29
2.16 Employee Benefits.................................................................... 30
2.17 Certain Interests.................................................................... 32
2.18 Intercompany Transactions............................................................ 33
2.19 No Brokers or Finders................................................................ 33
2.20 Inventory............................................................................ 33
2.21 Customers and Suppliers.............................................................. 34
2.22 Environmental Compliance............................................................. 34
2.23 Government Contracts................................................................. 35
2.24 Backlog.............................................................................. 37
2.25 Clearances........................................................................... 37
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ARTICLE III
<S> <C> <C>
REPRESENTATIONS AND WARRANTIES OF BUYER.............................................. 37
3.1 Organization and Related Matters..................................................... 37
3.2 Authorization........................................................................ 38
3.3 No Conflicts......................................................................... 38
3.4 No Brokers or Finders................................................................ 38
3.5 Legal Proceedings.................................................................... 38
3.6 Investment Representation............................................................ 39
ARTICLE IV
COVENANTS WITH RESPECT TO CONDUCT OF COMPANY
PRIOR TO CLOSING....................................................... 39
4.1 Access............................................................................... 39
4.2 Material Adverse Changes; Reports;
Financial Statements................................................................. 40
4.3 Conduct of Business.................................................................. 40
4.4 Notification of Certain Matters...................................................... 42
4.5 Permits and Approvals................................................................ 43
4.6 Preservation of Business Prior to
Closing Date......................................................................... 43
4.7 Government Filings................................................................... 43
4.8 Elimination of Intercompany and
Affiliate Liabilities................................................................ 44
4.9 Inconsistent Agreements.............................................................. 44
4.10 Contribution......................................................................... 45
4.11 Provisions Respecting Government
Contracts............................................................................ 45
4.12 Certain Material Contracts........................................................... 46
4.13 Customers and Suppliers.............................................................. 47
4.14 Backlog.............................................................................. 47
ARTICLE V
ADDITIONAL CONTINUING COVENANTS.............................................. 47
5.1 Noncompetition....................................................................... 47
5.2 Nondisclosure of Proprietary Data.................................................... 49
5.3 Certain Tax Matters.................................................................. 50
5.4 Corporate Name Change; Trademark
License Agreement.................................................................... 51
5.5 Post-Closing Cooperation Generally................................................... 51
5.6 Refund Claims and Warranty Claims.................................................... 51
5.7 Warranty Work........................................................................ 52
5.8 Change Orders........................................................................ 52
5.9 Cooperation re: Refund Claims and
Warranty Claims...................................................................... 53
5.10 Prorations; Cooperation re:
Collection of Receivables............................................................ 53
5.11 Post-Closing Status of Company....................................................... 54
5.12 Employment of Employees of the
Business............................................................................. 54
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
ARTICLE VI
<S> <C> <C>
CONDITIONS OF PURCHASE................................................... 56
6.1 General Conditions................................................................... 56
6.2 Conditions to Obligations of Buyer................................................... 56
6.3 Conditions to Obligations of
Seller............................................................................... 58
ARTICLE VII
TERMINATION OF OBLIGATIONS; SURVIVAL........................................... 59
7.1 Termination of Agreement............................................................. 59
7.2 Effect of Termination................................................................ 61
7.3 Survival of Representations and
Warranties........................................................................... 61
7.4 Limitation on Obligations of
Company.............................................................................. 62
ARTICLE VIII
INDEMNIFICATION........................................................ 62
8.1 Obligations of Seller................................................................ 62
8.2 Obligations of Buyer................................................................. 63
8.3 Certain Tax Matters.................................................................. 63
8.4 Procedure............................................................................ 65
8.5 Limitations on Indemnification....................................................... 66
8.6 Tax Adjustments...................................................................... 66
ARTICLE IX
GENERAL........................................................... 67
9.1 Amendments; Waivers.................................................................. 67
9.2 Schedules; Exhibits; Integration..................................................... 67
9.3 Best Efforts; Further Assurances..................................................... 67
9.4 Governing Law........................................................................ 68
9.5 Assignment........................................................................... 68
9.6 Headings............................................................................. 68
9.7 Counterparts......................................................................... 69
9.8 Publicity and Reports................................................................ 69
9.9 Parties in Interest.................................................................. 69
9.10 Performance by Subsidiaries.......................................................... 69
9.11 Notices.............................................................................. 70
9.12 Expenses............................................................................. 71
9.13 Remedies; Waiver..................................................................... 71
9.14 Attorney's Fees...................................................................... 71
9.15 Knowledge Convention................................................................. 71
9.16 Representation By Counsel;
Interpretation....................................................................... 72
9.17 Specific Performance................................................................. 72
9.18 Severability......................................................................... 72
9.19 Confidentiality...................................................................... 72
9.20 Schedules............................................................................ 75
</TABLE>
iii
<PAGE>
EXHIBITS
A GaAs/Thin Film Term Sheet
B Form of License Agreement
C Marketing Term Sheet
D MIM Supply Term Sheet
E Sublease Term Sheets
F Form of Trademark License Agreement
G Matters to be Covered in Opinion of Counsel to Seller and Company
H Matters to be Covered in Opinion of Counsel to Buyer
SCHEDULES
Disclosure Schedule
1.1 Excluded Assets
2.1 Officers and Directors
2.4 Tax Matters
2.5 Material Contracts
2.6(a) Real and Personal Property
2.6(d) Government-Furnished Items
2.7 Intangible Property
2.8 Seller Approvals and Permits
2.9 Litigation
2.12 Insurance
2.16 Employee Benefit Plan Matters
2.20 Inventory Valuation Methodology
2.21 Customers and Suppliers
2.23(c) Government Contract Audits
2.25 Clearances
3.3 Buyer Approvals and Permits
5.7 Warranty Work Principles
5.10 Proration Principles
6.2(d) Certain Third Party Consents
8.3(a) Certain Leases of Tangible Property
9.15 Knowledge
iv
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") dated as of
August 29, 1997 by and among TSMD ACQUISITION CORP., a Delaware corporation
("Buyer"), WATKINS-JOHNSON COMPANY, a California corporation ("Seller"), and W-J
TSMD INC., a California corporation and a wholly-owned subsidiary of Seller
("Company").
B A C K G R O U N D
A. Seller is, and, upon completion of the Contribution,
Company will be, engaged in the design, development, manufacture and sale of
modular subsystems, microwave devices and electronic equipment that are used in
defense and space applications and serve, among others, the following markets:
(i) guided munitions, including subsystems used by the USAF Advanced
Medium-Range Air-to-Air Missile and the USN SM-2/Block IV shipboard missile;
(ii) certain intelligence applications, including modular subsystems used in the
USAF Joint Airborne Surveillance Architecture (other than intelligence systems
that are manufactured by Seller's Telecommunications Group in Gaithersburg,
Maryland and are designed to monitor or intercept communication signals); (iii)
electronic warfare and radar, including the USAF ALQ-131 electronic
countermeasures system and the USN Aegis SPY missile protection radar system;
(iv) space applications, including for military and commercial satellites such
as Motorola's Iridium satellite system and (v) commercial equipment, including
test instruments built by Marconi in the United Kingdom. Seller operates the
Business from a site located in Palo Alto, California.
B. Buyer, Seller and Company desire that Buyer purchase the
Business on the terms and conditions set forth in this Agreement. They intend to
accomplish that by having Seller and Company consummate the Contribution and
Buyer purchase all the outstanding stock of Company from Seller pursuant to this
Agreement.
C. After such stock sale, Seller will continue to design,
develop, manufacture and sell semiconductor and telecommunications products,
including microwave products (collectively the "Retained Businesses") at the
Palo Alto site and elsewhere. Several special steps will be necessary to
accommodate the separation of the Business and the Retained Businesses after the
stock sale. For example, under the Sublease Agreements, Seller will sublease
facilities to Company at the Palo Alto Site to enable Company to continue to
conduct the Business at that site. In addition, Seller operates a gallium
arsenide
<PAGE>
semiconductor wafer processing facility, a thin-film production substrate
facility and a metal injection molding facility (the "MIM Facility") at the Palo
Alto site. Those facilities provide (or in the future are expected to provide)
essential items to the Business and certain of the Retained Businesses. Seller
will retain the gallium arsenide semiconductor wafer processing facility and the
thin-film production substrate facility (except, in the case of the latter, for
the Intangible Property relating thereto). Seller will enter into supply
agreements with Company under which, after the stock sale, Seller will furnish
Company with the items needed by the Business that are produced at those
facilities. As regards the metal injection molding facility, Seller will
contribute that facility to Company prior to the Closing as part of the
Contribution. Company will enter into a supply agreement with Seller under
which, after the stock sale, Company will furnish Seller with the items needed
by the Retained Businesses that are produced at that facility. In addition,
because Seller will continue to use technology and other know-how in certain of
the Retained Businesses that are also used in the Business, Seller and Company
will share the use of that "common" technology pursuant to the License
Agreement.
D. The purpose of this Agreement is to memorialize the terms
and conditions under which Buyer will purchase the Stock and Buyer, Seller and
Company will effect the other arrangements described above.
NOW THEREFORE, in consideration of the promises and covenants
contained herein and intending to be legally bound, Buyer, Seller and Company do
hereby agree as follows:
ARTICLE I
DEFINITIONS/PURCHASE & SALE/CLOSING
1.1 Definitions.
For all purposes of this Agreement, except as otherwise
expressly provided:
(a) the terms defined in this Article I have the
meanings assigned to them in this Article I and include the plural as
well as the singular;
(b) all accounting terms not otherwise defined herein
have the meanings assigned under generally accepted accounting
principles;
2
<PAGE>
(c) all references in this Agreement to designated
"Articles," "Sections" and other subdivisions are to the designated
Articles, Sections and other subdivisions of the body of this
Agreement;
(d) pronouns of either gender or neuter shall include,
as appropriate, the other pronoun forms; and
(e) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision.
As used in this Agreement and the Exhibits and Schedules
delivered pursuant to this Agreement, the following definitions shall apply:
"Accounting Report" is defined in Section 1.6(a).
"Action" means any action, complaint, petition, investigation,
suit or other proceeding, whether civil or criminal, in law or in equity, or
before any arbitrator or Governmental Entity.
"Additional Accounting Firm" is defined in Section 1.6(c).
"Additional Accounting Report" is defined in Section 1.6(c).
"Adjustment Amount" means the excess of March 31 Net Asset
Value over Closing Date Net Asset Value. In the event that March 31 Net Asset
Value is less than Closing Date Net Asset Value, the Adjustment Amount shall be
zero.
"Affiliate" means a Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, a specified Person.
"Agreed Adjustments" is defined in Section 1.6(b).
"Agreed Rate" means, as of the date of any payment of interest
to be made by reference thereto, the interest rate established on such date by
Citibank, N.A. as its "prime" rate, or, if that rate is no longer established or
published, a comparable interest rate.
"Agreement" means this Agreement by and among Buyer, Seller
and Company as amended or supplemented together with all Exhibits and Schedules
attached or incorporated by reference.
3
<PAGE>
"Ancillary Agreements" means the Calibration Group Supply
Agreement, the GaAs/Thin Film Agreement, the License Agreement, the Marketing
Agreement, the MIM Supply Agreement, the Sublease Agreements and the Trademark
License Agreement.
"Approval" means any approval, authorization, consent,
qualification or registration, or any waiver of any of the foregoing, required
to be obtained from, or any notice, statement or other communication required to
be filed with or delivered to, any Governmental Entity or any other Person.
"Associate" of a Person means
(i) a corporation or organization (other than Company or a
party to this Agreement) of which such person is an officer or partner or is,
directly or indirectly, the beneficial owner of 10% or more of any class of
equity securities;
(ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar capacity; and
(iii) any relative or spouse of such person or any relative
of such spouse.
"Assumed Obligations" means only those liabilities and
obligations of Seller or Company that are (i) liabilities and obligations of the
Business on the Closing Date for Accrued PTO and Holidays, Advance Billing,
Provision for Losses on Contracts, Accrual for "Sick Leave Bank" and Deferred
Compensation (to the extent relating to Messrs. Boland and Gilbert), (ii)
executory obligations to perform under Contracts that are Purchased Assets and
(iii) liabilities or obligations under the Retention Plan.
"Audited Adjustment Amount" is defined in Section 1.6(a).
"Auditors" means Deloitte & Touche, independent public
accountants to Seller and Company.
"Base Purchase Price" is defined in Section 1.3.
"Business" means the Tactical Subsystems Sector and the
Microwave Devices Sector businesses conducted by Seller and by Company,
including, but not limited to, the design, development, manufacture and sale of
modular subsystems, microwave devices and electronic equipment that are used in
defense and space applications and serve, among others, the following markets:
(i) guided munitions,
4
<PAGE>
including subsystems used by the USAF Advanced Medium-Range Air-to-Air Missile
and the USN SM-2/Block IV shipboard missile, (ii) certain intelligence
applications, including modular subsystems used in the USAF Joint Airborne
Surveillance Architecture, (iii) electronic warfare and radar, including the
USAF ALQ-131 electronic countermeasures system and the USN Aegis SPY missile
protection radar system, (iv) space applications, including for military and
commercial satellites such as Motorola's Iridium satellite system and (v)
commercial equipment, including test instruments built by Marconi in the United
Kingdom, and shall be deemed to include any of the following incidents of such
businesses: income, cash flow, operations, condition (financial or other),
assets, liabilities, Products, properties and, to the extent contemplated by
Seller's or Company's business plans or projections as of the date hereof,
prospects; provided, however, that "Business" shall not include intelligence
systems that are manufactured by Seller's Telecommunications Group in
Gaithersburg, Maryland and are designed to monitor or intercept communication
signals.
"Buyer's Accountants" is defined in Section 1.6(a).
"Calibration Group Supply Agreement" means a Calibration Group
Supply Agreement by and among Buyer, Seller and Company on terms reasonably
satisfactory to the parties thereto.
"Closing" means the consummation of the purchase and sale of
the Stock under this Agreement.
"Closing Date" means the date of the Closing.
"Closing Date Net Asset Value" means the book value of the
Purchased Assets (excluding any value attributed to intangibles that were not on
the balance sheet for the Business as of March 31, 1997 referred to in Section
2.3) minus the book value of the Assumed Obligations (not including any
liabilities or obligations under the Retention Plan), in each case as carried on
Seller's books of account in accordance with GAAP consistently applied (provided
that in the event of any conflict between those principles required under GAAP
and those principles required for consistency, the principles required under
GAAP shall control) as of the Closing Date.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" is defined in the preamble hereto.
5
<PAGE>
"Contract" means any binding agreement, arrangement, bond,
commitment, franchise, indemnity, indenture, instrument, lease, license or
understanding.
"Contribution" means the transfer by Seller to Company of
those Purchased Assets and Assumed Obligations not owned or held by Company as
of the date hereof, such transfer to be evidenced by all necessary and
appropriate documentation and filings with Governmental Entities including, but
not limited to, all necessary filings with Governmental Entities with respect to
the transfer of the Intangible Property listed on Schedule 2.7 from Seller to
Company.
"Customer Contracts" means all Contracts providing for
obligations to deliver Products, the rights to be paid for those Products and
the obligations and rights that are ancillary to those obligations and rights.
"Deposit" is defined in Section 1.8(a).
"Disclosure Schedule" means the Disclosure Schedule of even
date herewith delivered by Seller to Buyer. The Sections of the Disclosure
Schedule shall be numbered to correspond to the applicable Sections of this
Agreement and the matters disclosed in particular Sections of the Disclosure
Schedule shall be deemed to qualify only the corresponding particular Section of
this Agreement except where the nature of the disclosure is such that its
applicability to other Sections of the Agreement is apparent.
"Encumbrance" means any claim, charge, easement, encumbrance,
lease, covenant, security interest, lien, option, pledge, rights of others, or
restriction (whether on voting, sale, transfer, disposition or otherwise),
whether imposed by agreement, understanding, law, equity or otherwise, except
for any restrictions on transfer generally arising under any applicable federal
or state securities law.
"Escrow Agent" is defined in Section 1.8(a).
"Escrow Agreement" means the Escrow Agreement by and among
Buyer, Seller and Escrow Agent on terms reasonably satisfactory to the parties
thereto regarding the holding and release of the Deposit.
"ESOP" is defined in Section 2.16(b).
"Equity Securities" means any capital stock or other equity
interest or any securities convertible into or
6
<PAGE>
exchangeable for capital stock or any other rights, warrants or options to
acquire any of the foregoing securities.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the related regulations and published interpretations.
"ERISA Affiliate" has the meaning set forth in
Section 2.16(c).
"Estimated Adjustment Amount" is defined in Section 1.5.
"Estimated Purchase Price" is defined in Section 1.5.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Excluded Assets" means those assets specifically identified
on Schedule 1.1 which shall include, but not be limited to, assets of the
Business on the Closing Date comprising Accounts Receivable, Deferred Tax Assets
and Other Current Assets - Prepaids.
"Excluded Liabilities" means any and all liabilities of
Seller, Company or the Business of any kind or nature, whether known or unknown,
accrued, absolute, contingent or otherwise (other than the Assumed Obligations)
including, but not limited to, Accounts Payable, Accrued Salaries and Profit
Sharing, Government Accruals and Accrued Expenses - Other, and any and all
liabilities with respect to any of the plans, agreements or arrangements listed
(or required by Section 2.16(a) to be listed) in Schedule 2.16.
"Final Audited Adjustment Amount" is defined in
Section 1.6(c).
"GAAP" means generally accepted accounting principles in the
United States, as in effect from time to time.
"GaAs/Thin Film Agreement" means the GaAs/Thin Film Agreement
by and among Buyer, Seller and Company on the principal terms set forth in
Exhibit A hereto and such other terms as are reasonably satisfactory to the
parties thereto.
"Government Bid" is defined in Section 2.23(a).
"Government Contract" means any prime contract, subcontract,
teaming agreement or arrangement, joint venture, basic ordering agreement,
letter contract, purchase order, delivery order, Government Bid, change order,
or
7
<PAGE>
other contractual commitment of any kind relating to the Business including, but
not limited to, any Customer Contract or Supplier Contract, in each instance
between Seller or Company and (i) any Governmental Entity, (ii) any prime
contractor of any Governmental Entity, or (iii) any subcontractor with respect
to any contract described in clauses (i) or (ii) above.
"Government Contract Novation" means, with respect to any
Government Contract, an instrument reasonably satisfactory in form and substance
to Buyer and Seller pursuant to which all of Seller's rights, claims, benefits
and liabilities thereunder shall have been validly conveyed, transferred,
assigned and novated to Buyer by all parties thereto.
"Governmental Entity" means any government or any agency,
bureau, board, commission, court, department, official, political subdivision,
tribunal or other instrumentality of any government, whether federal, state or
local, domestic or foreign.
"Government-Furnished Items" is defined in Section 2.6(d).
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the related regulations and published
interpretations.
"Hazardous Substance" means (but shall not be limited to)
substances that are defined or listed in, or otherwise classified pursuant to,
any applicable Laws as "hazardous substances," "hazardous materials," "hazardous
wastes" or "toxic substances," or any other formulation intended to define, list
or classify substances by reason of deleterious properties such as ignitibility,
corrosivity, reactivity, radioactivity, carcinogenicity, reproductive toxicity
or "EP toxicity," and petroleum and drilling fluids, produced waters and other
wastes associated with the exploration, development, or production of crude oil,
natural gas or geothermal energy.
"Indemnifiable Claim" means any Loss for or against which any
party is entitled to indemnification under this Agreement; "Indemnified Party"
means the party entitled to indemnity hereunder; and "Indemnifying Party" means
the party obligated to provide indemnification hereunder.
"Intangible Property" means any Intellectual Property Rights,
marketing rights, contractual rights, licenses and all related agreements and
documentation.
8
<PAGE>
"Intellectual Property Rights" means all industrial and
intellectual property rights, including, without limitation, patents, patent
applications (pending or otherwise), patent rights, copyrights, computer
firmware and software (existing in any form), Know-How, Trade Secrets, Marks,
proprietary processes, inventions and formulae.
"Inventory" means all finished products, work in progress,
parts, components and raw materials.
"Investment Plan" is defined in Section 2.16(b).
"IRS" means the Internal Revenue Service or any successor
entity.
"Know-How" means any information, including, but not limited
to, invention records, research and development findings, records and reports,
experimental and engineering reports, pilot designs, production designs,
production specifications, raw material specifications, quality control reports
and specifications, drawings, photographs, models, tools, parts, algorithms,
processes, methods, market and competitive analysis, or other information,
whether or not considered proprietary or a Trade Secret.
"Law" means any constitutional provision, statute or other
law, rule, regulation, or interpretation of any Governmental Entity and any
Order.
"License Agreement" means the Cross License Agreement by and
among Buyer, Seller and Company substantially in the form of Exhibit B hereto.
"Loss" means any action, cost, damage, disbursement, expense,
liability, loss, deficiency, obligation, penalty or settlement of any kind or
nature, whether foreseeable or unforeseeable, including but not limited to,
interest or other carrying costs, penalties, legal, accounting and other
professional fees and expenses incurred in the investigation, collection,
prosecution and defense of claims and amounts paid in settlement, that may be
imposed on or otherwise incurred or suffered by the specified person.
"March 31 Net Asset Value" means $34.6 million.
"Mark" means any brand name, copyright, patent, service mark,
trademark, tradename, and all registrations or application for registration of
any of the foregoing.
"Marketing Agreement" means the Marketing Agreement by and
among Buyer, Seller and Company on the
9
<PAGE>
principal terms set forth in Exhibit C hereto and such other terms as are
reasonably satisfactory to the parties thereto.
"Material Contract" is defined in Section 2.5.
"MIM Facility" is defined in the Background hereto.
"MIM Supply Agreement" means an MIM Supply Agreement by and
among Buyer, Seller and Company on the principal terms set forth in Exhibit D
hereto and such other terms as are reasonably satisfactory to the parties
thereto.
"Net Tax Benefit" is defined in Section 8.6.
"Order" means any decree, injunction, judgment, order,
ruling, assessment or writ.
"Palo Alto Site" means the real property currently leased by
Seller in Palo Alto, California that is commonly referred to as 3333 Hillview
Avenue.
"Permit" means any license, permit, franchise, certificate of
authority, or order, or any waiver of the foregoing, required to be issued by
any Governmental Entity.
"Person" means an association, a corporation, an individual, a
partnership, a trust or any other entity or organization, including a
Governmental Entity.
"Post-Closing Partial Period" means any period beginning
before the Closing Date and ending after the Closing Date, but only with respect
to the portion of such period beginning the day after the Closing Date.
"Pre-Closing Partial Period" means any period beginning before
the Closing Date and ending after the Closing Date, but only with respect to the
portion of such period up to and including the Closing Date.
"Prime Government Contract" means any Government Contract
between Seller or Company, on the one hand, and the government of the United
States of America on the other hand.
"Products" means products, technology and services
manufactured, sold, licensed, under development or otherwise exploited by Seller
or Company in connection with the Business, or proposed in Seller's or Company's
business plans or projections to be exploited in connection with the Business,
including replacement parts or components sold by Seller or Company for other
products.
10
<PAGE>
"Projected Retention Payments" is defined in Section 1.7(a).
"Purchased Assets" means each and every asset or property used
in the conduct of, connected with or comprising the Business including, but not
limited to, all assets and properties listed on Schedules 2.6(a) (which Schedule
shall include, among other things, assets of the Business on the Closing Date
comprising Unbilled Receivables, Inventory, PPE, Intangibles and $85,000 in
loans to employees of the Business) and 2.7, except for the Excluded Assets.
"Refund Claim" is defined in Section 5.6.
"Retained Businesses" is defined in the Background hereto.
"Retention Plan" means Seller's Retention Bonus Plan.
"Retention Plan Adjustment" is defined in Section 1.7.
"SEC" means the Securities and Exchange Commission or any
successor entity.
"Section 338(h)(10) Election" is defined in Section 5.11.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller's Post-Closing Balance Sheet" is defined in
Section 1.6(a).
"Seller's Incomplete Schedules" is defined in Section 9.20.
"Sublease Agreements" means the Sublease Agreements by and
among Buyer, Seller and Company on the principal terms set forth in Exhibit E
hereto and such other terms as are reasonably satisfactory to the parties
thereto.
"Stock" means all of the outstanding capital stock of Company.
"Subsidiary" means any Person in which Company has a direct or
indirect equity or ownership interest in excess of 10%.
"Supplier Contracts" means all Contracts providing for the
purchase goods and services consumed by the Business
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or directly used to support the Business, the obligations to pay for those goods
and services, and the obligations and rights that are ancillary to those
obligations and rights.
"Tax" means any foreign, federal, state, county or local
income, sales and use, excise, franchise, real and personal property, transfer,
gross receipt, capital stock, production, business and occupation, disability,
employment, payroll, severance or withholding tax or charge imposed by any
Governmental Entity, any interest and penalties (civil or criminal) related
thereto or to the nonpayment thereof, and, except as specifically provided
herein, any Loss in connection with the determination, settlement or litigation
of any Tax liability.
"Tax Reimbursement Amount" is defined in Section 8.6.
"Tax Return" means a report, return or other in formation
required to be supplied to a Governmental Entity with respect to Taxes
including, where permitted or required, combined or consolidated returns for any
group of entities that includes Seller or Company.
"Title IV Plan" is defined in Section 2.16(c).
"Total Purchase Price" is defined in Section 1.3.
"Trademark License Agreement" means the Trademark License
Agreement by and among Buyer, Seller and Company substantially in the form of
Exhibit F hereto.
"Trade Secrets" means any formula, pattern, device or
compilation of information which gives an opportunity to obtain an advantage
over competitors who do not know or use it, including, but not limited to,
formulas for chemical compounds, a process of manufacturing, treating or
preserving materials, a pattern for a machine or any forms, plans, drawings,
specifications, customer lists, marketing and competition analysis and project
management, inventory and cost control systems and techniques.
"Warranty Claim" is defined in Section 5.6.
"Warranty Work" is defined in Section 5.7.
1.2 Sale of the Stock by Seller.
Subject to the terms and conditions of this Agreement, Seller
agrees to sell the Stock and deliver the certificate evidencing the Stock to
Buyer at the Closing. The certificate will be properly endorsed for transfer to
or accompanied by a duly executed stock power in favor of Buyer
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or its nominee as Buyer may have directed prior to the Closing Date and
otherwise in a form acceptable for transfer on the books of Company.
1.3 Purchase of the Stock by Buyer; Total Purchase Price.
Subject to the terms and conditions of this Agreement, Buyer
agrees to purchase the Stock from Seller and to pay to Seller the Total Purchase
Price. The "Total Purchase Price" shall consist of $103,000,000 (the "Base
Purchase Price"), minus the Adjustment Amount, if any, minus the Retention Plan
Adjustment.
1.4 The Closing.
The Closing will take place at the offices of O'Melveny &
Myers, Embarcadero Center West, 275 Battery Street, San Francisco, California
94111-3305 on the last Friday of the first month during which all of the
conditions specified in Article VI have been satisfied (provided, however, that
if such conditions are not satisfied before the close of business on the fifth
business day prior to such day, the Closing will take place on the last Friday
of the next succeeding month), or at such other place or on such other day as
Seller and Buyer may agree in writing.
1.5 Payment of Purchase Price.
Not later than 5 days prior to the Closing Date, Seller shall
prepare and deliver to Buyer an estimated balance sheet for the Business as of
the Closing Date, which balance sheet shall have been prepared in conformity
with GAAP applied on a basis consistent with the balance sheet for the Business
as of March 31, 1997 referred to in Section 2.3 (provided that in the event of
any conflict between those principles required under GAAP and those principles
required for consistency, the principles required under GAAP shall control)
which shall not reflect the results of or otherwise give effect to Buyer's
purchase of the Stock and the accounting treatment thereof and a notice setting
forth Seller's good faith estimate of the Adjustment Amount (the "Estimated
Adjustment Amount") together with a schedule setting forth in detail the
calculations supporting Seller's computation thereof. Buyer shall pay the
Estimated Purchase Price to Seller at the Closing by wire transfer of funds
immediately available in the City of New York to an account specified by Seller
not later than 5 days prior to the Closing Date. The "Estimated Purchase Price"
shall be the sum of (a) the Base Purchase Price net of the Retention Plan
Adjustment, and (b) the Estimated Adjustment Amount. Promptly, but in any event
not later than 5 days, after the final determination of the Adjustment Amount
pursuant to
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Section 1.6, (i) in the event that the Total Purchase Price exceeds the
Estimated Purchase Price, Buyer shall pay to Seller by wire transfer of funds
immediately available in the City of New York an amount equal to such excess
plus interest thereon from the Closing Date to the date of payment thereof at
the Agreed Rate, or (ii) in the event the Estimated Purchase Price exceeds the
Total Purchase Price, Seller shall pay to Buyer by wire transfer of funds
immediately available in the City of New York an amount equal to such excess
plus interest thereon from the Closing Date to the date of payment thereof at
the Agreed Rate.
1.6 Purchase Price Adjustment.
(a) Physical Inventory; Closing of Books; Audit of
Seller's Post-Closing Balance Sheet.
On the day after the Closing Date, Buyer shall direct its
independent certified public accountants ("Buyer's Accountants") to conduct a
physical inventory (consistent with year-end closing practices) of all of the
Inventory of the Business (including, but not limited to, all "offshore"
inventory), such physical inventory to be completed as promptly as practicable
but in any event not later than 10 days after the Closing Date. Seller shall
cooperate with Buyer and Buyer's Accountants to afford all access and provide
all information necessary to facilitate such physical inventory. On the day
after the Closing Date, Seller shall initiate and shall take all actions
necessary to effect a closing (effective as of the Closing Date) of Seller's
(with respect to the Business) and Company's books of account (including, but
not limited to, the closing of all variance accounts (i.e., all unfavorable
variances on open projects shall be written off)). As promptly as practicable
but in any event not later than 30 days after the Closing Date, Seller shall
prepare and deliver to Buyer a balance sheet for the Business as of the Closing
Date, which balance sheet shall have been prepared in conformity with GAAP
applied on a basis consistent with the balance sheet for the Business as of
March 31, 1997 referred to in Section 2.3 (provided that in the event of any
conflict between those principles required under GAAP and those principles
required for consistency, the principles required under GAAP shall control)
which shall not reflect the results of or otherwise give effect to Buyer's
purchase of the Stock and the accounting treatment thereof, which shall reflect
the closing of all variance accounts as required above (such balance sheet, as
so prepared, being "Seller's Post-Closing Balance Sheet") and a notice setting
forth Seller's good faith calculation of the Adjustment Amount (the "Revised
Adjustment Amount") together with a schedule setting forth in detail the
calculations supporting Seller's computation thereof. At Buyer's election,
promptly
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following Buyer's receipt thereof, Buyer may direct Buyer's Accountants to
conduct an audit in accordance with the standards of the American Institute of
Certified Public Accountants, such audit to be completed as promptly as
practicable but in any event not later than 30 days after the receipt by Buyer
of Seller's Post-Closing Date Balance Sheet and the Revised Adjustment Amount,
of Seller's Post-Closing Balance Sheet and the Revised Adjustment Amount.
Buyer's Accountants shall, if so requested by Seller, permit the Auditors to
observe the processes applied by Buyer's Accountants in conducting the audit of
Seller's Post-Closing Balance Sheet referred to above. In the event Buyer elects
not to direct Buyer's Accountants to conduct such an audit, Buyer shall so
advise Seller not later than 30 days after the receipt by Buyer of Seller's
Post-Closing Date Balance Sheet and the Revised Adjustment Amount, upon which
advice the Revised Adjustment Amount shall be final and binding as the
Adjustment Amount under this Agreement. In the event Buyer elects to direct
Buyer's Accountants to conduct such an audit, upon completion thereof Buyer's
Accountants shall deliver to Buyer a written notice (the "Accounting Report")
setting forth a schedule of all adjustments, if any, to Seller's Post-Closing
Balance Sheet and the Revised Adjustment Amount determined by Buyer's
Accountants to be required to generate a balance sheet for the Business as of
the Closing Date and calculate the Adjustment Amount hereunder (the Adjustment
Amount, after giving effect to such adjustments, being the "Audited Adjustment
Amount"). At Buyer's election, promptly following Buyer's receipt thereof, Buyer
may deliver the Accounting Report to Seller. In the event Buyer elects not to
deliver the Accounting Report to Seller, Buyer shall so advise Seller not later
than 5 days after the receipt by Buyer of the Accounting Report, upon which
advice the Revised Adjustment Amount shall be final and binding as the
Adjustment Amount under this Agreement.
(b) Review by Seller. In the event that Buyer shall deliver
the Accounting Report to Seller, promptly following receipt of the Accounting
Report Seller shall review the same and, as promptly as practicable, but in any
event not later than 30 days thereafter, shall deliver to Buyer either (i) a
written notice stating that the Accounting Report and the Audited Adjustment
Amount are accepted by Seller, or (ii) a certificate signed by Seller's chief
financial officer setting forth Seller's objections to the Accounting Report
together with a summary of the reasons therefor and calculations supporting such
adjustments that, in its view, are necessary to eliminate such objections. In
the event Seller delivers to Buyer such a written notice stating that the
Accounting Report and the Audited Adjustment Amount are accepted by Seller or
does not deliver such a certificate of objection within such 30-day period,
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the Audited Adjustment Amount set forth in the Accounting Report shall, upon the
earlier of such delivery or the end of such 30-day period be final and binding
as the Adjustment Amount under this Agreement. In the event Seller so objects
within such 30-day period, Buyer and Seller shall endeavor to resolve by written
agreement (the "Agreed Adjustments") any differences as to the Adjustment Amount
and, in the event Buyer and Seller so resolve any such differences, the Audited
Adjustment Amount set forth in the Accounting Report, as adjusted by the Agreed
Adjustments, shall be final and binding as the Adjustment Amount under this
Agreement.
(c) Audit by Additional Accounting Firm. In the event any
objections lodged by Seller in accordance with Section 1.6(b) above are not
resolved by Agreed Adjustments within the 30-day period next following the
30-day period referred to in Section 1.6(b) above, then Buyer and Seller shall
jointly select a national accounting firm acceptable to both Buyer and Seller
(or, if they cannot agree on such selection, they shall select a national
(big-six) accounting firm by lot after eliminating Buyer's Accountants and the
Auditors) and shall direct the firm so selected (the "Additional Accounting
Firm") to conduct, as promptly as practicable, but in any event not later than
30 days after such direction, such audit of the Audited Adjustment Amount (as
determined by Buyer's Accountants as set forth in the Accounting Report) as they
believe to be necessary to resolve the objections (it being understood that
under no circumstances shall they be charged with reconsidering or conducting an
audit of any elements of the Audited Adjustment Amount as to which no objection
has been lodged by Seller and which do not bear directly on the matters or
conclusions objected to by Seller), and to deliver a written notice (the
"Additional Accounting Report") to each of Buyer and Seller setting forth what
adjustments, if any, to the Audited Adjustment Amount the Additional Accounting
Firm believes to be required under GAAP and this Agreement to resolve such
objections, and the amount of the Adjustment Amount after giving effect to such
adjustments (such Audited Adjustment Amount if and as so adjusted being the
"Final Audited Adjustment Amount"). In such event, the Final Audited Adjustment
Amount shall be final and binding as the Adjustment Amount under this Agreement.
(d) Access to Information; Fees and Expenses. The parties
hereto shall make available to Buyer, Seller, the Auditors, Buyer's Accountants
and, if applicable, the Additional Accounting Firm, such books, records and
other information (including all work papers, summary memoranda and summary
conclusions of the Auditors and Buyer's Accountants) as any of them may
reasonably request to audit Seller's Post-Closing Balance Sheet and prepare and
review
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the Accounting Report or the Additional Accounting Report in accordance with the
terms of this Section 1.6. The fees and expenses of the Additional Accounting
Firm, if any, shall be paid 50% by Buyer and 50% by Seller.
1.7 Retention Plan Escrow.
(a) Not later than 5 days prior to the Closing Date, Seller
shall deliver to Buyer an estimate (the "Retention Payment Adjustment") prepared
in good faith by Seller in consultation with Buyer's Accountants of all amounts
projected to become due and payable to employees of the Business (the "Projected
Retention Payments") (and all Taxes payable in connection therewith) under the
terms of the Retention Plan together with a schedule setting forth in detail the
calculations supporting their computation thereof.
(b) Upon the Closing, Buyer shall deposit into an escrow an
amount equal to the Projected Retention Payments. All interest or other amounts
earned on all amounts held in such escrow shall be for the benefit of Buyer.
(c) Company shall be responsible for the payment of all
amounts payable under the Retention Plan. Such payments shall be made from
amounts held pursuant to the escrow referred to in Section 1.7(b). Seller shall
indemnify and hold harmless Buyer and Company from and against any and all
Losses (including, but not limited to, any Taxes) resulting from any excess of
amounts payable under the Retention Plan in excess of the Retention Plan
Adjustment. Upon the final determination of all amounts that may be or become
due and payable under the Retention Plan, Buyer shall pay over to Seller any
excess of the Retention Plan Adjustment over the aggregate of all amounts due
and payable under the Retention Plan.
1.8 Deposit; Deposit Escrow.
(a) Not later than 3 business days after the date hereof
(September 4, 1997), Buyer shall deposit into an escrow with an escrow agent
("Escrow Agent") an earnest money deposit consisting of an irrevocable standby
letter of credit for the benefit of Escrow Agent in the amount of $2 million
(together with any additional amounts deposited pursuant to Section 1.8(b), if
any, the "Deposit") and Buyer, Seller and Escrow Agent shall execute and deliver
the Escrow Agreement.
(b) Upon the later to occur of (i) September 26, 1997 and (ii)
the satisfaction of the conditions set forth in Sections 6.1(b), 6.2(d) and
6.2(i) and the completion of negotiations between Buyer and Seller of the final
forms of
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each of the Ancillary Agreements and the final form of all documentation
evidencing or effecting the Contribution (each of which shall be in form
reasonably satisfactory to Buyer and its counsel), Buyer shall either (x)
deposit into escrow a supplemental earnest money deposit in cash or an
irrevocable standby letter of credit for the benefit of Escrow Agent, in either
case in the amount of $1 million or (y) deliver to Seller a copy of a commitment
letter from a third-party lender evidencing such lender's commitment to provide
financing sufficient for Buyer to pay the Total Purchase Price; provided,
however, that such supplemental deposit or commitment letter shall be required
only if the conditions set forth in Sections 6.1(a), 6.2(a) and (b) are
satisfied as of the date of such requirement. If under such circumstances Buyer
does not make a supplemental deposit or deliver such commitment letter, then
either Seller or Buyer may terminate this Agreement for a period of five (5)
business days thereafter, in which case the Deposit plus all interest accrued
thereon shall be paid to Seller.
(c) In the event the purchase and sale of the Stock is not
consummated or this Agreement is terminated because of the failure of any
condition to the obligations of Buyer under Sections 6.1 or 6.2 to effect the
Closing hereunder or any other reason except for a default hereunder solely on
the part of Buyer or because of the failure of the condition to the obligations
of Seller under Section 6.3(b) to effect the Closing hereunder, the Deposit plus
all interest accrued thereon shall be immediately refunded to Buyer. In the
event the purchase and sale of the Stock is not consummated because of a default
hereunder solely on the part of Buyer or because of the failure of the condition
to the obligations of Seller under Section 6.3(b) to effect the Closing
hereunder, the Deposit and all interest accrued thereon shall be paid to and
retained by Seller. On the Closing Date and only upon, or concurrently with, the
consummation of the Closing, Escrow Agent shall cause to be refunded to Buyer
the Deposit plus all interest accrued thereon.
(d) In the event that the Deposit is paid to Seller pursuant
to the provisions of Section 1.8(c) and the Escrow Agreement, Seller's receipt
of such payment shall constitute liquidated damages ("Seller's Liquidated
Damages Amount") and Seller shall have no other remedy, whether at law or in
equity, for any breach hereof by Buyer, including, but not limited to, any
failure by Buyer to effect the Closing. Buyer, Seller and Company expressly
agree and acknowledge that actual damages in the event of a breach of this
Agreement by Buyer would be extremely difficult or impracticable to ascertain
and that Seller's Liquidated Damages Amount represents the parties'
approximation of such damages and that such amount is not a penalty.
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(e) The provisions of this Section 1.8 shall survive any
termination of this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Except as otherwise specified on the Disclosure Schedule,
Seller and Company, jointly and severally, represent, warrant and agree for the
benefit of Buyer as follows:
2.1 Organization and Related Matters.
(a) Seller and Company are corporations duly organized,
validly existing and in good standing under the respective laws of the
jurisdiction of their incorporation or organization. Seller and Company have all
necessary corporate power and authority to execute, deliver and perform this
Agreement and any related agreements to which they are a party. Company has no
Subsidiaries, and Company owns no Equity Securities of any entity that is not a
Subsidiary. Schedule 2.1 correctly lists the current directors and executive
officers of Company. True, correct and complete copies of the charter documents
of Company as in effect on the date hereof have been delivered to Buyer. Company
is not a registered or reporting company under the Exchange Act.
(b) Each of Seller and Company have, and Company after the
consummation of the Contribution will have, all necessary corporate power and
authority to own its properties and assets and to carry on the Business and each
of them is and Company will be duly qualified or licensed to do business as a
foreign corporation in good standing in all jurisdictions in which the character
or the location of the assets owned or leased by it or the nature of the
Business require licensing or qualification, except where the failure to be so
qualified or licensed is not material to the Business.
2.2 Equity Securities.
Seller owns all of the outstanding Equity Securities of
Company beneficially and of record. All of such Equity Securities are owned free
and clear of any Encumbrances. At the Closing, Buyer will acquire good and
marketable title to and complete ownership of the Stock, free and clear of any
Encumbrances. The authorized capital stock of Company consists of 1,000 shares
of common stock, no par value, of which no shares are issued and no shares are
outstanding as of the date hereof, and of which 1,000 shares will be issued and
1,000 shares will be outstanding
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as of the Closing. There are no outstanding Contracts or other rights to
subscribe for or purchase, or Contracts or other obligations to issue or grant
any rights to acquire, any Equity Securities of Company or to restructure or
recapitalize Company. There are no outstanding Contracts of Seller or Company to
repurchase, redeem or otherwise acquire any Equity Securities of Company. All
Equity Securities of Company are duly authorized, validly issued and outstanding
and are fully paid and nonassessable and were issued in conformity with
applicable Laws. There are no preemptive rights in respect of any Equity
Securities of Company.
2.3 Financial Statements; Changes; Contingencies.
(a) Audited Financial Statements. Seller has delivered to
Buyer balance sheets for the Business at December 31, 1996 and 1995 and the
related statements of operations and changes in cash flow for the periods then
ended. All such financial statements have been examined by the Auditors whose
reports thereon are included with such financial statements. All such financial
statements have been prepared in conformity with GAAP applied on a consistent
basis. Such statements of operations and cash flow present fairly the results of
operations and cash flows of the Business for the respective periods covered,
and such balance sheets present fairly the financial condition of the Business
as of their respective dates. Seller has made available to Buyer copies of each
management letter delivered to or by Seller or Company to or by the Auditors in
connection with such financial statements or relating to any review by Auditors
of the internal controls of Seller or Company during the two-year period ended
December 31, 1996 or thereafter, and has made available for inspection all
reports and working papers produced or developed by Auditors or management in
connection with the Auditors' examination of such financial statements, as well
as all such reports and working papers for prior periods for which any tax
liability of the Business has not been finally determined or barred by
applicable statutes of limitation.
(b) Unaudited Interim Financial Statements. Seller has
delivered to Buyer an unaudited balance sheet for the Business at March 31, 1997
and the related statement of operations for the three-month period then ended,
an unaudited balance sheet for the Business at June 27, 1997 and the related
statement of operations for the six-month period then ended, an unaudited
statement of operations for the three-month period ended March 31, 1997 and an
unaudited statement of operations for the six-month period ended June 27, 1997.
All such financial statements have been prepared in conformity with GAAP applied
on a consistent basis. Such statements of operations present fairly the results
of operations of the Business for the respective periods
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covered, and such balance sheets present fairly the financial condition of the
Business as of their respective dates. Seller has made available to Buyer copies
of all material reports and working papers produced or developed by management
in connection with their preparation of such financial statements. Since June
27, 1997, there has been no change in any of the accounting policies, practices
or procedures of Seller or Company.
(c) No Material Adverse Changes. Since December 31,
1996, whether or not in the ordinary course of business, there
has not been, occurred or arisen:
(i) any change in or event affecting the Business or
the Stock that has had or may reasonably be expected to have a
material adverse effect on the Business or the Stock;
(ii) any agreement, condition, action or omission which
would be proscribed by (or require consent under) Section 4.3 had it
existed, occurred or arisen after the date of this Agreement;
(iii) any strike or other labor dispute; or
(iv) any casualty, loss, damage or destruction
(whether or not covered by insurance) of any material property
of Company.
(d) No Other Liabilities or Contingencies.
There are no material liabilities of Company, the Business or
Seller (with respect to the Business) of any kind or nature, whether known or
unknown, accrued, absolute, contingent or otherwise, and whether due or to
become due, probable of assertion or not, except liabilities that (A) are
reflected or disclosed in the most recent of the financial statements referred
to in subsection (a) above, (B) were incurred after June 27, 1997 in the
ordinary course of business and do not exceed $50,000 individually or $300,000
in the aggregate or (C) are executory obligations to perform under Contracts.
2.4 Tax and Other Returns and Reports.
(a) Seller and Company have timely filed (or, where permitted
or required, its respective direct or indirect parents have timely filed) all
required Tax Returns with respect to which Company may have any liability for
Taxes and have, except as set forth on Schedule 2.4, paid all Taxes due for all
periods ending on or before the date hereof with respect to which Company may
have any liability. Adequate provision has been made in the books and records of
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Seller and Company and in the financial statements referred to in Section 2.3
for all Taxes whether or not due and payable and whether or not disputed.
Neither Seller nor Company has elected to be treated as a consenting corporation
under Section 341(f) of the Code. Schedule 2.4 lists the date or dates through
which the IRS has examined the United States federal income tax returns of
Seller. All required Tax Returns, including amendments to date, have been
prepared in good faith and are complete and accurate in all material respects.
Except as set forth in Schedule 2.4, no Governmental Entity has, during the past
three years, examined or is in the process of examining any Tax Returns of
Seller or Company. Except as set forth on Schedule 2.4, no Governmental Entity
has proposed (tentatively or definitively), asserted or assessed or, to the best
knowledge of Seller, threatened to propose or assert, any deficiency, assessment
or claim for Taxes against (1) Seller with respect to which Company may have any
liability, or (2) Company.
(b) Neither Seller nor Company has made any payments, is
obligated to make any payments, or is a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code Section 280G.
(c) Neither Seller nor Company has been a member of an
Affiliated Group filing a consolidated federal income Tax Return (other than a
group the common parent of which was Seller and the only other member of which
was Company) under Sections 1502 and 1504 of the Code and the Treasury
Regulations thereunder (or any similar provision of state, local, or foreign
law). Company does not have any liability for the Taxes of any Person other than
Company as a transferee or successor or by contract.
2.5 Material Contracts.
Schedule 2.5 lists each Contract to which Seller (with respect
to the Business) or Company is a party or to which Seller or Company or any of
their properties is subject or by which Seller or Company is bound that (a) is a
Customer Contract that provides for payments to or performance by Seller or
Company in excess of $250,000 in the aggregate, (b) is a Supplier Contract that
provides for payments by Seller or Company in excess of $250,000 in the
aggregate, (c) is a Government Contract, (d) after June 27, 1997 obligates
Seller or Company to pay an amount of $250,000 or more in the aggregate, (e) has
an unexpired term as of the date hereof in excess of three years, (f) represents
a Contract upon which the Business is substantially dependent or the absence of
which would have a material adverse effect on the Business, (g) provides for an
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extension of credit other than consistent with normal credit terms, (h) limits
or restricts the ability of Seller (with respect to the Business) or Company to
compete or otherwise to conduct its business in any manner or place, (i)
provides for a guaranty or indemnity by Seller (with respect to the Business) or
Company, (j) grants a power of attorney, agency or similar authority to another
person or entity, (k) contains a right of first refusal, (l) contains a right or
obligation of any Affiliate, officer or director or any Associate, of Seller or
Company to Seller or Company, (m) requires Seller or Company to buy or sell
goods or services with respect to which there will be material losses or will be
costs and expenses materially in excess of expected receipts (other than as
provided for or otherwise reserved against on the most recent of the balance
sheets referred to in Section 2.3), (n) is an offshore production contract or
(o) was not made in the ordinary course of business (each of which, together
with each Contracts relating to any of the Intangible Property listed on
Schedule 2.7, being a "Material Contract"). True copies of each Material
Contract, including all amendments and supplements thereto, have been made
available to Buyer. Each Material Contract is valid and subsisting; Seller or
Company, as applicable, has duly performed in all material respects all of its
obligations thereunder to the extent that such obligations to perform have
accrued; and no material breach or default, alleged material breach or default,
or event which would (with the passage of time, notice or both) constitute a
material breach or default thereunder by Seller or Company or, to the best
knowledge of Seller and Company, any other party or obligor with respect
thereto, has occurred or as a result of this Agreement or performance thereof
will occur. The consummation of the transactions contemplated by this Agreement
will not (and will not give any person a right to) terminate or modify any
rights of, or accelerate or augment any obligation of, Seller or Company under
any Material Contract.
2.6 Real and Personal Property; Government-Furnished
and Government-Owned Property or Equipment.
(a) Schedule 2.6(a) lists all tangible property, whether real
or personal of Seller or Company that is material to the Business, properly
identifies each of such properties as an interest in real property or personal
property and designates any leasehold interests therein. Neither Seller (with
respect to the Business) nor Company owns fee title to any real property. Seller
(with respect to the Business) or Company has good and marketable title to, free
and clear of any Encumbrances, all items of real property and such other assets
and properties including, but not limited to, all assets that it purports to own
or have
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the right to use at June 27, 1997 or that were thereafter acquired, except for
(i) Encumbrances consisting of liens for Taxes not yet due, and (ii) assets and
properties not material to the Business that were disposed of since such date in
the ordinary course of business consistent with past practice. All material
leasehold properties held by Seller (with respect to the Business) and Company
as lessee are held under valid, binding and enforceable leases, subject only to
such exceptions as are not, individually or in the aggregate, material to the
Business. There is no pending or, to the best knowledge of Seller, threatened
Action that would materially interfere with the quiet enjoyment of any such
leasehold by Seller (with respect to the Business) or Company.
(b) All material tangible properties of Seller (with respect
to the Business) and Company are in a good state of maintenance and repair
(except for ordinary wear and tear) and are adequate for the operation of the
Business.
(c) Company was incorporated on June 27, 1997. Company has had
no operations since its inception. Upon consummation of the Contribution,
Company will own and have good and marketable title to, free and clear of any
Encumbrances, each and every Purchased Asset including, but not limited to, all
assets and properties listed on Schedules 2.6(a) and 2.7, and will acquire
rights to use each and every asset or property used in the conduct of, connected
with or comprising the Business that is not a Purchased Asset pursuant to and on
the terms set forth in the Ancillary Agreements. Company does not have and upon
the Closing will not have any liabilities other than the Assumed Obligations.
(d) Schedule 2.6(d) sets forth a listing by description or
inventory number of all personal property, equipment and fixtures loaned, bailed
or otherwise furnished to Seller or Company by or on behalf of any Governmental
Entity that (i) relate to the Business, (ii) are or were used in the conduct of
the Business and (iii) are or should be in the possession of Seller or Company
("Government-Furnished Items") and identifies each Government Contract to which
each such Government-Furnished Item relates. All Government-Furnished Items
currently used in the Business and, to the best knowledge of Seller and Company,
all other Government-Furnished Items are in a good state of maintenance and
repair (except for ordinary wear and tear), have been regularly and
appropriately maintained and repaired in accordance with all contractual, legal
and regulatory requirements and shall be in the possession of Company on the
Closing Date. Seller and Company have complied with all of their obligations
relating to the
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Government-Furnished Items, and upon the return thereof to the applicable
Governmental Entity in the condition thereof on the date hereof, Seller and
Company would have no liability to such Governmental Entity with respect
thereto.
2.7 Intangible Property.
(a) Schedule 2.7 lists all of the Intangible Property
in which Seller (with respect to the Business) or Company has an interest. Such
assets include all Permits or other rights with respect to any of the
foregoing. Except as shown on Schedule 2.7, Seller (with respect to the
Business) and Company do not use any Intangible Property by consent of any
other Person, and are not required to and do not make any payments to others
with respect thereto, and such Intangible Property is owned by Seller or
Company and is assignable free and clear of any Encumbrances. Seller and
Company have in all material respects performed all obligations required to be
performed by them, and are not in default in any material respect under any
Contract relating to any of the foregoing. Neither Seller (with respect to the
Business) nor Company has received any notice to the effect (and is not
otherwise aware) that any such Intangible Property or its use by Seller or
Company conflicts with any rights of any Person.
(b) Except as otherwise set forth on Schedule 2.7:
(i) Seller or Company owns, has the exclusive right
to use, sell, license or dispose of, has exclusive right to bring
actions for the infringement of Intellectual Property Rights related
to, and has taken all appropriate actions and made all applicable
applications and filings pursuant to applicable Laws to perfect or
protect its interest in the Products as in existence on the date
hereof;
(ii) Seller or Company owns, has the exclusive right
to use, sell, license or dispose of, has the exclusive right to bring
actions for the infringement of, and has taken all appropriate actions
and made all applicable applications and filings pursuant to applicable
Laws to perfect or protect its interest in, all Intangible Property,
necessary or required for the conduct of the Business;
(iii) the execution, delivery and performance of this
Agreement and the consummation of the other transactions contemplated
hereby will not breach, violate or conflict with any Intangible
Property, will not cause the forfeiture or termination or give rise to
a right of forfeiture or termination of, or in any way
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impair the right of Seller or Company to use, sell, license or
dispose of or to bring any action for the infringement of, any
Intangible Property;
(iv) there are no royalties, honoraria, fees or other
payments payable by Seller or Company to any Person by reason of the
ownership, use, license, sale or disposition of the Products or any
Intangible Property necessary or required for the conduct of the
Business;
(v) the manufacture, marketing, license, sale or use
of any Product by Seller or Company will not violate any license or
agreement with any third party; there is no pending or, to the best
knowledge of Seller and Company, threatened Action, nor is Seller or
Company aware of a basis for any such Action, contesting the validity,
ownership or right to use, sell, license or dispose of any of the
Products, nor has Seller or Company received any notice asserting that
any of the Products or the proposed use, sale, license or disposition
thereof conflicts or will conflict with the rights of any other party;
(vi) Seller and Company have taken all steps
necessary (including, without limitation, entering into appropriate
confidentiality, non-disclosure and non-competition agreements with all
officers, directors and employees of Seller and Company with access to
or knowledge of the Intangible Property and the Products) to safeguard
and maintain the secrecy and confidentiality of, and its proprietary
rights in, all such property and rights;
(vii) employees of Seller and Company have taken all
actions necessary to irrevocably assign or otherwise transfer to Seller
or Company all of their respective right, title and interest in and to
any Intangible Property which are necessary or required for the conduct
of the Business; and
(viii) the Products perform the functions and
operations, have the technical capabilities and meet or exceed the
specifications appearing in Seller's and Company's published and
internal technical documentation and marketing literature.
2.8 Authorization; No Conflicts.
The execution, delivery and performance of this Agreement and
any related agreements by Seller and Company has been duly and validly
authorized by the Board of Directors of Seller and Company and by all other
necessary
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corporate action on the part of Seller and Company. This Agreement and any
related agreements constitute the legally valid and binding obligation of Seller
and Company, enforceable against each of them in accordance with its terms
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws and equitable principles
relating to or limiting creditors rights generally. The execution, delivery and
performance of this Agreement by Seller and Company and the execution, delivery
and performance of any related agreements or contemplated transactions by Seller
and Company will not violate or constitute a breach or default (whether upon
lapse of time and/or the occurrence of any act or event or otherwise) under the
charter documents or by-laws of any of such entities or violate or constitute a
material breach or default (whether upon lapse of time and/or the occurrence of
any act or event or otherwise) under any Material Contract, result in the
imposition of any material Encumbrance against any material asset or properties
of Seller (with respect to the Purchased Assets or any asset or property that
Company or Buyer will acquire rights to use pursuant to the Ancillary
Agreements) or Company, or violate any Law. Schedule 2.8 lists all Approvals and
Permits required to be obtained by Seller or Company to consummate the
transactions contemplated by this Agreement. Except for matters identified in
Schedule 2.8 as requiring that certain actions be taken by or with respect to a
third party or Governmental Entity, the execution and delivery of this Agreement
by Seller and the performance of this Agreement and any related or contemplated
transactions by Seller or Company will not require filing or registration with,
or the issuance of any Permit by, any other third party or Governmental Entity.
2.9 Legal Proceedings and Certain Labor Matters.
There is no Order or Action pending, or, to the best knowledge
of Seller and Company, threatened, against or affecting Seller, Company or any
of their Affiliates, properties or assets that individually or when aggregated
with one or more other Orders or Actions has or might reasonably be expected to
have a material adverse effect on Seller, Company, the Business, on Seller's
ability to perform this Agreement, or on any aspect of the transactions
contemplated by this Agreement. There is no organized labor strike, dispute,
slowdown or stoppage, collective bargaining or unfair labor practice claim or
union representation question (collectively, "Labor Matters"), pending or to the
best knowledge of Seller threatened, against or affecting Seller (with respect
to the Business), Company or the Business. Schedule 2.9 lists each Order, Action
and Labor Matter that involves a claim or potential claim of aggregate liability
in excess of $50,000 against, or that enjoins or
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compels or seeks to enjoin or to compel any activity by Company or Seller (with
respect to the Business). There is no matter as to which Seller (with respect to
the Business) or Company has received any notice, claim or assertion, or, to the
best knowledge of Seller and Company, which otherwise has been threatened or is
reasonably expected to be threatened or initiated, against or affecting any
director, officer, employee, agent or representative of Seller or Company or any
other Person, nor to the best knowledge of Seller and Company is there any
reasonable basis therefor, in connection with which any such Person has or may
reasonably be expected to have any right to be indemnified by Seller or Company.
2.10 Minute Books.
The minute books of Company accurately reflect all actions and
proceedings taken to date by the respective shareholders, boards of directors
and committees of Company, and such minute books contain true and complete
copies of the charter documents of Company and all related amendments. The stock
record books of Company reflect accurately all transactions in its capital stock
of all classes.
2.11 Accounting Records; Internal Controls.
Each of Seller (with respect to the Business) and Company has
records that accurately and validly reflect its respective transactions, and
accounting controls sufficient to insure that such transactions are (i) executed
in accordance with management's general or specific authorization and (ii)
recorded in conformity with GAAP so as to maintain accountability for assets.
Such accounting records, to the extent they contain important information that
is not easily and readily available elsewhere, have been duplicated, and such
duplicates are stored safely and securely pursuant to procedures and techniques
utilized by companies of comparable size in similar lines of business. The data
processing equipment, data transmission equipment, related peripheral equipment
and software used by Seller and Company in the operation of the Business
(including any disaster recovery facility) to generate and retrieve such records
are comparable in performance, condition and capacity with those utilized by
companies of comparable size in similar lines of business.
2.12 Insurance.
Seller (with respect to the Business) and Company are, and at
all times during the past two years have been, insured with reputable insurers
against all risks normally insured against by companies in similar lines of
business, and all of the insurance policies and bonds maintained by
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them are in full force and effect. Schedule 2.12 lists all insurance policies
and bonds that are material to the Business. Neither Seller nor Company is in
default under any such policy or bond. Seller and Company have timely filed
claims with insurers with respect to all material matters and occurrences for
which they have coverage. All insurance policies maintained by Seller (with
respect to the Business) and Company will remain in full force and effect and to
the best knowledge of Seller and Company may reasonably be expected to be
renewed on comparable terms following consummation of the transactions
contemplated by this Agreement (subject to such entities' continuing compliance
with the applicable terms thereof and any right of insurers to terminate without
cause), and neither Seller nor Company has received any notice or other
indication from any insurer or agent of any intent to cancel or not so renew any
of such insurance policies. Seller and Company have complied with and
implemented in all material respects all outstanding (i) requirements of and
recommendations of any insurance company that has issued a policy with respect
to any of the material properties and assets of Seller (with respect to the
Business) and Company and (ii) requirements and recommendations of the Board of
Fire Underwriters or other body exercising similar functions or any Governmental
Entity with respect to any such insurance policy.
2.13 Permits.
Seller and Company hold all material Permits that are required
by any Governmental Entity to permit them to conduct the Business, all such
material Permits are valid and in full force and effect and Company will hold
all such material Permits upon consummation of the transactions contemplated by
this Agreement. To the best knowledge of Seller and Company, no suspension,
cancellation or termination of any of such material Permits is threatened or
imminent.
2.14 Compliance with Law.
Seller (with respect to the Business) and Company are
organized and have conducted the Business in all material respects in accordance
with applicable Laws, and the forms, procedures and practices of Seller (with
respect to the Business) and Company are in compliance in all material respects
with all such Laws, to the extent applicable.
2.15 Dividends and Other Distributions.
There has been no dividend or other distribution of assets or
securities whether consisting of money, property or any other thing of value,
declared, issued or
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paid by Company subsequent to the date of the most recent financial statements
referred to in Section 2.3.
2.16 Employee Benefits.
(a) Employee Benefit Plans, Collective Bargaining and
Employee Agreements, and Similar Arrangements.
(1) Schedule 2.16 lists all employee benefit plans
and collective bargaining agreements or other similar arrangements to which each
of Seller and Company is or ever has been a party or by which it is or ever has
been bound, and all employment and severance agreements to which each of Seller
and Company is currently bound (provided that the obligation to list employment
and severance agreements may be satisfied with respect to any form of employment
or severance agreement by including in Schedule 2.16 a copy of such form and a
description of the classes or groups of employees to which such form is
applicable), legally or otherwise, including, without limitation, (a) any
profit-sharing, deferred compensation, bonus, stock option, stock purchase,
pension, retainer, consulting, retirement, severance, welfare or incentive plan,
agreement or arrangement, (b) any plan, agreement or arrangement providing for
"fringe benefits" or perquisites to employees, officers, directors or agents,
including but not limited to benefits relating to company automobiles, clubs,
vacation, child care, parenting, sabbatical, sick leave, medical, dental,
hospitalization, life insurance and other types of insurance, (c) any employment
agreement, or (d) any other "employee benefit plan" (within the meaning of
Section 3(3) of ERISA).
(2) Seller has made available to Buyer true and
complete copies of all documents and summary plan descriptions with respect to
such plans, agreements and arrangements, or summary descriptions of any such
plans, agreements or arrangements not otherwise in writing.
(3) There are no negotiations, demands or proposals
made or endorsed by Seller or Company that are pending or have been made which
concern matters now covered, or that would be covered, by plans, agreements or
arrangements of the type described in Section 2.16(a)(1)(a) other than routine
offers of employment made in the ordinary course.
(4) Each of Seller and Company is in full
compliance with the applicable provisions of ERISA (as amended through the date
of this Agreement), the regulations and published authorities thereunder, and is
in material compliance with all other Laws applicable with respect to all such
employee benefit plans, agreements and
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arrangements. Each of Seller and Company is in material compliance with all of
its obligations under all such plans, agreements and arrangements. To the best
knowledge of Seller and Company, there are no Actions (other than routine claims
for benefits) pending or threatened against such plans or their assets, or
arising out of such plans, agreements or arrangements, and all such plans,
agreements and arrangements have been operated in compliance with their terms.
To the best knowledge of Seller and Company, no facts exist which could give
rise to any such Actions.
(5) Except for those listed on Schedule 2.16, each
of the plans, agreements or arrangements listed on Schedule 2.16 can be
terminated by Company within a period of 30 days following the Closing Date
without payment of any additional compensation or amount or the additional
vesting or acceleration of any such benefits.
(6) All obligations of Company under each such plan,
agreement and arrangement (x) that are due prior to the Closing Date have been
paid or will be paid prior to that date, and (y) that have accrued prior to the
Closing Date have been or will be paid or properly accrued on the financial
statements of Company as of the Closing Date.
(b) Qualified Plans
(1) None of the "employee pension benefit plans"
(within the meaning of Section 3(2) of ERISA) in Schedule 2.16 is a stock bonus,
pension or profit-sharing plans within the meaning of Section 401(a) of the
Code, except for the Watkins-Johnson Employees' Investment Plan (the "Investment
Plan") and the Watkins-Johnson Employee Stock Ownership Plan (the "ESOP").
(2) The IRS has issued, with respect to each such
plan a determination letter stating that such plan is qualified in form under
Section 401(a) of the Code and each trust under each such plan is exempt from
tax under Section 501(a) of the Code. No non-exempt prohibited transaction
(within the meaning of Section 4975 of the Code) or non-exempt party-in-interest
transaction (within the meaning of Section 406 of ERISA) has occurred with
respect to any of such plans.
(3) Seller has delivered to Buyer for each such plan
copies of the following documents: (i) the Form 5500 filed in each of the most
recent three plan years including but not limited to all schedules thereto and
financial statements with attached opinions of independent accountants, (ii) the
most recent determination letter from the IRS, (iii) the consolidated statement
of assets and liabilities of such plan as of its most recent valuation
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date, and (iv) the statement of changes in fund balance and in financial
position or the statement of changes in net assets available for benefits under
such plan for the most recently ended plan year. The financial statements so
delivered fairly present the financial condition and the results of operations
of each of such plans as of such dates, in accordance with GAAP.
(c) Title IV Plans.
Seller does not maintain or contribute to any plan subject to
Title IV of ERISA (a "Title IV Plan"), and neither Seller nor any business
organization with respect to which Seller is an ERISA Affiliate has
contractually agreed to assume any liabilities in connection with any employee
benefit plan at any time maintained or contributed to any Title IV Plan. Seller
has not entered into any contractual obligation, indemnity agreement or similar
arrangement with any ERISA Affiliate in connection with any Title IV Plan
maintained at any time by such ERISA Affiliate. An "ERISA Affiliate" is any
trade or business (whether or not incorporated) that is a member of a group
which Company or Seller is a member and which is under common control within the
meaning of Section 414(b) and (c) of the Code.
(d) Multiemployer Plans.
No plan listed in Schedule 2.16 is a "multiemployer plan"
(within the meaning of Section 3(37) of ERISA). Company, Seller and any ERISA
Affiliate of Company and Seller have never contributed to or had an obligation
to contribute to any multiemployer plan.
(e) Health Plans. All group health plans of Company and any
ERISA Affiliate have been operated in compliance with the group health plan
continuation coverage requirements of Section 4980B of the Code to the extent
such requirements are applicable.
(f) Fines and Penalties. There has been no act or omission by
Company or any ERISA Affiliate that has given rise to or may give rise to fines,
penalties, taxes, or related charges under Section 502(c) or (k) or Section 4071
of ERISA or Chapter 43 of the Code.
2.17 Certain Interests.
No Affiliate of Seller or Company nor any officer or director
of any thereof, nor Associate of any such individual, has any material interest
in any property used in or pertaining to the Business; no such Person is
indebted or otherwise obligated to Seller or Company; and neither Seller nor
Company is not indebted or otherwise obligated to
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any such Person, except for amounts due under normal arrangements applicable to
all employees generally as to salary or reimbursement of ordinary business
expenses not unusual in amount or significance. The consummation of the
transactions contemplated by this Agreement will not (either alone, or upon the
occurrence of any act or event, or with the lapse of time, or both) result in
any benefit or payment (severance or other) arising or becoming due from Seller
or Company or the successors or assigns of any thereof to any Person.
2.18 Intercompany Transactions.
Company has not engaged in any transaction with Seller or any
other Affiliate of Seller. Company has and, upon consummation of the
Contribution will have, no liabilities or obligations to Seller or any other
Affiliate of Seller and none of Seller or such Affiliates has or, upon
consummation of the Contribution will have, any obligations to Company. The
consummation of the transactions contemplated by this Agreement will not (either
alone, or upon the occurrence of any act or event, or with the lapse of time, or
both) result in any payment arising or becoming due from Company or its
successors or assigns to Seller or any Affiliate of Seller.
2.19 No Brokers or Finders.
No agent, broker, finder, or investment or commercial banker,
or other Person or firm engaged by or acting on behalf of Seller or Company or
any of their respective Affiliates in connection with the negotiation, execution
or performance of this Agreement or the transactions contemplated by this
Agreement, is or will be entitled to any brokerage or finder's or similar fee or
other commission as a result of this Agreement or such transactions except for
Alliant Partners and Bentley Hall Von Gehr International, as to which Seller
shall have full responsibility and neither Buyer nor Company shall have any
liability.
2.20 Inventory.
All Inventory of Seller (with respect to the Business) and
Company is of good merchantable quality, reasonably in balance, and salable (in
the case of Inventory held for sale) or usable (in the case of other Inventory)
in the ordinary course of business. The value of obsolete, damaged or excess
Inventory and of Inventory below standard quality has been written down on the
most recent balance sheet referred to in Section 2.3 or, with respect to
Inventory purchased since such balance sheet date, on the books and records of
Seller or Company, to ascertainable
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market value, or adequate reserves described on such balance sheet have been
provided therefor, and the value at which Inventory is carried reflects the
customary Inventory valuation policy of Seller (with respect to the Business)
and Company (which fairly reflects the value of obsolete, spoiled or excess
Inventory) for stating Inventory, in accordance with GAAP consistently applied
in accordance with the valuation methodology described on Schedule 2.20.
2.21 Customers and Suppliers.
Schedule 2.21 lists the names of and describes all Contracts
with and the appropriate percentage of Business attributable to, the twenty most
significant customers and suppliers (in terms of dollar volume) of the Business
at the date of this Agreement, and any suppliers of significant goods or
services (other than electricity, gas, telephone or water) to the Business with
respect to which alternative sources of supply are not readily available on
comparable terms and conditions (including all suppliers which are the only
reasonably available source).
2.22 Environmental Compliance.
(a) Seller (with respect to the Business) and Company have
not generated, used, transported, treated, stored, released or disposed of, or
have suffered or permitted anyone else to generate, use, transport, treat,
store, release or dispose of any Hazardous Substance in violation of any Laws or
at any location which could require investigation or remediation; (b) there has
not been any generation, use, transportation, treatment, storage, release or
disposal of any Hazardous Substance in connection with the conduct of the
Business or the use of any property or facility of Seller or Company (whether
owned, generated or used by Company) or to the knowledge of Seller any nearby or
adjacent properties or facilities, which has created or might reasonably be
expected to create any liability under any Laws or which would require reporting
to or notification of any Governmental Entity or which could have an adverse
impact on the operation of any property or facility owned, operated or used by
Seller (with respect to the Business) or Company; (c) no asbestos or
polychlorinated biphenyl or underground storage tank is contained in or located
at any facility of Seller or of Company and no Hazardous Substance is present
on, under or about any property or facility owned, operated or used by Seller
(with respect to the Business) or Company which could require investigation or
remediation by any Governmental Entity; (d) any Hazardous Substance handled or
dealt with in any way in connection with the Business, whether before or during
Seller's or Company's ownership, has been and is being handled or dealt with in
all respects in compliance with applicable Laws; and
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(e) no condition exists at any property owned, operated or used by Seller (with
respect to the Business) or Company which is in violation of any Law or for
which any Law could require that corrective action be taken.
2.23 Government Contracts.
(a) In addition to the representations and warranties in
Section 2.5, with respect to each and every Government Contract or bid which, if
accepted, would result in a Government Contract (a "Government Bid"): (i) Seller
and Company have complied with all material terms and conditions of such
Government Contract or Government Bid, including all clauses, provisions and
requirements incorporated expressly, by reference or by operation of Law
therein; (ii) Seller and Company have complied with all requirements of all
material Laws or agreements pertaining to such Government Contract or Government
Bid; (iii) all representations and certifications executed, acknowledged or set
forth in or pertaining to such Government Contract or Government Bid were
complete and correct in all material respects as of their effective date, and
Seller and Company have complied in all material respects with all such
representations and certifications; (iv) neither the U.S. Government nor any
prime contractor, subcontractor or other Person has notified Seller or Company,
either in writing or, to their knowledge, orally, that Seller or Company has
breached or violated any Law, certification, representation, clause, provision
or requirement pertaining to such Government Contract or Government Bid; (v) no
termination for convenience, termination for default, cure notice or show cause
notice is currently in effect pertaining to such Government Contract or
Government Bid; (vi) no material cost incurred by Seller or Company pertaining
to such Government Contract or Government Bid has been formally questioned or
challenged, is the subject of any investigation or has been disallowed by the
U.S. Government; and (vii) no money due to Seller or Company pertaining to such
Government Contract or Government Bid has been withheld or set off nor has any
claim been made to withhold or set off money and Seller or Company is entitled
to all progress payments received with respect thereto.
(b) With respect to the Business: (i) neither Seller nor
Company or, to their knowledge, any of their respective directors, officers,
employees, consultants or agents is (or during the last three years has been)
under administrative, civil or criminal investigation known to Seller or
Company, indictment or information by any Governmental Entity, or any audit or
investigation of Seller or Company with respect to any alleged irregularity,
misstatement or omission arising under or relating to any Government Contract or
Government Bid; and (ii) during the
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last three years, neither Seller nor Company has conducted or initiated any
internal investigation or made a voluntary disclosure to the U.S. Government,
with respect to any alleged irregularity, misstatement or omission arising under
or relating to a Government Contract or Government Bid. There exists no
irregularity, misstatement or omission arising under or relating to any
Government Contract or Government Bid that has led to any of the consequences
set forth in Clause (i) or (ii) of the immediately preceding sentence or any
other damage, penalty assessment, recoupment of payment or disallowance of cost.
(c) With respect to the Business, there exist (i) no
outstanding material claims against Seller or Company, either by the U.S.
Government or by any prime contractor, subcontractor, vendor or other third
party, arising under or relating to any Government Contract or Government Bid;
and (ii) no material disputes between Seller or Company and the U.S. Government
under the Contract Disputes Act or any other Federal statute or between Seller
or Company and any prime contractor, subcontractor or vendor arising under or
relating to any Government Contract or Government Bid. Neither Seller nor
Company has any interest in any pending or potential claim against the U.S.
Government or any prime contractor, subcontractor or vendor arising under or
relating to any Government Contract or Government Bid. Schedule 2.23(c)
identifies each Government Contract which is currently under audit by the U.S.
Government or any other Person that is a party to such Government Contract.
(d) The Business has not been debarred or suspended from
participation in the award of contracts with the United States Department of
Defense or any other Governmental Entity (excluding for this purpose
ineligibility to bid on certain contracts due to generally applicable bidding
requirements). To the knowledge of Seller and Company, there exist no facts or
circumstances that would warrant the institution of suspension or debarment
proceedings or the finding of nonresponsibility or ineligibility on the part of
Seller (with respect to the Business), Company or any director or officer of
Seller or Company in respect of the Business. With respect to the evaluation of
any Government Bid made by Seller or Company, or by a prime contractor of Seller
or Company, during the past three years, there has been no adverse finding made
by any Governmental Entity concerning Seller's or Company's past performance on
a Government Contract. No payment has been made by Seller or Company (or, to the
extent that the same might result in any liability on the part of Seller or
Company, by any person on behalf of Seller or Company) in connection with any
Government Contract in violation of applicable procurement laws or regulations
or in violation of, or requiring disclosure pursuant to, the Foreign Corrupt
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Practices Act. Seller's and Company's cost accounting and procurement systems
and the associated entries reflected in Seller's and Company's financial
statements with respect to the Government Contracts are in compliance in all
material respects with all Laws.
(e) All material test and inspection results provided by
Seller or Company to the U.S. Government pursuant to any Government Contract or
to any other Person pursuant to a Government Contract or as a part of the
delivery to the U.S. Government or to any other Person pursuant to a Government
Contract of any article designed, engineered or manufactured in the Business
were complete and correct in all material respects as of the date so provided.
Seller or Company has provided all material test and inspection results to the
U.S. Government or to any other Person pursuant to a Government Contract as
required by Law and the terms of the Government Contracts.
2.24 Backlog.
Schedule 2.24 sets forth a list and brief summaries of
Contracts constituting the customer backlog of the Business as of June 27, 1997.
Buyer understands and acknowledges that such Contracts may be cancelled at the
option of the applicable customer.
2.25 Clearances.
Except to the extent disclosure is prohibited by the
Industrial Security Manual, Schedule 2.25 sets forth listings (including an
indication of the type of clearance) of all facility security clearances held by
Seller (with respect to the Business) and Company and all personnel security
clearances held by any officer, director, employee, consultant or agent of
Seller (with respect to the Business) or Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents, warrants and agrees as follows:
3.1 Organization and Related Matters.
Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Buyer has all necessary
corporate power and authority to execute, deliver and perform this Agreement and
any related agreements to which it is a party.
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3.2 Authorization.
The execution, delivery and performance of this Agreement and
any related agreements by Buyer has been duly and validly authorized by the
Board of Directors of Buyer and by all other necessary corporate action on the
part of Buyer. This Agreement and any related agreements constitute the legally
valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its terms except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws and equitable
principles relating to or limiting creditors' rights generally.
3.3 No Conflicts.
The execution, delivery and performance of this Agreement and
any related agreements by Buyer will not violate or constitute a breach or
default (whether upon lapse of time and/or the occurrence of any act or event or
otherwise) under the charter documents or bylaws of Buyer, violate or constitute
a material breach or default (whether upon lapse of time and/or the occurrence
of any act or event or otherwise) under any Contract to which Buyer is a party
that is material to the financial condition, results of operations or conduct of
the business of Buyer or violate any Law. Except for matters identified in
Schedule 3.3 as requiring that certain actions be taken by or with respect to a
third party or Governmental Entity, the execution and delivery of this Agreement
by Buyer and the performance of this Agreement and any related or contemplated
transactions by Buyer will not require filing or registration with, or the
issuance of any Permit by, any other third party or Governmental Entity.
3.4 No Brokers or Finders.
No agent, broker, finder, or investment or commercial banker,
or other Person or firm engaged by or acting on behalf of Buyer or any of its
Affiliates in connection with the negotiation, execution or performance of this
Agreement or the transactions contemplated by this Agreement, is or will be
entitled to any brokerage or finder's or similar fee or other commission as a
result of this Agreement or such transactions.
3.5 Legal Proceedings.
There is no Order or Action pending or, to the best knowledge
of Buyer, threatened against or affecting Buyer, its Affiliates or any of their
properties or assets that individually or when aggregated with one or more other
Actions has or might reasonably be expected to have a
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material adverse effect on Buyer's ability to perform this Agreement, or on any
aspect of the transactions contemplated by this Agreement.
3.6 Investment Representation.
Buyer is acquiring the Stock from Seller for Buyer's own
account, for investment purposes only and not with a view to or for sale in
connection with any distribution thereof.
ARTICLE IV
COVENANTS WITH RESPECT TO CONDUCT OF COMPANY
PRIOR TO CLOSING
4.1 Access.
Subject to specific restrictions imposed upon Seller and
Company by Law or Contract to which either of them is a party and to the
execution and delivery by each of the representatives of Buyer referred to below
of a confidentiality agreement on substantially the same terms as set forth in
that certain Confidentiality Agreement dated April 30, 1997 by and between Buyer
and Seller, Seller and Company shall authorize and permit Buyer and its
representatives (which term shall be deemed to include its independent
accountants and counsel and representatives of prospective financing
institutions of Buyer) to have reasonable access during normal business hours,
upon reasonable notice and in such manner as will not unreasonably interfere
with the conduct of their respective businesses, to all of their respective
properties, books, records, operating instructions and procedures, Tax Returns,
and all other information with respect to the Business as Buyer may from time to
time request, and to make such reasonable numbers of copies of such books,
records and other documents and to discuss their respective businesses with such
other Persons, including, without limitation, the directors, officers,
employees, accountants, counsel, suppliers, customers, and creditors of Seller
(with respect to the Business) and Company, as are reasonably necessary or
appropriate for the purposes of familiarizing them with the Business and
obtaining any necessary Approvals of or Permits for the transactions
contemplated by this Agreement. Without limiting the generality of the
foregoing, Buyer shall be entitled to (a) conduct or cause to be conducted
without the consent of Seller or Company, an environmental compliance audit of
the Business and, respect to any interest in real property held by Seller (with
respect to the Business) or Company, a non-invasive environmental audit
consisting of a "phase 1" environmental study, (b) conduct or cause to be
conducted subject to the prior written
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consent of Seller or Company (which consent shall not be unreasonably withheld)
with respect to any interest in real property held by Seller (with respect to
the Business) or Company such other environmental investigations or studies as
Buyer may desire and (c) review, as soon as available, copies of all reports,
renewals, filings, certificates, statements and other documents received by
Seller (with respect to the Business) or Company from any Governmental Entity.
4.2 Material Adverse Changes; Reports; Financial
Statements.
Seller will promptly notify Buyer of any event of which Seller
obtains knowledge which has had or might reasonably be expected to have a
material adverse effect on the Business or which if known as of the date hereof
would have been required to be disclosed to Buyer.
4.3 Conduct of Business.
Seller and Company agree with and for the benefit of Buyer
that none of (i) Seller, as to matters relating to Taxes or Tax Returns, to the
extent that the activities of Seller with respect to the Business are not
severable from Seller's other activities, (ii) Seller (other than with respect
to matters relating to Taxes or Tax Returns) with respect to the Business and
(iii) Company shall, without the prior written consent of Buyer:
(a) conduct the Business in any manner except in the ordinary
course consistent with past practice;
(b) amend, terminate, fail to renew or renegotiate any
Material Contract or default (or take or omit to take any action that,
with or without the giving of notice or passage of time, would
constitute a default) in any of its obligations under any Material
Contract or enter into any new Material Contract or take any action
that would jeopardize the continuance of its material supplier or
customer relationships;
(c) terminate, amend or fail to renew any existing insurance
coverage under which the Business is or the Products are insured;
(d) terminate or fail to renew or preserve any Permits used
in or necessary for the operation of the Business;
(e) incur or agree to incur any obligation or liability
(absolute or contingent) that is an Assumed Liability and that
individually calls for payment by
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Seller or Company of more than $250,000 in the aggregate;
(f) make any loan, guaranty or other extension of credit, or
enter into any commitment to make any loan, guaranty or other
extension of credit, to or for the benefit of any director, officer,
employee or stockholder of Company or Seller or any of their
respective Associates or Affiliates;
(g) grant any general or uniform increase in the rates of
pay or benefits to officers, directors or employees (or a class
thereof) or any material increase in salary or benefits of any
officer, director, employee or agent of the Business or, other than
pursuant to the Retention Plan, pay any bonuses in excess of $5,000 in
the aggregate to any individual employee of the Business, or enter
into any new employment, collective bargaining or severance agreement
in which employees of the Business participate;
(h) sell, transfer, mortgage, encumber or otherwise dispose
of any assets or any liabilities, except for dispositions of property
not material in amount;
(i) issue, sell, redeem or acquire for value, or agree to do
so, any debt obligations or Equity Securities of Company;
(j) declare, issue, make or pay any dividend or other
distribution of assets, whether consisting of money, other personal
property, real property or other thing of value, to its shareholders,
or split, combine, dividend, distribute or reclassify any shares of its
Equity Securities;
(k) change or amend its charter documents or bylaws;
(l) make any capital expenditures or commitments with
respect thereto in excess of $200,000 individually or $500,000 in the
aggregate;
(m) make special or extraordinary payments to any person;
(n) make any material investment, by purchase, contributions
to capital, property transfers, or otherwise, in any other Person;
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(o) dispose of or permit to lapse any rights to the use of
any Intangible Property or dispose of or disclose any Intangible
Property not a matter of public knowledge;
(p) directly or indirectly terminate or reduce or commit to
terminate or reduce any bank line of credit or the availability of any
funds under any other agreement or understanding, other than through
the use thereof in the ordinary course;
(q) compromise or otherwise settle any claims, or adjust any
assertion or claim of a deficiency in Taxes (or interest thereon or
penalties in connection therewith), or file any appeal from an asserted
deficiency, except in a form previously approved by Buyer in writing,
or file or amend any Tax Return, in any case before furnishing a copy
to Buyer and affording Buyer an opportunity to consult with respect
thereto;
(r) make any Tax election or make any change in any method or
period of accounting or in any accounting policy, practice or
procedure;
(s) introduce any new method of management or operation in
respect of the Business;
(t) deviate from past practice in the ordinary course with
respect to maintenance of Inventory; or
(u) agree to or make any commitment to take any actions
prohibited by this Section 4.3.
4.4 Notification of Certain Matters.
Seller shall give prompt notice to Buyer, and Buyer shall give
prompt notice to Seller, of (i) the occurrence, or failure to occur, of any
event that would be likely to cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect at any time
from the date of this Agreement to the Closing Date and (ii) any failure of
Buyer or Seller, as the case may be, to comply with or satisfy, in any material
respect, any covenant, condition or agreement to be complied with or satisfied
by it under this Agreement. No such notification shall affect the
representations or warranties of the parties or the conditions to their
respective obligations hereunder.
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4.5 Permits and Approvals.
(a) Seller and Buyer each agree to cooperate and use their
best efforts to obtain (and will immediately prepare all registrations, filings
and applications, requests and notices preliminary to all) Approvals and Permits
that may be necessary or which may be reasonably requested by Buyer to
consummate the transactions contemplated by this Agreement.
(b) To the extent that the Approval of a third party with
respect to any Material Contract is required in connection with the transactions
contemplated by this Agreement, Seller shall use its best efforts to obtain such
Approval prior to the Closing Date and in the event that any such Approval is
not obtained (but without limitation on Buyer's rights under Section 6.2(d)),
Seller shall cooperate with Buyer to ensure that Buyer obtains the benefits of
each such Material Contract. In addition, Seller shall indemnify and hold
harmless Buyer and Company for and against any and all Losses as a result,
directly or indirectly, of the failure to obtain any such Approval except for
any Losses resulting from the failure to obtain any Government Contract Novation
that is not obtained solely because of the nature, character or actions of Buyer
or any of its Affiliates. Seller agrees to pay and be responsible for any cost
or expense that may be required in order to assign to Company or permit Company
following the Closing to use Seller's Oracle product database, including, but
not limited to, any cost or expense incurred in connection with obtaining any
necessary Approval and/or any additional license fees.
4.6 Preservation of Business Prior to Closing Date.
During the period beginning on the date hereof and ending on
the Closing Date, (a) Seller will use its best efforts to preserve the Business
and to preserve the goodwill of customers, suppliers and others having business
relations with Seller (with respect to the Business) and Company and (b) Seller
and Buyer will consult with each other concerning, and Seller will cooperate
with Buyer and use Seller's best efforts to keep available to Buyer the services
of the officers and employees of Seller (with respect to the Business) and
Company that Buyer may wish to have Company retain. Nothing in this Section 4.6
shall obligate Buyer or Company after the Closing to retain or offer employment
to any officer or employee of Company.
4.7 Government Filings.
Each of Seller and its Affiliates and Buyer and its
Affiliates will make any and all filings required in
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connection with the consummation of the transactions contemplated hereby under
the Hart-Scott-Rodino Act not later than 5 business days after the date hereof.
Each of Seller and its Affiliates and Buyer and its Affiliates will make any and
all filings required in connection with the consummation of the transactions
contemplated hereby under any and all other applicable Laws. Seller and Buyer
shall furnish each other such necessary information and reasonable assistance as
the other may reasonably request in connection with its preparation of necessary
filings or submissions under the provisions of such Laws. Seller and Buyer will
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 transactions contemplated by this Agreement and any related or contemplated
or inconsistent transactions, except for documents filed pursuant to Item 4(c)
of the Hart-Scott Rodino Notification and Report Form or communications
regarding the same.
4.8 Elimination of Intercompany and Affiliate
Liabilities.
Prior to the Closing Date, Seller shall purchase, cause to be
repaid or (with respect to guarantees) assume liability for (i) any and all
loans or other extensions of credit made or guaranteed by Company to or for the
benefit of any director, officer, or employee of Seller or Company, or any of
their Associates (except for the $85,000 in loans to employees of the Business
that are Purchased Assets) and (ii) any and all loans, guarantees or other
extensions of credit of any amount made to or for the benefit of Seller or any
Affiliate of Seller. At the Closing Date, neither Buyer nor Company shall have
any continuing commitment, obligation or liability of any kind with respect to
the persons referred to in subsections (i) and (ii) above. Seller agrees to
indemnify Buyer and Company for any Losses with respect to any such commitment,
obligation or liability not fully assumed or discharged as contemplated.
4.9 Inconsistent Agreements.
Seller and Company will not, either directly or indirectly,
initiate, solicit or encourage and will use its best efforts to cause all of
their respective directors, officers, employees and agents not to initiate,
solicit or encourage any inquiry, offer or proposal with respect to, or furnish
any information relating to, or participate in any negotiations or discussions
concerning, or enter into any agreement contemplating or providing for, any
acquisition, merger, tender or exchange offer or other form of business
combination, or any acquisition or disposition of all or any
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substantial part of the assets or the stock or other securities of Company or
the Business.
4.10 Contribution.
On or prior to the Closing, Seller will cause the Contribution
to be consummated without cost or obligation on the part of Company pursuant to
documentation and procedures reasonably satisfactory to Buyer and its counsel.
4.11 Provisions Respecting Government Contracts.
(a) This Section 4.11 sets forth the procedures that the
parties will use with respect to the assignment or change in control of all
Government Contracts and any claim, right or benefit arising thereunder or
resulting therefrom. Buyer, Seller and Company acknowledge and agree that
neither obtaining Government Contract Novations nor the written confirmations
referred to in Section 4.11(b) from Governmental Entities that such Government
Contract Novations are not required that are necessary to consummate the
transactions contemplated hereby (including, but not limited to, the
Contribution) will be a condition to the obligations of any of them to effect
the Closing.
(b) With respect to any Government Contract or any claim,
right and benefit arising thereunder or resulting therefrom, Seller, Company and
Buyer will use their best efforts to obtain the written consent of the other
parties to such Government Contract for the assignment or novation thereof to
Company and/or to the change in control of Company pursuant hereto, or written
confirmation from such parties reasonably satisfactory in form and substance to
Buyer that such consent is not required. As soon as practicable following the
date hereof, (i) with respect to each Prime Government Contract to which Seller
is a party, Seller shall either obtain written confirmation reasonably
satisfactory in form and substance to Buyer that novation of such Government
Contract is not required or submit to the relevant Responsible Contracting
Officer a written request that the U.S. Government enter into a Government
Contract Novation with Buyer with respect to such Prime Government Contract; and
(ii) with respect to each Government Contract that is not a Prime Government
Contract, Seller shall submit to the parties thereto documentation reasonably
satisfactory in form and substance to Buyer and Seller shall seek the written
waiver or approval of the other contracting party or parties thereto to the
transfer and assignment of all of Seller's claims, rights, benefits and
liabilities thereunder to Company at the Closing. In this regard, Seller,
Company and Buyer shall take all actions required or customary under the Federal
Acquisition Regulation (as supplemented by any individual agency regulation) and
Seller shall continue to
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participate fully in, and cooperate fully with, such efforts following the
Closing Date. Except as provided in the immediately preceding sentence, in no
event shall Seller, Company or Buyer be obligated to pay any money to the U.S.
Government or any other Person or to offer or grant other financial or other
accommodations to the U.S. Government or any other Person in connection with
obtaining any Government Contract Novation or any such consent or waiver.
(c) If such novation, consent, waiver or confirmation is not
obtained with respect to any such Government Contract, Seller, Company and Buyer
will cooperate in an arrangement reasonably satisfactory to Buyer and Seller
under which Company or Buyer would obtain, to the extent practicable, the
claims, rights and benefits and assume the corresponding obligations thereunder
in accordance with this Agreement, including subcontracting, sub-licensing or
sub-leasing to Company, or under which Seller would enforce for the benefit of
Company, with Company assuming Seller's obligations, any and all claims, rights
and benefits of Seller against a third party thereto. Seller will promptly pay
to Company when received all monies received by Seller in connection with any
such arrangement.
(d) No instrument that any Governmental Entity requires
Seller, Company or Buyer to execute in connection with any novation or
assignment contemplated by this Section 4.11 (including, without limitation, a
novation agreement as contemplated by Federal Acquisition Regulation 42.1204)
shall alter the provisions of this Agreement concerning the allocation of assets
and liabilities between Buyer, Company and Seller. As to any liability allocated
by the provisions of this Agreement to Seller, Seller shall indemnify Company
and Buyer against, and hold Company and Buyer harmless from any claims by any
Governmental Entity against Company or Buyer for satisfaction of such
liabilities pursuant to any such novation instrument. As to any liability
allocated by the provisions of this Agreement to Company or Buyer, Company and
Buyer shall indemnify Seller against, and hold Seller harmless from, any claims
by any Governmental Entity against Seller for satisfaction of such liabilities
pursuant to such novation instrument.
4.12 Certain Material Contracts. To the extent that Seller and
Company have not made available to Buyer copies of any Material Contracts
because disclosure thereof is prohibited by the terms thereof or by Law, Seller
and Company shall, as promptly as practicable after the date hereof, seek and
use their respective best efforts to procure all such consents, authorizations
and approvals as may be necessary to obtain a waiver or amendment of such
prohibition such that copies of all such Material Contracts may be made
available to Buyer (or representatives of Buyer
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holding necessary security clearances) for review, and shall promptly advise
Buyer upon receipt of any such consent, authorization or approval. Buyer shall
use Buyer's best efforts to review each Material Contract provided pursuant to
this Section 4.12 as promptly as practicable after the provision thereof to
Buyer.
4.13 Customers and Suppliers. Seller and Company shall, as
promptly as practicable after the date hereof, seek and use their respective
best efforts to arrange such meetings and telephone conferences with all
material customers and suppliers of the Business (including, but not limited to,
all customers and suppliers listed on Schedule 2.21) as may be necessary and
appropriate for Buyer to conduct a comprehensive review of Seller's and
Company's relations with customers and suppliers of the Business.
4.14 Backlog.
On the Closing Date, Seller shall deliver to Buyer a list of
Contracts constituting the customer backlog of the Business as of the most
recent practicable date prior to the Closing Date, which list shall be true,
correct and complete.
ARTICLE V
ADDITIONAL CONTINUING COVENANTS
5.1 Noncompetition.
(a) Restrictions on Competitive Activities. Seller agrees
that after the Closing Buyer and Company shall be entitled to the goodwill and
going concern value of the Business and to protect and preserve the same to the
maximum extent permitted by law. Seller also acknowledges that its management
contributions to the Business have been uniquely valuable and involve
proprietary information that would be competitively unfair to make available to
any competitor of Company. For these and other reasons and as an inducement to
Buyer to enter into this Agreement, Seller agrees that for a period of four
years after the date hereof neither Seller nor any of its Affiliates will,
directly or indirectly, for its own benefit or as agent for another carry on or
participate in the ownership, management or control of, or the financing of, or
be employed by, or consult for or otherwise render services to, or allow its
name or reputation to be used in or by any other present or future business
enterprise in the defense (except for (i) intelligence systems that are
manufactured by Seller's Telecommunications Group in Gaithersburg, Maryland and
are designed to monitor or intercept communication signals, (ii) products for
the telecommunications market currently
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manufactured or in development by Watkins-Johnson including, but not limited to,
cellular and PCS base station subsystems, wireless local loop customer premise
equipment, repeater subsystems for point to multi-point and medium power
amplifiers and (iii) as an outside GaAs foundry for third parties) or space
industry or that otherwise competes with the Products or the Business in each
state of the United States and in each foreign jurisdiction in which the
Business is conducted or the Products are sold as of the Closing Date.
(b) Restrictions on Buyer's Competitive Activities.
Buyer recognizes that the parties will share the use of
certain Intangible Property after Closing. Buyer also recognizes that Seller has
developed proprietary designs for products for the telecommunications market
that are not included in the Contribution but which may be known to Company's
employees. For these and other reasons, and as an inducement to Seller to enter
into this Agreement, Buyer agrees that for a period of four years, Buyer and its
Affiliates shall not (i) manufacture Gallium Arsenide parts for third parties;
(ii) disclose to third parties confidential process and design rule information
related to the manufacture of Gallium Arsenide parts except as necessary for the
manufacture of parts solely for Buyer and its Affiliates; and (iii) manufacture
for the telecommunications market products that duplicate in whole or with minor
modifications the proprietary designs of products currently manufactured or in
development by Watkins-Johnson including, but not limited to, cellular and PCS
base station subsystems, wireless local loop customer premise equipment,
repeater subsystems for point to multi-point and medium power amplifiers.
(c) Exceptions. Nothing contained herein shall limit the
right of Buyer or Seller as an investor to hold and make investments in
securities of any corporation or limited partnership that is registered on a
national securities exchange or admitted to trading privileges thereon or
actively traded on NASDAQ or in a generally recognized over-the-counter market,
provided that Buyer's or Seller's, as the case may be, equity interest therein
does not exceed 5% of the outstanding shares or interests in such corporation or
partnership.
(d) Restrictions on Soliciting Employees. In addition, to
protect Buyer against any efforts by Seller to cause employees of Company to
terminate their employment, Seller agrees that for a period of four years
following the Closing Date, Seller will not directly or indirectly (i) induce
any employee of Company to leave Company or to
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accept any other employment or position, or (ii) assist any other entity in
hiring any such employee. Buyer agrees that for a period of four years following
the Closing Date, Neither Buyer nor Company will directly or indirectly (i)
induce any employee of Seller to leave Seller or to accept any other employment
or position, or (ii) assist any other entity in hiring any such employee.
(e) Special Remedies and Enforcement. Buyer and Seller
recognize and agree that a breach by the other of them of any of the covenants
set forth in Sections 5.1(a), (b) or (d) could cause irreparable harm, that
remedies at law in the event of such breach would be inadequate, and that,
accordingly, in the event of such breach a restraining order or injunction or
both may be issued against the other party, in addition to any other rights and
remedies which are available. If either of Sections 5.1(a), (b) or (d) is more
restrictive than permitted by the Laws of the jurisdiction in which enforcement
thereof is sought, such Sections shall be limited to the extent required to
permit enforcement under such Laws. Without limiting the generality of the
foregoing, the parties intend that the covenants contained in Sections 5.1(a),
(b) and (d) shall be construed as a series of separate covenants, one for each
state or jurisdiction referred to therein. Except for geographic coverage, each
such separate covenant shall be deemed identical in terms. If, in any judicial
proceeding, a court shall refuse to enforce any of the separate covenants deemed
included in this Section 5.1, then such unenforceable covenant shall be deemed
eliminated from these provisions for the purpose of
those proceedings to the extent necessary to permit the remaining separate
covenants to be enforced.
5.2 Nondisclosure of Proprietary Data.
After the Closing, neither Seller nor any of its
representatives shall, at any time, make use of, divulge or otherwise disclose,
directly or indirectly, any Intangible Property or other proprietary data
(including, but not limited to, any customer list, record or financial
information) concerning the business or policies of Company that Seller or any
representative of Seller may have learned as a shareholder, employee, officer or
director of Company. In addition, neither Seller nor any of its representatives
shall make use of, divulge or otherwise disclose, directly or indirectly, to
persons other than Buyer, any confidential information concerning the business
or policies of Company and which may have been learned in any such capacity.
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5.3 Certain Tax Matters.
(a) Any Tax sharing agreement between Seller and Company
shall be terminated as of the Closing Date and shall have no further effect for
any taxable year (whether the current year, a future year, or a past year).
(b) Seller and Buyer will join in making an election under
Section 338(h)(10) of the Code (and any corresponding elections under state,
local, or foreign tax law) (collectively a "Section 338(h)(10) Election") with
respect to the purchase and sale of the Stock. Seller will pay any Tax
attributable to the making of the Section 338(h)(10) Election and will indemnify
Buyer, Company, and their subsidiaries against any Losses or Taxes arising out
of any failure to pay such Tax. Seller will also pay any state, local, or
foreign Tax (and indemnify Buyer, Company, and their subsidiaries against any
Losses or Taxes arising out of any failure to pay such Tax) attributable to an
election under state, local, or foreign law similar to the election under
Section 338(g) of the Code (or which results from the making of an election
under Section 338(g) of the Code) with respect to the purchase and sale of the
Stock. In connection with any such election, Buyer shall propose, and Seller
shall consent, such consent not to be unreasonably withheld, to an allocation of
the Total Purchase Price amongst the Purchased Assets, including, but not
limited to, intangibles.
(c) Any Taxes for a period including a Pre-Closing Partial
Period and a Post-Closing Partial Period shall be apportioned between such
Pre-Closing Partial Period and such Post-Closing Partial Period, based, in the
case of real and personal property Taxes, on a per diem basis and, in the case
of other Taxes, on the actual activities, taxable income or taxable loss of
Company during such Pre-Closing Partial Period and such Post-Closing Partial
Period.
(d) Seller shall include Company in the consolidated Federal
income tax return filed by Seller for the period ending on or prior to the
Closing Date. Seller shall prepare books and working papers (including a closing
of the books) which will clearly demonstrate the income and activities of
Company for the period ending on the Closing Date and any Pre-Closing Partial
Period. It is Buyer's present intention to include Company in the consolidated
Federal Income tax returns filed by Buyer with respect to the 12 month period
beginning after the Closing Date (to the extent that Company qualifies to be so
included); provided, however, that the representations and warranties set forth
in this sentence shall be deemed not to have been breached or inaccurate in the
event that Buyer shall not so include Company in its consolidated Federal Income
Tax returns
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because of any independent business reason of Buyer therefor.
(e) After the Closing, Seller shall, and shall cause its
respective Subsidiaries, Affiliates, and agents (including the Auditors) to,
cooperate fully with Buyer and Company in the preparation of all Tax Returns
required to be filed by Buyer or Company and shall provide, or cause to be
provided at Seller's sole cost and expense, to Buyer and Company any records and
other information requested by such parties in connection therewith. Seller
shall, and shall cause its Affiliates to, cooperate fully with Buyer and Company
in connection with any Tax investigation, audit or other proceeding. Buyer
shall, at its expense, furnish or cause to be provided to Seller, upon request,
records and other information relating to Company as is reasonably necessary for
the preparation of all Tax Returns required to be filed by Seller, Tax
investigations, audits or other proceedings.
5.4 Corporate Name Change; Trademark License Agreement.
Within five days after the Closing Date, Buyer shall cause
Company to amend Company's articles of incorporation to cause Company's
corporate name to be changed to a name that does not include "W-J" or any other
name or abbreviation that might be confused with "W-J" or "Watkins-Johnson" or
reflect sponsorship or endorsement by Seller. On or prior to the Closing, Buyer,
Seller and Company shall enter into the Trademark License Agreement.
5.5 Post-Closing Cooperation Generally.
The parties acknowledge and agree that the Ancillary
Agreements are intended to express their specific understandings with respect to
certain accommodations necessary to effect the orderly separation and the
successful ongoing operation of the Business and the Retained Businesses
following the Closing on mutually acceptable terms. The parties further agree
that they will in general cooperate in good faith in such other ways as may be
necessary or appropriate to effect such an orderly separation and the successful
ongoing operation of the Business and the Retained Businesses following the
Closing, including perfection and enforcement of rights relating to Intangible
Property.
5.6 Refund Claims and Warranty Claims.
Certain of the Customer Contracts grant or will grant the
customer or another Person a right to reduce the contract price or receive a
refund. Such claims by
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customers and other Persons under Contracts that constitute or include the
Customer Contracts are referred to in this Agreement as "Refund Claims." Certain
of the Customer Contracts also confer warranty and similar rights on customers
or other Persons. Such claims under such rights are referred to in this
Agreement as "Warranty Claims." From and after the Closing, (a) Seller shall
have full responsibility for all refund, warranty, product liability and other
claims (i) under all Customer Contracts that were or are completed before the
Closing and (ii) with respect to all Products shipped by Seller or Company
before the Closing and (b) Buyer and Company shall have full responsibility for
all refund, warranty, product liability and other claims (i) under all Customer
Contracts entered into by Buyer or Company after the Closing and (ii) with
respect to all Products shipped by Buyer or Company after the Closing.
5.7 Warranty Work.
Buyer and Company shall perform (subject to Seller's consent
as described below) as Seller's contractor, all warranty work necessary to
satisfy all valid and legally-binding Warranty Claims for which Seller is
responsible pursuant to Section 5.6 ("Warranty Work"). However, before beginning
any Warranty Work, Buyer or Company shall notify Seller of the nature and scope
of the Warranty Claim and obtain Seller's prior written consent to perform the
Warranty Work. Seller's consent shall not be unreasonably withheld. If Seller
grants that consent, Buyer and Company shall perform the Warranty Work. Seller
shall bear the costs of that Warranty Work. The principles set forth on Schedule
5.7 shall be used to calculate the costs of Warranty Work. Seller shall be given
reasonable access to Buyer's and Company's relevant records and personnel to
enable Seller to verify such costs. Buyer and Company shall perform the Warranty
Work competently and in a timely manner and shall bear full responsibility for
any defects or claimed defects in any Warranty Work. Following the Closing,
Buyer and Company shall in general respond to and deal with customers bringing
any Warranty Claims for which Seller is responsible pursuant to Section 5.6 in a
manner consistent with the practices of Seller (with respect to the Business)
and Company with respect thereto prior to the Closing.
5.8 Change Orders.
Notwithstanding Sections 5.6 and 5.7, if Buyer or Company
authorizes any change orders or amendments to any Contract that affect the
obligations of Buyer, Company or Seller under that Contract, Seller shall not be
required to participate in or bear any cost respecting any Refund Claim
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or Warranty Claim connected with that change order or amendment.
5.9 Cooperation re: Refund Claims and Warranty Claims.
Following the Closing, Seller and Company shall cooperate in
good faith in responding to and discharging all Refund Claims and Warranty
Claims.
5.10 Prorations; Cooperation re: Collection of
Receivables.
(a) Seller is retaining the receivables and payables accrued
by Company or the Business before or as of the Closing. Accordingly, receivables
derived from Customer Contracts performed in part before the Closing and
performed in part after the Closing, as well as the expenses of performing those
Contracts and operating the Business, shall be prorated as of the close of
business on the Closing Date between Seller, on one hand, and Buyer and Company,
on the other hand. In the case of receivables derived from such Customer
Contracts and the direct expenses of performing those Contracts, the prorations
shall be based on the principles set forth on Schedule 5.10. The operating
expenses of the Business (for example, utilities, rent and employee costs) shall
be prorated based on the number of days elapsed during the relevant billing,
payment or other period that includes the Closing Date, unless proration on that
basis would be manifestly unfair. An example of manifest unfairness would be if
a water pipe broke on the premises to be subleased by Company under the Sublease
Agreements two days before the Closing and resulted in charges payable to the
water utility company for two million gallons of water during the period that
includes the Closing Date. Under that circumstance, Seller would pay those
incremental charges.
(b) Following the Closing, Seller and Company shall
cooperate in good faith to administer the collection of receivables of Company
or the Business, and shall each apply the same policies and procedures with
respect to the collection of receivables of Company or the Business, in each
instance whether accrued by Company or the Business prior to or subsequent to
the Closing. Seller and Company agree that to the extent that any payment is
received from a customer that is designated as being a payment in respect of any
particular invoice or shipment, such payment shall be applied to the payment or
shipment so designated by the customer. In the absence of any such designation,
any payments received from customers shall be applied against outstanding
receivables in the order originally invoiced.
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5.11 Post-Closing Status of Company.
Buyer covenants that during the 12 months after the Closing
(a) neither Buyer nor any other entity other than Company shall conduct the
Business and (b) Company shall not be merged into Buyer or liquidated; provided,
however, that the covenant set forth in this Section 5.11 shall be deemed not to
have been breached in the event that at any time during the 12 months after the
Closing Buyer or any other entity other than Company shall conduct the Business
or Company shall be merged into Buyer or liquidated because of any compelling
business reason (which shall include, but not be limited to, a restructuring in
order to accomplish any acquisition or refinancing) of Buyer therefor.
5.12 Employment of Employees of the Business.
(a) Subject to the provisions of Section 9.9, Buyer
shall, during the period between the date hereof and the Closing Date, determine
those employees of the Business to whom Company will offer employment as of the
Closing. Notwithstanding the foregoing, Company shall not be required to hire
any employee or continue the employment of any hired employee for any length of
time following the Closing. Seller shall, on or prior to the Closing, implement
any and all amendments to Seller's severance benefit plans and arrangements as
may be necessary such that any employee hired by Company as of the Closing Date
will not be entitled to any benefits thereunder as a result of the consummation
of the transactions contemplated by this Agreement or as a result of any
termination of employment of any such employee by Company after the Closing.
(b) (i) The Investment Plan is maintained pursuant to
Section 401(k) of the Code. Seller is obligated to match contributions to the
Investment Plan on a one-for-one basis with respect to the first 2% of
compensation contributed and a one-for-two basis with respect to the next 2% of
compensation contributed by an employee to the Investment Plan, with such
contributions made each pay period. All contributions to the Investment Plan due
to date have been made, and all contributions due through the Closing Date shall
be made by Seller.
(ii) Prior to the Closing, Seller and
Company shall take such actions as may be necessary or appropriate to terminate
the participation of the employees who are transferring to Company in the
Investment Plan and to cause the Investment Plan's assets attributable to such
employees to be held for or distributed to or for the benefit of such employees
as soon as it is administratively feasible after the Closing. The obligation to
hold or
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distribute the assets attributable to the employees referred to in the preceding
sentence may, if agreed to by the parties, be satisfied by a plan-to-plan
transfer from the Investment Plan to an appropriate plan covering the employees
designated by Buyer. If the parties do not agree on a plan-to-plan transfer,
then Seller shall cause such obligation shall be satisfied by causing the
Investment Plan to make available to each employee a distribution of his or her
entire account balance as soon as administratively feasible after the Closing.
(iii) The ESOP is an "employee stock
ownership plan" as defined in Section 4975(e)(7) of the Code. Seller has
contributed 1% of the compensation of each employee employed at year end to the
ESOP. All contributions to the ESOP due to date have been made, and all
contributions due through the Closing Date shall be made by Seller.
(iv) Prior to the Closing, Seller and
Company shall take such actions as may be necessary or appropriate to terminate
the participation of the employees who are transferring to Company in the ESOP
and to cause the ESOP's assets attributable to such employees to be held for or
distributed to or for the benefit of such employees as soon as it is
administratively feasible after the Closing. The obligation to hold or
distribute the assets attributable to the employees referred to in the preceding
sentence may, if agreed to by the parties, be satisfied by a plan-to-plan
transfer from the ESOP to an appropriate plan covering the employees designated
by Buyer. If the parties do not agree on a plan-to-plan transfer, then Seller
shall cause such obligation shall be satisfied by causing the ESOP to make
available to each employee a distribution of his or her entire account balance
as soon as administratively feasible after the Closing.
(v) Following Seller's satisfaction of the
obligations set forth herein with respect to the ESOP, no further contributions
will be due from Seller with respect to the ESOP or the Investment Plan.
(c) Buyer shall cause Company to provide group health plan
coverage effective as of the Closing Date to the Employees who were covered
under a group health plan of Seller immediately prior to the Closing. Neither
Buyer, Company nor any plan or plans they sponsor shall have any obligation with
respect to health plan claims of the employees incurred prior to the Closing,
even if such claims are not presented until after the Closing. Seller shall
insure that its group health plans provide coverage to pay health plan claims
incurred by Employees before the Closing according to the terms of Seller's
group health plans.
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(d) Buyer may cause Company to provide salary reduction health
and/or dependent care flexible spending plans to the Employees effective as of
the Closing. If Buyer does so, then (1) Buyer shall credit each Employee with
any unused health and flexible spending account balance as exists for such
Employee as of the Closing Date (treating any employee with a negative account
balance as having a zero account balance), and (2) Seller shall, within five
business days of the Closing Date, pay Company the aggregate amount of such
unused flexible spending account balances (treating any employee with a negative
account balance as having a zero account balance).
(e) Seller shall remain responsible for any worker's
compensation, long term disability and short term disability claims relating to
occurrences arising before the Closing, even if such claims are not presented
until after the Closing.
ARTICLE VI
CONDITIONS OF PURCHASE
6.1 General Conditions.
The obligations of the parties to effect the Closing shall be
subject to the following conditions:
(a) No Orders; Legal Proceedings. No Law or Order shall have
been enacted, entered, issued, promulgated or enforced by any
Governmental Entity, nor shall any Action have been instituted and
remain pending by any Governmental Entity at what would otherwise be
the Closing Date, which prohibits or restricts or would (if successful)
prohibit or restrict the transactions contemplated by this Agreement or
(with respect to obligations of Buyer only) which would not permit the
Business as presently conducted to continue unimpaired following the
Closing Date.
(b) Approvals. To the extent required by applicable Law, all
Permits and Approvals required to be obtained from any Governmental
Entity (other than Government Contract Novations) shall have been
received or obtained on or prior to the Closing Date and any applicable
waiting period under the Hart-Scott-Rodino Act shall have expired or
been terminated.
6.2 Conditions to Obligations of Buyer.
The obligations of Buyer to effect the Closing shall be
subject to the following conditions except to the extent waived in writing by
Buyer:
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(a) Representations and Warranties and Covenants of Seller
and Company. The representations and warranties of Seller and Company herein
contained shall be true in all material respects (provided, however, that where
a representation or warranty is already qualified by materiality, such
materiality qualifier shall be
disregarded for purposes of this condition) at the Closing Date with
the same effect as though made at such time; Seller and Company shall
have in all material respects performed all obligations and complied
with all covenants and conditions required by this Agreement to be
performed or complied with by them at or prior to the Closing Date,
and Seller and Company shall have delivered to Buyer certificates in
form and substance satisfactory to Buyer dated the Closing Date and
signed by their respective Chief Executive Officers and Chief
Financial Officers to such effect.
(b) No Material Adverse Change. There shall not have been
any material adverse change in or affecting the Business subsequent to
the date hereof.
(c) Opinion of Counsel. Buyer shall have received at the
Closing from Heller Ehrman White & McAuliffe, counsel to Seller and
Company, a favorable opinion dated the Closing Date covering the
matters set forth in Exhibit G.
(d) Third-Party Consents. Seller and Company shall have
obtained all Approvals and Permits listed on Schedule 6.2(d), each in
form and substance reasonably satisfactory to Buyer.
(e) Resignation of Directors and Certain Officers and
Employees. Each director and those officers and employees of Company
specified by Buyer by written notice to Seller not less than 5 days
prior to the Closing Date shall have submitted their resignations in
writing to Company (such resignations of officers and directors (in
such capacity) to be effective as of the Closing and such resignations
of employees to be effective immediately prior to the Closing).
(f) Ancillary Agreements. Seller and Company shall have
executed and delivered each of the Ancillary Agreements to which each
of them is to be a party.
(g) Contribution. The Contribution (other than any
Government Contract Novations necessary in connection therewith)
shall have been consummated without cost or obligation on the part of
Company pursuant to documentation and procedures reasonably
satisfactory to Buyer and its counsel.
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(h) Capital Markets. Trading in securities generally on the
New York or American stock exchanges or NASDAQ shall not have been
suspended, minimum or maximum prices shall not have been established on
any such exchange, a banking moratorium shall not have been declared by
New York or United States authorities, and there shall not have been an
outbreak or escalation of hostilities between the United States and any
foreign power, an outbreak or escalation of any other insurrection or
armed conflict involving the United States or any other national or
international calamity or emergency, or any material change in the
general financial markets of the United States which, in each case, in
the judgment of any lender to Buyer or any prospective underwriter of
securities to be issued by Buyer in connection with Buyer's obtaining
financing sufficient for Buyer to pay the Total Purchase Price, would
make it impractical or unadvisable to proceed with such financing.
(i) Certain Material Contracts. Buyer shall have been
afforded access to copies of each Material Contract (except for any
Material Contracts the disclosure to Buyer of which is prohibited by
Law) not provided to Buyer prior to the date hereof and shall have
concluded a review of the terms and conditions thereof, and such
review shall not have disclosed information not previously disclosed
by Seller or Company which Buyer reasonably believes has or is likely
to have a material adverse effect on the Business or is materially
adversely inconsistent with information disclosed to Buyer prior to
the date hereof.
6.3 Conditions to Obligations of Seller.
The obligations of Seller to effect the Closing shall be
subject to the following conditions, except to the extent waived in writing by
Seller:
(a) Representations and Warranties and Covenants of Buyer.
The representations and warranties of Buyer herein contained shall be
true in all material respects (provided, however, that where a
representation or warranty is already qualified by materiality, such
materiality qualifier shall be disregarded for purposes of this
condition) at the Closing Date with the same effect as though made at
such time; Buyer shall have in all material respects performed all
obligations and complied with all covenants and conditions required by
this Agreement to be performed or complied with by it at or prior to
the Closing Date, and Buyer shall have delivered to Seller certificates
of Buyer in form and
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substance satisfactory to Seller dated the Closing Date and signed by
its Chief Executive Officer and Chief Financial Officer to such effect.
(b) Opinion of Counsel. Seller shall have received at the
Closing from O'Melveny & Myers, counsel to Buyer, a favorable opinion
dated the Closing Date covering the matters set forth in Exhibit H.
(c) Ancillary Agreements. Buyer shall have executed and
delivered each of the Ancillary Agreements to which it is to be a
party.
(d) Third-Party Consents. Seller and Company shall have
obtained all Approvals and Permits listed on Schedule 6.2(d).
ARTICLE VII
TERMINATION OF OBLIGATIONS; SURVIVAL
7.1 Termination of Agreement.
Anything herein to the contrary notwithstanding, this
Agreement and the transactions contemplated by this Agreement shall terminate if
the Closing does not occur on or before the close of business on December 15,
1997 unless extended by mutual consent in writing of Buyer and Seller and
otherwise may be terminated at any time before the Closing as follows and in no
other manner:
(a) Mutual Consent. By mutual consent in writing of Buyer
and Seller.
(b) Conditions to Buyer's Performance Not Met. By Buyer by
written notice to Seller if any event occurs or condition exists which
would render impossible the satisfaction of one or more conditions to
the obligations of Buyer to consummate the transactions contemplated
by this Agreement as set forth in Section 6.1 or 6.2.
(c) Conditions to Seller's Performance Not Met. By Seller by
written notice to Buyer if any event occurs or condition exists which
would render impossible the satisfaction of one or more conditions to
the obligation of Seller to consummate the transactions contemplated by
this Agreement as set forth in Section 6.1 or 6.3.
(d) Material Breach. By Buyer or Seller if there has been a
material misrepresentation or other material breach by the other party
(or, in the case of Buyer, by
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Seller or Company) in its representations, warranties and covenants set
forth herein; provided, however, that if such breach is susceptible to
cure, the breaching party shall have ten business days after receipt of
notice from the other party of its intention to terminate this
Agreement if such breach continues in which to cure such breach.
(e) Retention of Key Employees. By Buyer by written notice
to Seller if Buyer is not reasonably satisfied with arrangements made
to ensure that following the Closing Company will retain the services
of each of not more than ten employees of the
Business identified to Seller by Buyer in writing not later than 7
days after the date hereof; provided, however, that Buyer's
termination right set forth in this clause (f) shall expire and be of
no further force and effect as of 5:00 p.m. San Francisco Time on the
day that is two weeks after the date hereof.
(f) Customer and Supplier Relations. By Buyer by written
notice to Seller if (1) Buyer, after having been afforded the
opportunity to conduct a comprehensive review of Seller's and Company's
relations with customers and suppliers of the Business, shall have
become aware of information not previously disclosed by Seller or
Company which Buyer reasonably believes has or is likely to have a
material adverse effect on the Business or is materially adversely
inconsistent with information disclosed to Buyer prior to the date
hereof; provided, however, that Buyer's termination right set forth in
this clause (f)(1) shall expire and be of no further force and effect
as of 5:00 p.m. San Francisco Time on the day that is two weeks after
the date hereof (unless extended pursuant to the provisions of clause
(f)(2) below); or (2) if Buyer shall not be satisfied with the
arrangements made by Seller to afford Buyer the opportunity to conduct
a comprehensive review of Seller's and Company's relations with
customers and suppliers of the Business; provided, however, that
Buyer's termination right set forth in this clause (f)(2) shall expire
and be of no further force and effect as of 5:00 p.m. San Francisco
Time on the day that is two weeks after the date hereof (unless
extended pursuant to the provisions of this clause (f)(2)); and
provided, further, that in the event Buyer shall notify Seller prior to
such expiration of the termination right set forth in this clause
(f)(2) of Buyer's determination to terminate this Agreement pursuant to
this clause (f)(2), such notice shall not be effective if Seller shall
notify Buyer in writing within 24 hours of Seller's receipt of such
notice that Seller has extended the duration of
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Buyer's termination rights set forth in both clauses (f)(1) and (f)(2)
for an additional two weeks.
(g) Supplemental Deposit/Financing Commitment. By Seller or
by Buyer by written notice to the other pursuant to Section 1.8(b).
(h) Schedules By Buyer by written notice to Seller pursuant
to Section 9.20.
7.2 Effect of Termination.
In the event that this Agreement shall be terminated pursuant
to Section 7.1, all further obligations of the parties under this Agreement
shall terminate without further liability of any party to another; provided that
the obligations of the parties contained in Sections 1.8, 9.12 and 9.19 shall
survive any such termination. A termination under Section 7.1 shall not relieve
any party of any liability for a breach of, or for any misrepresentation under
this Agreement, or be deemed to constitute a waiver of any available remedy
(including specific performance if available) for any such breach or
misrepresentation.
7.3 Survival of Representations and Warranties.
The representations and warranties contained in or made
pursuant to this Agreement shall expire on the second anniversary of the Closing
except that (i) the representations and warranties contained in Sections 2.1(a),
2.2, 2.6(c), 2.19, 3.1 and 3.4 shall survive the Closing and shall remain in
full force and effect indefinitely, (ii) the representations and warranties
contained in Section 2.22 shall survive the Closing and shall remain in full
force and effect until the tenth anniversary of the Closing, (iii) the
representations and warranties contained in Sections 2.6(b) shall survive the
Closing and shall remain in full force and effect until the end of the day that
is sixth months following the Closing, (iv) the representations and warranties
contained in Section 2.20 shall survive the Closing and shall remain in full
force and effect until the final determination of the Adjustment Amount pursuant
to Section 1.6, (v) the representations and warranties contained in Section 2.4
shall continue through the expiration of the applicable statute of limitations
as the same may be extended (or, if a claim has been asserted prior to such
expiration, until the date of its final resolution), and (vi) if a claim or
notice is given under Article VIII with respect to any representation or
warranty prior to the applicable expiration date, such representation or
warranty shall continue indefinitely until such claim is finally resolved.
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7.4 Limitation on Obligations of Company.
Company's representations, warranties, and covenants hereunder
are solely for the benefit of Buyer. Notwithstanding anything to the contrary
contained herein, after the Closing Company shall have no obligations hereunder,
nor shall it be jointly or severally liable with Seller in connection with any
inaccuracy in or breach or nonperformance of any of the representations,
warranties, covenants or agreements made by Seller in or pursuant to this
Agreement. Any such inaccuracy in representations of or any breach by Company
shall have no effect on the obligations of Seller to Buyer hereunder.
ARTICLE VIII
INDEMNIFICATION
8.1 Obligations of Seller.
Seller agrees to indemnify and hold harmless Buyer, Company
and their respective directors, officers, employees, affiliates, agents and
assigns from and against any and all Losses of Buyer or Company, directly or
indirectly, as a result of, or based upon or arising from:
(a) any inaccuracy in or breach of any of the representations
and warranties made by Seller or Company in or pursuant to this
Agreement;
(b) any breach or nonperformance of any of the covenants or
agreements made by Seller or Company in or pursuant to this Agreement;
(c) any matter as to which Seller in other provisions of
this Agreement has agreed to indemnify Buyer or Company;
(d) the Excluded Liabilities;
(e) any third party claim or demand regarding the conduct
prior to the Closing of the Business;
(f) any violation of Law, prior to the Closing, by Seller or
Company including, without limitation, any Law dealing with health,
safety or environmental protection, including, but not limited to, any
action required to correct any condition that exists as of the Closing
that is in violation of any Law, which condition continues after the
Closing;
(g) the generation, use, transportation, treatment, storage,
release or disposal, before the
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Closing, of Hazardous Substances by, or at any property
or facility of, Seller or Company;
(h) the presence of Hazardous Substances at any property or
facility other than those of Company for which Company is responsible
by reason of events antedating the Closing; and
(i) the threatened or pending Orders, Actions and Labor
Matters referred to in Schedule 2.9.
8.2 Obligations of Buyer.
Buyer agrees to indemnify and hold harmless Seller from and
against any Losses of Seller, directly or indirectly, as a result of, or based
upon or arising from:
(a) any inaccuracy in or breach of any of the representations
and warranties made by Buyer in or pursuant to this Agreement;
(b) any breach or nonperformance of any of the covenants or
agreements made by Buyer in or pursuant to this Agreement;
(c) any matter as to which Buyer in other provisions of this
Agreement has agreed to indemnify Seller;
(d) the Assumed Obligations;
(e) any third party claim or demand regarding the conduct
following the Closing of the Business; and
(f) any violation of Law following the Closing by Buyer or
Company (except for any violation of Law with respect to which Seller
is obligated to provide indemnity under this Agreement).
8.3 Certain Tax Matters.
(a) Seller Indemnity. Seller agrees to indemnify, defend and
hold harmless Buyer and Company against (i) any Tax payable by or on behalf of
Seller or any of its Affiliates or Company for any taxable period ending on or
prior to the Closing Date and any Pre-Closing Partial Period, (ii) any
deficiencies in any Tax payable by or on behalf of Seller or any of its
Affiliates or Company resulting from any audit by any taxing agency or authority
of any period ending on or prior to the Closing Date and any Pre-Closing Partial
Period, (iii) Taxes of any member of a consolidated or combined tax group of
which Seller or any of its Affiliates is, or was at any time, a member, for
which
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Company is jointly or severally liable as a result of its inclusion in such
group, (iv) any claim or demand for reimbursement or indemnification resulting
from any transfer by Seller prior to the Closing of any Tax benefits or credits
to any other person, provided, however that Seller does not agree to indemnify,
defend or hold harmless Buyer and Company with respect to Tax indemnification
obligations of Company under the leases listed in Schedule 8.3(a), (v) any Tax
liabilities arising out of the Contribution or the transfer of the Stock
(including, but not limited to, any sales Taxes), and (vi) with respect to any
Taxes due for Tax periods ending after the Closing Date, a pro-rata share of
such tax, calculated pursuant to Section 5.3. Seller further agrees to indemnify
Buyer from and against any Losses or Taxes Buyer may suffer or incur resulting
from, arising out of, relating to, in the nature of, or caused by any liability
of any of Seller, Company and their respective subsidiaries by contract or as a
transferee or successor.
(b) Audit Matters. Seller, on the one hand, and Buyer, on
the other hand, agree to give prompt notice to the other of any proposed
adjustment to Taxes for any period ending on or prior to the Closing Date or any
Pre-Closing Partial Period. Seller shall have the responsibility for, and the
right to control, at Seller's expense, the audit (and disposition thereof) of
any Tax Return relating to periods ending on or prior to the Closing Date and to
participate in the disposition of the audit of any Tax Return relating to the
periods ending after the Closing Date if such audit or disposition thereof could
give rise to a claim for indemnification hereunder. Buyer, at Buyer's expense,
shall have the right directly or through its designated representatives, to
review in advance and comment upon all submissions made in the course of audits
or appeals thereof to any Governmental Entity relating to periods ending on or
prior to the Closing Date and any Pre-Closing Partial Period or Post-Closing
Partial Period for which Seller has responsibility if such audit or appeal will
or might reasonably be expected to result in Buyer or Company having liability
for the Taxes at issue and to approve the disposition of any audit adjustment
with respect to such periods if such disposition will or might reasonably be
expected to result in an increase in Taxes of Buyer or Company for any period
beginning at or after the Closing Date, such consent not to be unreasonably
withheld.
(c) Buyer agrees to indemnify, defend and hold harmless
Seller against any tax apportionable to Buyer pursuant to Section 5.3(c).
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8.4 Procedure.
(a) Notice. Written notice to the Indemnifying Party of any
Loss or the existence of a third-party claim shall be given by the Indemnified
Party within 30 days after such Loss is suffered or receipt of a written
assertion of liability from the third party. The Indemnified Party shall not be
foreclosed by any failure to provide timely notice of any Loss or the existence
of a third party claim to the Indemnifying Party except to the extent that the
Indemnifying Party incurs an out-of-pocket expense or otherwise has been
materially prejudiced as a direct result of such delay.
(b) Defense. Other than with respect to Taxes, as to which
Section 8.3 controls to the extent inconsistent with this Section, if any claim,
demand or liability is asserted by any third party against any Indemnified
Party, the Indemnifying Party shall upon the written request of the Indemnified
Party defend any actions or proceedings brought against the Indemnified Party in
respect of matters embraced by the indemnity. The Indemnifying Party shall have
the right to control the defense of any Indemnifiable Claim; provided, however,
that the Indemnified Party shall have the right to control the defense of a
claim under either of the following circumstances: (i) the Indemnifying Party
fails to assume the defense of an Indemnifiable Claim within 15 days after
receiving written notice of the
existence of the claim or fails to diligently conduct the defense of any such
claim; or (ii) the Indemnified Party shall reasonably conclude that there is a
conflict of interest between the Indemnifying Party and the Indemnified Party in
the conduct of the defense of such claim or there are specific defenses
available to the Indemnified Party which are different from or additional to
those available to the Indemnifying Party, in either of which events the
Indemnifying Party shall pay the fees and disbursements of counsel to each of
the Indemnifying Party and the Indemnified Party. If the Indemnifying Party does
not assume such defense or the Indemnified Party has the right to control the
defense of the claim, the Indemnified Party may compromise or settle the claim
on behalf of and for the account and risk of the Indemnifying Party, who shall
be bound by the result. The Indemnifying Party shall not, without the written
consent of the Indemnified Party (which consent shall not be unreasonably
withheld), settle or compromise any Indemnifiable Claim or permit a default or
consent to entry of any judgment unless the claimant and the Indemnifying Party
provide to the Indemnified Party an unqualified release from all liability in
respect of the Claim. In all cases, the party without the right to control the
defense of an Indemnifiable Claim may participate in the defense at its own
expense.
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(c) Cooperation. The parties shall cooperate in the defense
of all third party claims which may give rise to Indemnifiable Claims hereunder.
In connection with the defense of any claim, each party shall make available to
the party controlling such defense any books, records or other documents within
its control and access to employees that are reasonably requested in the course
of such defense.
8.5 Limitations on Indemnification. Seller shall not be
required to indemnify any other Person under Section 8.1(a) unless the aggregate
of all amounts for which indemnity would otherwise be payable by Seller exceeds
$500,000, and, in such event, Seller shall be responsible only for the amount in
excess of such $500,000. Buyer shall not be required to indemnify any other
Person under Section 8.2(a) unless the aggregate of all amounts for which
indemnity would otherwise be payable by Buyer exceeds $500,000, and in such
event, Buyer shall be responsible only for the amount in excess of such
$500,000. Seller's indemnity obligations under Section 8.1(a) (except with
respect to any inaccuracy in or breach of any of the representations and
warranties contained in Sections 2.1(a), 2.2, 2.4, 2.6(c), 2.19 and 2.22) shall
be limited, in the aggregate, to an amount equal to $20 million. Buyer's
indemnity obligations under Section 8.2(a) shall be limited, in the aggregate,
to an amount equal to $20 million.
8.6 Tax Adjustments. Any amounts payable by an
Indemnifying Party to or on behalf of an Indemnified Party in respect of a
Loss shall be adjusted as follows:
(a) If such Indemnified Party is liable for any additional
Taxes as a result of the payment of amounts in respect of
a Loss, the Indemnifying Party will pay to the Indemnified Party in
addition to such amounts in respect of the Loss within 10 days after
being notified by the Indemnified Party of the payment of such
liability (x) an amount equal to such additional Taxes (the "Tax
Reimbursement Amount") plus (y) 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 (y),
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 Loss.
(b) The Indemnified Party shall reimburse the Indemnifying
Party an amount equal to the net reduction in any year in the
liability for Taxes (that are based upon or measured by income) of the
Indemnified Party or 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
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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
Indemnifiable Claim, 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 shall be realized. Any 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 to reduce such Net Tax
Benefit. Buyer agrees to provide Seller or its designated
representatives with such 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 but not
limited to copies of Tax Returns, estimated tax payments, schedules,
and related supporting documents.
ARTICLE IX
GENERAL
9.1 Amendments; Waivers.
This Agreement and any schedule or exhibit attached hereto may
be amended only by agreement in writing of all parties. No waiver of any
provision nor consent to any exception to the terms of this Agreement or any
agreement contemplated hereby shall be effective unless in writing and signed by
the party to be bound and then only to the specific purpose, extent and instance
so provided.
9.2 Schedules; Exhibits; Integration.
Each schedule and exhibit delivered pursuant to the terms of
this Agreement shall be in writing and shall constitute a part of this
Agreement, although schedules need not be attached to each copy of this
Agreement. This Agreement, together with such schedules and exhibits,
constitutes the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior agreements and understandings of the
parties in connection therewith including, but not limited to, that certain
Confidentiality Agreement dated April 30, 1997 by and between Buyer and Seller.
9.3 Best Efforts; Further Assurances.
Each party will use its best efforts to cause all conditions
to its obligations hereunder to be timely satisfied and to perform and fulfill
all obligations on its
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part to be performed and fulfilled under this Agreement, to the end that the
transactions contemplated by this Agreement shall be effected substantially in
accordance with its terms as soon as reasonably practicable. The parties shall
cooperate with each other in such actions and in securing requisite Approvals.
Each party shall execute and deliver both before and after the Closing such
further certificates, agreements and other documents and take such other actions
as may be necessary or appropriate to consummate or implement the transactions
contemplated hereby or to evidence such events or matters. As used in this
Agreement, the term "best efforts" shall not mean efforts which require the
performing party to do any act that is unreasonable under the circumstances, to
make any capital contribution or to expend any funds other than reasonable
out-of-pocket expenses incurred in satisfying its obligations hereunder,
including but not limited to the fees, expenses and disbursements of its
accountants, actuaries, counsel and other professionals.
9.4 Governing Law.
This Agreement, the legal relations between the parties and
any Action, whether contractual or non-contractual, instituted by any party with
respect to matters arising under or growing out of or in connection with or in
respect of this Agreement, including, but not limited to, the negotiation,
execution, interpretation, coverage, scope, performance, breach, termination,
validity, or enforceability of this Agreement, shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts made and performed in such State and without regard to conflicts of
law doctrines, except to the extent that certain matters are preempted by
federal law or are governed as a matter of controlling law by the law of the
jurisdiction of incorporation of the respective parties.
9.5 Assignment.
Neither this Agreement nor any rights or obligations under it
are assignable except that Buyer may assign its rights hereunder (including but
not limited to its rights under Article VIII) to any Affiliate of Buyer.
9.6 Headings.
The descriptive headings of the Articles, Sections and
subsections of this Agreement are for convenience only and do not constitute a
part of this Agreement.
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9.7 Counterparts.
This Agreement and any amendment hereto or any other agreement
(or document) delivered pursuant hereto may be executed in one or more
counterparts and by different parties in separate counterparts. All of such
counterparts shall constitute one and the same agreement (or other document) and
shall become effective (unless otherwise provided therein) when one or more
counterparts have been signed by each party and delivered to the other party.
9.8 Publicity and Reports.
Seller and Buyer shall coordinate all publicity relating to
the transactions contemplated by this Agreement and, except to the extent
required by Law or applicable stock exchange rules or required in connection
with Buyer's efforts to obtain financing necessary for it to pay the Total
Purchase Price and adequately capitalize itself upon the consummation of the
transactions contemplated hereby, no party shall issue any press release,
publicity statement or other public notice relating to this Agreement, or the
transactions contemplated by this Agreement, without obtaining the prior consent
of the other parties hereto. Buyer and Seller shall each consult with the other
with respect to the form and content of any application or report made to any
Governmental Entity which relates to this Agreement or the transactions
contemplated hereby.
9.9 Parties in Interest.
This Agreement shall be binding upon and inure to the benefit
of each party, and nothing in this Agreement, express or implied, is intended to
confer upon any other Person any rights or remedies of any nature whatsoever
under or by reason of this Agreement except for the provisions of Article VIII
(which are intended to be for the benefit of the Persons provided for therein
and may be enforced by such Persons). Nothing in this Agreement is intended to
relieve or discharge the obligation of any third Person to (or to confer any
right of subrogation or action over against) any party to this Agreement.
9.10 Performance by Subsidiaries.
Each party agrees to cause its subsidiaries to comply with any
obligations hereunder relating to such subsidiaries and to cause its
subsidiaries to take any other action which may be necessary or reasonably
requested by the other party in order to consummate the transactions
contemplated by this Agreement.
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9.11 Notices.
Any notice or other communication hereunder must be given in
writing and (a) delivered in person, (b) transmitted by telex, telefax or
telecommunications mechanism (provided that any notice so given is also mailed
or delivered as provided in clause (c)) or (c) mailed by certified or registered
mail, postage prepaid, receipt requested or delivered by reputable overnight
courier service as follows:
If to Buyer, addressed to:
TSMD Acquisition Corp.
c/o Mentmore Holdings, Inc.
1430 Broadway, 13th Floor
New York, NY 10018-3308
Facsimile: 212-382-1559
Attn: Michael D. Schenker, Esq.
With a copy to:
O'Melveny & Myers
Embarcadero Center West
275 Battery Street
San Francisco, CA 94111-3305
Facsimile: 415-984-8701
Attn: George A. Riley, Esq.
If to Company (prior to the Closing) or Seller, addressed to:
Watkins-Johnson Company
Stanford Research Park
3333 Hillview Avenue
Palo Alto, CA 94304-1223
Facsimile: 415-813-2502
Attn: W. Keith Kennedy
With a copy to:
Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto, CA 94301-1900
Facsimile: 415-324-0638
Attn: Sarah A. O'Dowd, Esq.
or to such other address or to such other person as either party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective (i) if given by telecommunication, when
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transmitted to the applicable number so specified in (or pursuant to) this
Section 9.11 and an appropriate answerback is received, (ii) if given by mail or
by overnight delivery, three days after such communication is deposited in the
mails with first class postage prepaid or delivered to the overnight courier,
addressed as aforesaid or (iii) if given by any other means, when actually
delivered at such address.
9.12 Expenses.
Seller, Company and Buyer shall each pay their own expenses
incident to the negotiation, preparation and performance of this Agreement and
the transactions contemplated hereby, including but not limited to the fees,
expenses and disbursements of their respective investment bankers, accountants
and counsel. Any such expenses of Company shall be paid by Seller prior to the
Closing.
9.13 Remedies; Waiver.
To the extent permitted by Law, all rights and remedies
existing under this Agreement and any related agreements or documents are
cumulative to and not exclusive of, any rights or remedies otherwise available
under applicable Law. No failure on the part of any party to exercise or delay
in exercising any right hereunder shall be deemed a waiver thereof, nor shall
any single or partial exercise preclude any further or other exercise of such or
any other right.
9.14 Attorney's Fees.
In the event of any Action by any party arising under or out
of, in connection with or in respect of, this Agreement including any
participation in bankruptcy proceedings to enforce against a party a right or
claim in such proceedings, the prevailing party shall be entitled to reasonable
attorney's fees, costs and expenses incurred in such Action. Attorney's fees
incurred in enforcing any judgement in respect of this Agreement are recoverable
as a separate item. The parties intend that the preceding sentence be severable
from the other provisions of this Agreement, survive any judgment and, to the
maximum extent permitted by law, not be deemed merged into such judgment.
9.15 Knowledge Convention.
Whenever any statement herein or in any schedule, exhibit,
certificate or other documents delivered to any party pursuant to this Agreement
is made "to knowledge" or "to best knowledge" or words of similar intent or
effect, such statement shall refer to the actual knowledge of those persons
listed on Schedule 9.15, after due inquiry, and each
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such statement shall be deemed to include a representation that such inquiry has
been made.
9.16 Representation By Counsel; Interpretation.
Seller, Company and Buyer each acknowledge that each party to
this Agreement has been represented by counsel in connection with this Agreement
and the transactions contemplated by this Agreement. Accordingly, any rule of
Law, including but not limited to Section 1654 of the California Civil Code, or
any legal decision that would require interpretation of any claimed ambiguities
in this Agreement against the party that drafted it has no application and is
expressly waived. The provisions of this Agreement shall be interpreted in a
reasonable manner to effect the intent of Buyer and Seller.
9.17 Specific Performance.
Seller and Buyer each acknowledge that, in view of the
uniqueness of the Business and the transactions contemplated by this Agreement,
each party would not have an adequate remedy at law for money damages in the
event that this Agreement has not been performed in accordance with its terms,
and therefore agrees that the other party shall be entitled to specific
enforcement of the terms hereof in addition to any other remedy to which it may
be entitled, at law or in equity.
9.18 Severability.
If any provision of this Agreement is determined to be
invalid, illegal or unenforceable by any Governmental Entity, the remaining
provisions of this Agreement shall remain in full force and effect provided that
the essential terms and conditions of this Agreement for Buyer and Seller remain
valid, binding and enforceable.
9.19 Confidentiality.
(a) Seller and Company agree to, and shall cause their
agents, representatives, Affiliates, employees, officers and directors to: (i)
treat and hold as confidential (and not disclose or provide access to any Person
to) all Intangible Property and information relating to product development,
price, distributor and customer lists, pricing and marketing plans, policies and
strategies, details of client and consultant contracts, operations methods,
product development techniques, business acquisition plans, new personnel
acquisition plans and all other confidential information with respect to the
Business, except as may be required by applicable Law, in which event Seller and
Company agree to, and shall cause their agents,
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representatives, Affiliates, employees, officers and directors to, furnish only
that portion of such confidential information which they reasonably believe is
legally required to be provided and exercise their reasonable efforts to obtain
assurances that confidential treatment will be afforded such information, and
(ii) in the event that Seller, Company or any such agent, representative,
Affiliate, employee, officer or director becomes legally compelled to disclose
any such information, provide Buyer with prompt written notice of such
requirement so that Buyer may, at the expense of Buyer, seek a protective order
or other remedy. This Section 9.19(a) shall not apply to any information that,
at the time of disclosure, is known to the receiving party before disclosure
thereof, is independently developed by the receiving party, is or becomes
publicly available through no fault of the receiving party, is obtained by the
receiving party from a third party not known by the receiving party to be under
any obligation not to disclose such information and which the receiving party
has no reason to believe is not otherwise publicly available (provided, however,
that once Seller is advised that information obtained under such circumstance is
indeed confidential hereunder, this Section 9.19(a) shall thereafter apply to
such information) or is reasonably necessary in order for Seller to litigate any
claim against Buyer pursuant to this Agreement. Seller agrees and acknowledges
that remedies at law for any breach of its obligations under this Section
9.19(a) are inadequate and that in addition thereto Buyer shall be entitled to
seek equitable relief, including injunction and specific performance, in the
event of any such breach. Notwithstanding the foregoing, (x) Seller may make
such disclosures to the independent public accountants of Seller as may be
necessary in connection with their auditing of the books and records of Seller
and its Affiliates; provided, however, that such independent public accountants
shall enter into a confidentiality and nondisclosure agreement on substantially
the same terms as set forth in this Section 9.19(a), and (y) Seller, with the
consent of Buyer (which consent shall not be unreasonably withheld) may make
such disclosures in connection with defending any claim brought against Seller
or any of its Affiliates by any third person as may be reasonably necessary in
order for Seller to conduct its defense thereof; provided, however, that Seller
agrees to, and agrees to cause its agents, representatives, Affiliates,
employees, officers and directors to, exercise their reasonable efforts to
obtain assurances that confidential treatment will be afforded such information
and to seek a protective order or other remedy to preserve the confidentiality
of such information.
(b) During the period starting at the execution of this
Agreement and ending on the earlier of (A) the
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Closing Date or (B) April 10, 2000, Buyer agrees to, and shall cause its agents,
representatives, Affiliates, employees, officers and directors to: (i) treat and
hold as confidential (and not disclose or provide access to any Person to) all
Intangible Property, and information relating to product development, price,
distributor and customer lists, pricing and marketing plans, policies and
strategies, details of client and consultant contracts, operations methods,
product development techniques, business acquisition plans, new personnel
acquisition plans and all other confidential information with respect to the
Business, except as may be required by applicable Law, in which event Buyer
agrees to, and shall cause its agents, representatives, Affiliates, employees,
officers and directors to, furnish only that portion of such confidential
information which Buyer reasonably believes is legally required to be provided
and exercise its reasonable efforts to obtain assurances that confidential
treatment will be accorded such information, and (ii) in the event that Buyer or
any such agent, representative, Affiliate, employee, officer or director becomes
legally compelled to disclose any such information, provide Seller with prompt
written notice of such requirement so that Seller may, at the expense of Seller,
seek a protective order or other remedy. This Section 9.19(b) shall not apply to
any information that, at the time of disclosure, is known to the receiving party
before disclosure thereof, is independently developed by the receiving party, is
or becomes publicly available through no fault of the receiving party, or is
obtained by the receiving party from a third party not known by the receiving
party to be under any obligation not to disclose such information and which the
receiving party has no reason to believe is not otherwise publicly available
(provided, however, that once Buyer is advised that information obtained under
such circumstance is indeed confidential hereunder, this Section 9.19(b) shall
thereafter apply to such information) or is reasonably necessary in order for
Buyer to litigate any claim against Seller pursuant to this Agreement. Buyer
agrees and acknowledges that remedies at law for any breach of its obligations
under this Section 9.19(b) are inadequate and that in addition thereto Seller
shall be entitled to seek equitable relief, including injunction and specific
performance, in the event of any such breach. Notwithstanding the foregoing, (x)
Buyer may make such disclosures to the independent public accountants of Buyer
as may be necessary in connection with their auditing of the books and records
of Buyer, Company and their Affiliates; provided, however, that such independent
public accountants shall enter into a confidentiality and nondisclosure
agreement on substantially the same terms as set forth in this Section 9.19(b),
and (y) Buyer, with the consent of Seller (which consent shall not be
unreasonably withheld) may make such disclosures in connection with
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defending any claim brought against Buyer or any of its Affiliates by any third
person as may be reasonably necessary in order for Buyer to conduct its defense
thereof; provided, however, that Buyer agrees to, and agrees to cause its
agents, representatives, Affiliates, employees, officers and directors to,
exercise their reasonable efforts to obtain assurances that confidential
treatment will be afforded such information and to seek a protective order or
other remedy to preserve the confidentiality of such information.
9.20 Schedules.
The parties acknowledge that the Schedules (including, but not
limited to, the Disclosure Schedule) other than Schedule 3.3 are incomplete as
of the date hereof (such incomplete Schedules (other than Schedule 6.2(d)) being
"Seller's Incomplete Schedules"). Seller shall deliver to Buyer and its counsel
for their review a complete and accurate version of each of Seller's Incomplete
Schedules not later than 5:00 p.m. San Francisco time on September 4, 1997.
Seller shall also provide Buyer with copies of any supporting documents and such
access to those officers and other employees of Seller and to Seller's legal
counsel as may be reasonably requested by Buyer and its legal counsel in
connection with their review of Seller's Incomplete Schedules. Buyer shall have
the right to terminate this Agreement by written notice to Seller as described
below in the event that Buyer is not satisfied with Seller's Incomplete
Schedules, as so revised; provided, however, that Buyer shall not be arbitrary
or capricious in determining to terminate this Agreement pursuant to this
Section 9.20. Not later than two business days after all such supporting
documents and access shall have been provided to Buyer, Buyer shall either (i)
advise Buyer that Seller's Incomplete Schedules, as revised by Seller, are
acceptable to Buyer and deliver to Seller Schedule 6.2(d), whereupon Seller's
Incomplete Schedules, as so revised, and Schedule 6.2(d), as so delivered, shall
become Schedules hereto, or (ii) advise Buyer that Buyer has determined to
terminate this Agreement pursuant to the provisions of this Section 9.20.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized representative as of the date
first above written.
TSMD ACQUISITION CORP.
By: /s/ BRADLEY A. JAY
-----------------------
Name: Bradley A. Jay
Title: Vice-President
WATKINS-JOHNSON COMPANY
By: /s/ W.K. KENNEDY
-----------------------
Name: W.K. Kennedy
Title: President
W-J TSMD INC.
By: /s/ W.K. KENNEDY
-----------------------
Name: W.K. Kennedy
Title: President
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EXHIBIT A
An executed copy of this Exhibit, the GaAs/Thin Film Supply Agreement,
is filed separately as Exhibit 10.9.
<PAGE>
EXHIBIT B
An executed copy of this Exhibit, the Cross License Agreement, is filed
separately as Exhibit 10.11.
<PAGE>
EXHIBIT C
MARKETING AGREEMENT TERM SHEET
This agreement will pertain to products for which the owner of the intellectual
property and the manufacturer of the product is the same, but where it is to the
mutual advantage of both parties that sales and marketing efforts be provided by
the other party.
An example is a TO-8 amplifier, which is a product owned and built by TSMD, but
where the sales effort to Nortel is best handled by W-J. A second example is the
sale of W-J owned and built MMIC chips to a defense customer.
Key Terms:
o Prices to the customer are set by the builder/owner, following
consultation with the marketing partner.
o The products are branded by the builder/owner, and shipment,
collections, warranty efforts, and design responsibility all rest with
builder/owner.
o The marketing partner shall receive a commission of 10% for sales to
these customers, except that for sales to each customer in excess of
$1,000,000 in a given year, the commission shall be 8% of sales price.
o TSMD products will be marketed by W-J sales to the following
customers: Lucent, Nortel, Nokia and Ericsson (non-defense).
o W-J Telecom products will be marketed by TSMD to all defense customers.
<PAGE>
EXHIBIT D
An executed copy of this Exhibit, the MIM/Glass Seal/Hybrid Assembly
Supply Agreement, is filed separately as Exhibit 10.10.
<PAGE>
EXHIBIT E
Terms for Sub-sublease (one for each building)
<TABLE>
<S> <C>
Premises: A portion of Building 3 and a portion of Building 6 collectively
comprising no more than 120,000 square feet.
Ground Lessor: Stanford University.
Master Lessor: Building 6 - Morrco Properties Company
Building 3 - Lindco Properties Company (Assigned to Taylor
Woodrow)
Ground Lease: Building 6 - 9/1/72
Building 3 - 11/1/59
Master Lease: Building 6 - 10/31/75
Building 3 - 4/22/69
Term: Three years following closing of stock acquisition. No renewal rights or
purchase options.
Permitted Uses: Premises shall be used for the purpose of carrying out the purchased
business, and for no other purpose.
Base Rent: $2.03 per square foot per month.
Additional Rent: An amount to be determined for telephone service. (Sub-sublease is a
gross lease, except that Sub-sublessor shall provide telephone service to
Premises through the existing telephone switch, and, as additional rent,
Sub-sublessee shall pay its share of the costs of telephone service, in an
equitable amount to be agreed upon by the parties.) Sub-sublessor shall
pay all taxes, assessments and real property insurance premiums.
Warranties: Premises are suitable for the operation of the Business (as such term is
defined in the Stock Purchase Agreement).
Maintenance: Sub-sublessor shall physically maintain all of the premises and the
landscaping, and shall provide janitorial services and shall pay all costs
associated therewith.
</TABLE>
E-1
<PAGE>
<TABLE>
<S> <C>
Alterations: Any tenant improvements shall be performed by Sub-sublessee at Sub-
sublessee's cost. Sub-sublessee shall not be permitted to make any
alterations without Sub-sublessor's prior written approval, which may be
given or withheld in Sub-sublessor's reasonable discretion. Any
alterations approved by Sub-sublessor shall also be subject to the approval
of Stanford and Master Lessor, if required by the Ground Lease or the
Master Lease. If so required, Sub-sublessor shall coordinate with
Stanford and/or the Master Lessor to obtain such approvals. Sub-
sublessee shall be responsible for ensuring that any approved alterations
comply with law. Sub-sublessee shall also be responsible for all wiring
and installations necessary to put the premises into a condition for use by
Sub-sublessee's employees.
Taxes: Sub-sublessor shall pay all real property taxes assessed against the
Premises.
Security Deposit: None.
Environmental: The environmental representations and indemnifications set forth in the
Stock Purchase Agreement shall be restated in the Sub-sublease, by Sub-
sublessor in favor of Sub-sublessee.
In addition, the environmental provisions attached hereto as Schedule 1
shall be incorporated into the Sub-sublease.
Quiet Enjoyment/
Non-disturbance: Sub-sublessor shall obtain all necessary consents to the Sub-sublease as a
condition precedent to the execution of the Sub-sublease. Sub-sublessor
shall perform all of its obligations under the Ground Lease and Master
Lease. Sub-sublessor shall indemnify Sub-sublessee for all damages
resulting from Sub-sublessor's default under the Ground Lease or Master
Lease, unless such default is a direct result of Sub-sublessee's default
under the Sub-sublease. Sub-sublessor to comply with all applicable laws
and CC&Rs affecting the premises. Sub-sublessor covenants to exercise
all renewal options to extend the term of the Ground Lease and the Master
Lease through the expiration of the term of the Sub-sublease.
Insurance: Sub-sublessor shall maintain the insurance required by the Ground Lease and Master
Lease. Sub-sublessee shall maintain (i) insurance on its personal property,
equipment and trade fixtures and (ii) commercial general liability insurance
issued by insurers, with endorsements and in amounts customary in the industry, naming
Sub-sublessor, Stanford and Master Lessor as additional insureds.
</TABLE>
E-2
<PAGE>
<TABLE>
<S> <C>
Assignment
/Subletting: Sub-sublessee shall have no rights to assign the Sub-sublease or sublet all
or any portion of its interest in the premises, without Sub-sublessor's prior
written consent, which may be given or withheld in Sub-sublessor's sole
discretion, provided that Sub-sublessee may assign to affiliates without
Sub-sublessor's consent. Sub-sublessee may assign Sub-sublease, without
Sub-sublessor's consent, for financing purposes. The foregoing rights
shall be subject to Sub-sublessor's obligations under the Ground Lease and
the Master Lease.
DD&C: If the Ground Lessor or the Master Lessor terminates the Ground Lease or the Master
Lease in connection with an event of damage, destruction or condemnation, the
Sub-sublease shall also terminate, provided that Sub- sublessor shall in no event
exercise any rights of termination it may have under the Ground Lease or Master
Lease on account of such damage, destruction or condemnation, without the direction
or prior written consent of Sub-sublessee. Sub-sublessee shall be entitled to seek
condemnation award provided that such award does not affect Sub-sublessor's award.
Signage: Subject to Sub-sublessor's reasonable approval (as well as any required approval
from Stanford or Master Lessor), Sub-sublessee shall be permitted to place sings on
the Premises that are consistent with Sub-sublessor's existing signage.
Holdover: If Sub-sublessee holds over after the expiration of the term, Sub-sublessee shall
pay for each month that the holdover continues Base Rent equal to 100% of the Base
Rent in effect immediately prior to the expiration of the term. Additionally,
Sub-sublessee shall indemnify Sub-sublessor for all losses suffered by Sub-sublessor
as a result of such holdover, including without limitation, lost revenues due to
Sub-sublessor's inability to relet the Premises.
Incorporation of
Ground Lease and
Master Lease: The Sub-sublease shall restate in their entirety those provisions of the Master
Lease that shall apply to the Premises, provided that such provisions shall be
revised as necessary to properly describe the relationship between Sub-sublessor and
Sub-sublessee, in light of the fact that the Sub-sublease is a fully gross, space
lease.
Termination
Option: Sub-sublessee shall have the right to terminate the Sub-sublease as to (i) the
entire Premises, (ii) the entire portion of the Premises that are located in
Building 3, and/or (iii) the entire portion of the Premises that
</TABLE>
E-3
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<TABLE>
<S> <C>
are located in Building 6, upon six (6) months prior written notice to Sub-sublessor.
Surrender: On the expiration of the Sub-sublease, Sub-sublessee will surrender the
sub-subleased premises back to Sub-sublessor in substantially the condition
received, reasonable wear and tear and damage by casualty excepted.
</TABLE>
There shall be two separate Sub-subleases; one of the portion of the Premises
located in Building 6, and one for the portion of the Premises located in
Building 3.
E-4
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Schedule 1
Hazardous Substances Provision
(a) Tenant's Use. Tenant shall have the right to
store, use and handle Hazardous Substances on the Premises, provided
that (i) such Hazardous Substances are used in the operation of
Tenant's business or are brought onto the Premises in the ordinary
course of Tenant's business and used in compliance with applicable laws
and Landlord's reasonable procedures for the acquisition, use, storage,
handling and disposal of Hazardous Substances, (ii) Tenant shall not
cause to be brought upon the Premises any Hazardous Substances that
have not been previously stored or used at the Premises, without
Landlord's prior written consent, which consent shall not be
unreasonably withheld or delayed, and (iii) Landlord shall instruct
Tenant on compliance procedures necessary to ensure that such Hazardous
Substances are stored, used, handled and disposed of in compliance with
all applicable laws. In connection with its oversight and coordination
of the compliance procedures, Landlord shall (x) have access to all of
Tenant's operations within the Premises at all times, following
reasonable notice (or in the case of emergency, without notice) for the
purpose of monitoring Tenant's compliance with Landlord's compliance
procedures with respect to Hazardous Substances, (y) have Tenant's
reasonable cooperation in complying with such procedures, (z) promptly
notify Tenant of any release or discovery of Hazardous Substances at
the Premises not in compliance with applicable laws and Landlord's
procedures. Tenant shall indemnify, defend and hold Landlord harmless
from any and all Claims which arise during the Lease Term solely as a
result of Tenant's use of Hazardous Substances at the Premises during
the Lease Term. Further, notwithstanding anything to the contrary in
this Lease, but without limiting Tenant's monetary obligations under
the foregoing indemnity, Tenant is not permitted to maintain, repair,
remediate or otherwise conduct work with respect to the following
portions of the Premises: (i) structural elements of the Premises, the
building systems and portions of the Buildings containing insulation or
fireproofing material on or in exterior walls, columns, beams,
ceilings, pipes, ducts and other similar elements of the Buildings;
(ii) any portion of the Premises more than six (6) feet below ground
surface; or (ii) any portions of the Premises, the Buildings, the
Project or the Land that are contaminated with Hazardous Substances, as
of the Commencement Date, including, without limitation, any and all
portions of the Premises, the Buildings, the Project or the Land that
are designated as part of the [SUPERFUND SITE: WE NEED TO FURTHER
DEFINE THE CONTAMINATED AREAS].
(b) Environmental Communications. Landlord and Tenant
shall promptly after receipt or transmittal thereof, deliver to the
other copies of all material written communications given to or
received from any governmental agency, environmental consultant, or
other person or entity relating to Hazardous Substances in or removed
from the Premises, including, without limitation, copies of all claims,
E-5
<PAGE>
reports, complaints, notices, warnings or asserted violations, relating
in any way to Hazardous Substances in, on, under or about the Premises.
E-6
<PAGE>
EXHIBIT F
TRADEMARK LICENSE AGREEMENT
THIS TRADEMARK LICENSE AGREEMENT, dated as of ____________, is
made by and among WATKINS-JOHNSON COMPANY, a California Corporation
("Watkins-Johnson"); STELLEX MICROWAVE SYSTEMS, INC., formerly known as W-J TSMD
INC., a California corporation and a wholly-owned subsidiary of Watkins-Johnson
("W -J TSMD"); and TSMD ACQUISITION CORP., a Delaware corporation ("TSMD
Acquisition").
WHEREAS, the parties have entered into that certain Stock
Purchase Agreement, dated as of August__, 1997 (the "Purchase Agreement"),
whereby TSMD Acquisition has agreed to purchase, and Watkins-Johnson has agreed
to sell, all of the outstanding stock of W-J TSMD; and
WHEREAS, in partial consideration for the Purchase Agreement
and in contemplation of the sale of W-J TSMD stock to TSMD Acquisition,
Watkins-Johnson will license to W-J TSMD and TSMD Acquisition the trademarks and
registrations thereto, and the notices, logo designs, marks, names, service
marks, tradenames, and trade dresses listed or described on Schedule 1
("Marks"); and
WHEREAS, Watkins-Johnson is the owner of the Marks; and
WHEREAS, in partial consideration of the Purchase Agreement,
Watkins-Johnson desires to grant W-J TSMD and TSMD Acquisition use of the Marks
in connection with the Business, on the terms and conditions set forth herein;
and
NOW, THEREFORE, for and in consideration of the foregoing and
of the covenants, conditions, undertakings and mutual promises hereinafter set
forth, it is agreed by and among the parties as follows:
1. DEFINITIONS
For all purposes of this Trademark License Agreement, except
as otherwise expressly provided:
(a) the terms defined in this Section 1 have the meanings
assigned to them in this Section 1 and include the plural as well as the
singular;
(b) all references in this Trademark License Agreement to
designated "Sections," "Paragraphs" and other subdivisions are
to the designated Sections, Paragraphs and other subdivisions of
the body of this Trademark License Agreement;
(c) pronouns of either gender or neuter shall include, as
appropriate, the other pronoun forms; and
<PAGE>
(d) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Trademark License Agreement as a whole and
not to any particular Section, Paragraph or other subdivision.
As used in this Trademark License Agreement and the Schedules
and Exhibits delivered pursuant to this Trademark License Agreement, the
following definitions shall apply:
"Action" means any action, complaint, petition, investigation,
suit or other proceeding, whether civil or criminal, in law or in equity, or
before any arbitrator or Governmental Entity.
"Affiliate" means a Person that directly, or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, a specified Person.
"Business" means Business as that term is defined in the
Purchase Agreement.
"Closing" means the consummation of the purchase and sale
of stock under the Purchase Agreement.
"Effective Date" means the date of Closing.
"Governmental Entity" means any government or any agency,
bureau, board, commission, court, department, official, political subdivision,
tribunal or other instrumentality of any government, whether federal, state or
local, domestic or foreign.
"Inventory" means all finished products, work in
progress, parts, components and raw materials.
"Law" means any constitutional provision, statute or other
law, rule, regulation, or interpretation of any Governmental Entity and any
Order.
"Order" means any decree, injunction, judgment, order,
ruling, assessment or writ.
"Person" means an association, a corporation, an
individual, a partnership, a trust or any other entity or organization,
including a Governmental Entity.
"Territory" means all countries of the world and
throughout the universe.
"Trademark License Agreement" means this Trademark License
Agreement by and among Watkins-Johnson, W-J TSMD and TSMD
2
<PAGE>
Acquisition as amended or supplemented together with all Schedules and Exhibits
attached or incorporated by reference.
"TSMD Group" means W-J TSMD and TSMD Acquisition,
collectively.
2. GRANT OF LICENSES
2.1 With respect to Inventory, sales materials, brochures, and
catalogues in existence on the Effective Date, Watkins-Johnson grants to TSMD
Acquisition and to W-J TSMD non-exclusive, royalty-free licenses in the
Territory to use the Marks in connection with the Business. The licenses granted
in this Paragraph 2.1 shall continue in force and effect for the life of
Watkins-Johnson's property interest in the Marks, unless sooner terminated as
provided for herein.
2.2 With respect to all other products, materials and
services, Watkins-Johnson grants to TSMD Acquisition and to W-J TSMD
nonexclusive, royalty-free licenses in the Territory to use the Marks in
connection with the Business, provided that the Marks are used in combination
with W-J TSMD's registered, unregistered, or applied for trademark, notice,
label, logo design, mark, name, service mark, trade name, or trade dress. The
licenses granted in this Paragraph 2.2 shall continue in force and effect for
two years from the Effective Date of this Trademark License Agreement, unless
sooner terminated as provided for herein.
3. REPRESENTATIONS AND WARRANTIES OF WATKINS-JOHNSON
3.1 Watkins-Johnson has the full right, power and authority to
enter into this Trademark License Agreement and to grant all licenses and rights
granted herein, and is under no legal prohibition, restraint, or restriction
with respect thereto.
3.2 No consents of any third parties are required for
Watkins-Johnson to enter into this Trademark License Agreement or to license the
rights licensed herein to TSMD Acquisition and W-J TSMD.
3.3 Watkins-Johnson owns, has the exclusive right to use,
sell, license or dispose of, and has the exclusive right to bring actions for
the infringement of, all trademarks and registrations thereof listed in
Schedule 1.
3.4 Watkins-Johnson has taken all appropriate actions and made
all applicable applications and filings pursuant to applicable Laws to perfect
or protect its interest in all trademarks and registrations thereof listed in
Schedule 1.
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<PAGE>
Watkins-Johnson shall, at Watkins-Johnson's expense, take all necessary actions
to preserve the trademarks and registrations thereof listed in Schedule 1.
4. REPRESENTATIONS AND WARRANTIES OF THE TSMD GROUP
4.1 The TSMD Group has the full right, power and authority to
enter into this Trademark License Agreement, and it is under no legal
prohibition, restraint or restriction with respect thereto.
5. OWNERSHIP OF MARKS
5.1 The TSMD Group acknowledges the ownership of the Marks in
Watkins-Johnson and agrees that it will do nothing inconsistent with such
ownership. The TSMD Group agrees to assist Watkins-Johnson in recording this
Trademark License Agreement with appropriate government authorities. The TSMD
Group agrees that nothing in this Trademark License Agreement shall give the
TSMD Group any right, title, or interest in the Marks other than the right to
use the Marks in accordance with this Trademark License Agreement.
6. QUALITY STANDARDS AND MAINTENANCE
6.1 The TSMD Group agrees to cooperate with Watkins-Johnson in
facilitating Watkins-Johnson's control of the nature and quality of the Marks.
The TSMD Group is familiar with the quality standards of Watkins-Johnson. The
TSMD Group shall use the Marks licensed to it by Watkins-Johnson hereunder only
in accordance with those same reasonable standards of quality currently used by
Watkins-Johnson, which standards shall be equal to, but which shall not exceed,
the standards of quality currently used by Watkins-Johnson, and such standards
of quality are acceptable to Watkins-Johnson. Watkins-Johnson shall have the
right once per year, upon reasonable advance written notice (at least ten (10)
business days in advance), to receive from the TSMD Group specimens of the TSMD
Group's use of the Marks, as may be reasonably necessary in order to confirm
that such quality control standards are being observed.
7. FORM OF USE
7.1 The TSMD Group agrees to use the Marks only in the form
and manner and with appropriate legends as illustrated in Exhibit A or as
reasonably prescribed from time to time by Watkins-Johnson.
4
<PAGE>
8. PROTECTION AND MAINTENANCE OF MARKS
8.1 In the event that Watkins-Johnson or the TSMD Group learns
of an infringement, imitation, or other unauthorized use of the Marks by others,
the party discovering such unauthorized use shall notify the other party in
writing, and either or both of the parties shall have the right to bring action
against such person, firm or entity to stop such unauthorized use in accordance
with the following procedures:
(a) Watkins-Johnson may institute suit and, at its option or
as may be required by law, join TSMD Acquisition and W-J TSMD as plaintiffs.
Watkins-Johnson may select counsel of its choice, shall control the litigation,
shall bear the entire cost of such action, and shall be entitled to retain the
entire amount of any recovery by way of judgment, award, decree or settlement.
(b) If Watkins-Johnson determines not to institute suit, which
determination shall be communicated to TSMD Acquisition and W-J TSMD by notice
in writing given not more than sixty (60) days after Watkins-Johnson's receipt
of written notification of such infringement or unfair competition, TSMD
Acquisition and/or W-J TSMD may institute suit, and, at their option or as may
be required by law, join Watkins-Johnson as plaintiff. TSMD Acquisition and W-J
TSMD may select counsel of their choice, shall control the litigation, shall
bear the entire costs of such litigation and shall be entitled to retain the
entire amount by way of judgment, award, decree or settlement.
(c) Each party shall cooperate with the other party in any
such actions against third parties, and may if such party desires, elect to be
represented by counsel of its choice, but at its own expense.
8.2 Watkins-Johnson shall bear all costs and expenses in
pursuing any existing applications for registration of the Marks and maintaining
and, if applicable, renewing any existing registrations for the Marks. In the
event Watkins-Johnson elects not to pursue any existing applications or maintain
or renew a registration pursuant to this Paragraph 8.2, then at the TSMD Group's
option and expense, the TSMD Group shall have the right (but not the obligation)
to assume responsibility for said application or registration.
8.3 TSMD Acquisition and W-J TSMD shall have the right (but
not the obligation) to seek trademark or other intellectual property protection
for the Marks in Watkins-Johnson's name. Any and all expenses incurred in
connection with the foregoing shall be borne by TSMD Acquisition and W-J TSMD.
Watkins-Johnson shall, at the TSMD Group's expense, furnish the TSMD Group with
all reasonably requested information, assistance and
5
<PAGE>
documentation to assist the TSMD Group in obtaining such registrations
including, without limitation, filing a joint application in those jurisdictions
where registration of a user or of a licensee is permitted or required by law.
Such registrations shall be deemed to be included in the grant of the licenses
set forth in Section 2 hereof.
9. SUBLICENSE AND TRANSFER
9.1 TSMD Acquisition and W-J TSMD shall have the right to
sublicense the licenses granted in Section 2 to any Affiliate of W-J TSMD or
TSMD Acquisition, upon the condition that such Affiliates are bound by the terms
and conditions of this Trademark License Agreement.
9.2 The licenses granted in Section 2 may be transferred upon
the sale of all or substantially all of the assets of W-J TSMD or TSMD
Acquisition.
9.3 Any assignment, sale or other disposition of any Mark by
Watkins-Johnson shall not affect the license rights acquired herein to such
Mark, and any such assignment, sale or other disposition shall be subject to
such license rights.
10. TERMINATION FOR CAUSE
10.1 If either party materially fails to perform or violates
any obligation pursuant to this Trademark License Agreement, then, upon thirty
(30) days written notice to the breaching party specifying such default
("Default Notice"), the non-breaching party may terminate this Trademark License
Agreement, unless:
(a) The breach specified in the Default Notice has been
cured within the thirty (30) day period; or
(b) The default reasonably requires more than thirty (30) days
to correct, and the defaulting party has begun substantial corrective action to
remedy the default within such thirty (30) day period and diligently pursues
such action, in which event, termination shall not be effective unless ninety
(90) days have expired from the date of the Default Notice without such
corrective action being completed and the default remedied.
11. EFFECT OF TERMINATION
11.1 Upon expiration or termination of this Trademark License
Agreement pursuant to Paragraph 2.2 or Section 10, the TSMD Group agrees to
discontinue all use of the Marks; provided, however, that if on the effective
date of the expiration or
6
<PAGE>
termination of this Trademark License Agreement, the TSMD Group shall be in
possession of or own products utilizing the Marks, the licenses granted
hereunder shall be deemed to have been extended for such reasonable period of
time as will enable the TSMD Group to dispose of such products in the ordinary
course of business. Upon the disposition of the last of such products, the TSMD
Group shall discontinue the use of the Marks and shall cooperate with
Watkins-Johnson or its appointed agent to apply to the appropriate authorities
to cancel recording of this Trademark License Agreement from all government
records.
12. EFFECTIVE DATE
12.1 This Trademark License Agreement shall be effective
as of the Effective Date.
13. MISCELLANEOUS
13.1 Amendments; Waivers.
This Trademark License Agreement and any schedule or exhibit
attached hereto may be amended only by agreement in writing of all parties. No
waiver of any provision nor consent to any exception to the terms of this
Trademark License Agreement shall be effective unless in writing and signed by
the party to be bound and then only to the specific purpose, extent and instance
so provided.
13.2 Schedules; Exhibits; Integration.
Each schedule and exhibit delivered pursuant to the terms of
this Trademark License Agreement shall be in writing and shall constitute a part
of this Trademark License Agreement, although schedules and exhibits need not be
attached to each copy of this Trademark License Agreement. This Trademark
License Agreement, together with such schedules and exhibits, constitutes the
entire agreement among the parties pertaining to the subject matter hereof and
supersedes all prior agreements and understandings of the parties in connection
therewith, except for the Purchase Agreement.
7
<PAGE>
13.3 Governing Law.
This Trademark License Agreement, the legal relations between
the parties, and any Action, whether contractual or non-contractual, instituted
by any party with respect to matters arising under or growing out of or in
connection with or in respect of this Trademark License Agreement, including,
but not limited to, the negotiation, execution, interpretation, coverage, scope,
performance, breach, termination, validity or enforceability of this Trademark
License Agreement, shall be governed by and construed in accordance with the
laws of the State of California applicable to contracts made and performed in
such State and without regard to conflicts of law doctrines, except to the
extent that certain matters are preempted by federal law or are governed as a
matter of controlling law by the law of the jurisdiction of incorporation of the
respective parties.
13.4 Headings.
The descriptive headings of the Sections and Paragraphs of
this Trademark License Agreement are for convenience only and do not constitute
a part of this Trademark License Agreement.
13.5 Counterparts.
This Trademark License Agreement and any amendments hereto may
be executed in one or more counterparts. All of such counterparts shall
constitute one and the same agreement and shall become effective when one or
more counterparts have been signed by each party and delivered to the other
party.
13.6 Notices.
Any notice or other communication hereunder must be given in
writing and (a) delivered in person, (b) transmitted by telex, telefax or
telecommunications mechanism (provided that any notice so given is also mailed
or delivered as provided in clause (c)) or (c) mailed by certified or registered
mail, postage prepaid, receipt requested or delivered by reputable overnight
courier service as follows:
8
<PAGE>
If to TSMD Acquisition or W-J TSMD, addressed to:
TSMD Acquisition Corp.
c/o Mentmore Holdings, Inc.
1430 Broadway, 13th Floor
New York, NY 10018-3308
Facsimile: 212-382-1559
Attn: Michael D. Schenker, Esq.
With a copy to:
O'Melveny & Myers
Embarcadero Center West
275 Battery Street
San Francisco, CA 94111-3305
Facsimile: 415-984-8701
Attn: George A. Riley, Esq.
If to Watkins-Johnson, addressed to:
Watkins-Johnson Company
Stanford Research Park
3333 Hillview Avenue
Palo Alto, CA 94304-1223
Facsimile: 415-813-2578
Attn: Vice President and Chief Financial Officer
With a copy to:
Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto, CA 94301-1900
Facsimile: 415-324-0638
Attn: Sarah A. O'Dowd, Esq.
or to such other address or to such other person as any party shall have last
designated by such notice to the other parties. Each such notice or other
communication shall be effective (i) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
Section 13.6 and an appropriate answerback is received, (ii) if given by mail or
by overnight delivery, three days after such communication is deposited in the
mails with first class postage prepaid or delivered to the overnight courier,
addressed as aforesaid or (iii) if given by any other means, when actually
delivered at such address.
13.7 Expenses.
Watkins-Johnson and the TSMD Group shall each pay their own
expenses incident to the negotiation, preparation and
9
<PAGE>
performance of this Trademark License Agreement and the transactions
contemplated hereby.
13.8 Remedies; Waiver.
To the extent permitted by Law, all rights and remedies
existing under this Trademark License Agreement and any related agreements or
documents are cumulative to and not exclusive of, any rights or remedies
otherwise available under applicable Law. No failure on the part of any party to
exercise or delay in exercising any right hereunder shall be deemed a waiver
thereof, nor shall any single or partial exercise preclude any further or other
exercise of such or any other right.
13.9 Attorney's Fees.
In the event of any Action by any party arising under, out of,
in connection with or in respect of this Trademark License Agreement, the
prevailing party shall be entitled to reasonable attorney's fees, costs and
expenses incurred in such Action.
13.10 Representation By Counsel; Interpretation.
Watkins-Johnson and the TSMD Group each acknowledge that each
party to this Trademark License Agreement has been represented by counsel in
connection with this Trademark License Agreement. Accordingly, any rule of Law
or any legal decision that would require interpretation of any claimed
ambiguities in this Trademark License Agreement against the party that drafted
it has no application and is expressly waived. The provisions of this Trademark
License Agreement shall be interpreted in a reasonable manner to effect the
intent of the parties.
13.11 Specific Performance.
Watkins-Johnson and the TSMD Group each acknowledge that, in
view of the uniqueness of the transactions contemplated by this Trademark
License Agreement, each party would not have an adequate remedy at law for money
damages in the event that this Trademark License Agreement has not been
performed in accordance with its terms, and therefore agrees that the other
party shall be entitled to specific enforcement of the terms hereof in addition
to any other remedy to which it may be entitled, at law or in equity.
13.12 Severability.
If any provision of this Trademark License Agreement is
determined to be invalid, illegal or unenforceable by any Governmental Entity,
the remaining provisions of this Trademark
10
<PAGE>
License Agreement shall remain in full force and effect provided that the
essential terms and conditions of this Trademark License Agreement for
Watkins-Johnson and the TSMD Group remain valid, binding and enforceable.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trademark
License Agreement to be executed as of the day and year first above written.
WATKINS-JOHNSON COMPANY
By: __________________________________
Name: ________________________________
Title: _______________________________
W-J TSMD INC.
By: __________________________________
Name: ________________________________
Title: _______________________________
TSMD ACQUISITION CORP.
By: __________________________________
Name: ________________________________
Title: _______________________________
12
<PAGE>
SCHEDULE 1
<PAGE>
EXHIBIT A
Watkins-Johnson(TM) is a trademark of the Watkins-Johnson Company.
<PAGE>
EXHIBIT G
Matters to be Covered in
Opinion of Counsel to Seller and Company
1. Each of Seller and Company has been duly incorporated and
is validly existing in good standing under the laws of the State of California,
with corporate power to own its properties and assets, to enter into the
Agreement and the Ancillary Agreements and to perform its obligations under the
Agreement and the Ancillary Agreements.
2. The execution, delivery and performance of the Agreement
and the Ancillary Agreements have been duly authorized by all necessary
corporate action on the part of each of Seller and Company, and the Agreement
and the Ancillary Agreements have been duly executed and delivered by each of
Seller and Company.
3. The Agreement and each of the Ancillary Agreements
constitutes the legally valid and binding obligation of each of Seller and
Company, enforceable against each of Seller and Company in accordance with its
terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting creditors' rights generally
(including, without limitation, fraudulent conveyance laws) and by general
principles of equity, including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing and the possible unavailability of
specific performance or injunctive relief, regardless of whether considered in a
proceeding in equity or at law.
4. The execution and delivery of, and performance of its
obligations on or prior to the date of this opinion under, the Agreement and the
Ancillary Agreements by each of Seller and Company do not (i) violate Seller's
or Company's Articles of Incorporation or Bylaws, (ii) violate, breach, or
result in a default under any existing obligation of or restriction on the
Seller or the Company under any agreement listed as an exhibit to Seller's most
recent annual report on Form 10-K or (iii) breach or otherwise violate any
existing obligation of or restriction on Seller or Company under any order,
judgment or decree of any California or federal court or governmental authority
known to us binding on Seller or Company.
5. No order, consent, permit or approval of any California or
federal governmental authority that we have, in the exercise of customary
professional diligence, recognized as applicable to Seller or Company or to
transactions of the type contemplated by the Agreement and the Ancillary
Agreements is required on the part of Seller
G-1
<PAGE>
or Company for the execution and delivery of, and performance of its obligations
on or prior to the date of this opinion under, the Agreement and the Ancillary
Agreements, except for such as have been obtained or made.
6. The authorized capital stock of Company consists of 1,000
shares of Common Stock. The outstanding shares of the capital stock of Company
have been duly authorized by all necessary corporate action on the part of
Company and are validly issued, fully paid and non-assessable. Based solely upon
a review of records certified to us as the charter documents of Company and its
corporate minute books since _____ ___, 1997, the authorized but unissued shares
of capital stock of Company are not subject to any warrants, options, rights or
commitments granted by Seller or Company, and neither Company nor any subsidiary
of Company is obligated to issue, purchase or redeem any shares of Company's
capital stock. Upon payment for and delivery of the Stock in accordance with the
Agreement (assuming Buyer is a protected purchaser within the meaning of the
Uniform Commercial Code) acquiring the Stock in good faith without notice of any
adverse claim, Buyer will own the Stock free and clear of any adverse claim (as
defined in Article 8 of the Uniform Commercial Code).
G-2
<PAGE>
EXHIBIT H
Matters to be Covered in Opinion of Counsel to Buyer
1. Buyer has been duly incorporated and is validly existing in
good standing under the laws of the State of Delaware, with corporate power to
own its properties and assets, to enter into the Agreement and the Ancillary
Agreements and to perform its obligations under the Agreement and the Ancillary
Agreements.
2. The execution, delivery and performance of the Agreement
and the Ancillary Agreements have been duly authorized by all necessary
corporate action on the part of Buyer, and the Agreement and the Ancillary
Agreements have been duly executed and delivered by Buyer.
3. Each of the Agreement and each of the Ancillary Agreements
constitutes the legally valid and binding obligation of Buyer, enforceable
against Buyer in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or affecting creditors' rights generally (including, without limitation,
fraudulent conveyance laws) and by general principles of equity, including,
without limitation, concepts of materiality, reasonableness, good faith and fair
dealing and the possible unavailability of specific performance or injunctive
relief, regardless of whether considered in a proceeding in equity or at law.
4. The execution and delivery of, and performance of its
obligations on or prior to the date of this opinion under, the Agreement and the
Ancillary Agreements by Buyer do not (i) violate Buyer's Certificate of
Incorporation or Bylaws, (ii) violate, breach, or result in a default under any
existing obligation of or restriction on Buyer under any other agreement
identified to us by Buyer in a certificate executed by Buyer's Vice President
and General Counsel as being a material contract of Buyer or (iii) breach or
otherwise violate any existing obligation of or restriction on Buyer under any
order, judgment or decree of any California or federal court or governmental
authority known to us binding on Buyer.
5. No order, consent, permit or approval of any California or
federal governmental authority that we have, in the exercise of customary
professional diligence, recognized as applicable to Buyer or to transactions of
the type contemplated by the Agreement and the Ancillary Agreements is required
on the part of Buyer for the execution and delivery of, and performance of its
obligations on or prior to the date of this opinion under,
H-1
<PAGE>
the Agreement and the Ancillary Agreements, except for such as have been
obtained.
H-2
<PAGE>
DISCLOSURE SCHEDULE
This disclosure schedule ("Disclosure Schedule") is being delivered by
Watkins-Johnson Company, a California corporation ("Seller"), and W-J TSMD Inc.,
a California corporation and a wholly owned subsidiary of Seller ("Company"), in
connection with the Stock Purchase Agreement (the "Agreement") dated as of
August 29, 1997 by and among TSMD Acquisition Corp., a Delaware corporation
("Buyer"), Seller and Company. Capitalized terms used herein without definition
shall have the same meanings given to them in the Agreement.
Section 2.4(c)
Seller and Company are making the following disclosure with respect to
the last sentence of the representations contained in Section 2.4(c). With
respect to the leased personal property listed in Schedule 2.6(a), the following
agreements provide for Seller and Company to pay or indemnify the equipment
lessor for taxes incurred by the lessor:
1. Master lease agreement with Comdisco, Inc. dated January 14, 1985
and related purchase order number 9726-1.
2. Purchase order number 20831-1 with Scott Speciality Gas.
3. Purchase order number D-2645500-l with VPSI.
4. Purchase order number 15765 and 8115 with Electro Rent Corporation.
5. Purchase order number 8090 with Continental Resources, Inc.
6. Financing Agreement 4124-50788 and related Product Schedule and
Payment Agreement with Hewlett-Packard dated April 12, 1997 and related purchase
order number 24752.
Section 2.5
With regard to the second sentence of Section 2.5 of the Agreement,
please be advised that Seller and Company are parties to certain contracts the
disclosure of which are prohibited either contractually or legally. Accordingly,
Seller or Company have not yet made copies of such agreements available to
Buyer.
<PAGE>
Section 2.6(a)
With regard to the third sentence of Section 2.6(a) of the Agreement,
inventory liens by Raytheon on prepaid contracts for AMRAAM products under the
following purchase orders: 72-RYOO-68-7552, 72-RYOO-68-7515, 72-RYOO-68-7760,
72-RYO 1-68-2157, 72-WP02-68-0417, 72-WPO2-68-0419 and 72-WP02-68-0394.
Section 2.7
Schedule 2.7 does not provide a list of copyrighted material owned by
Seller (with respect to the Business) or Company. Such list is unavailable
because Seller does not track such copyrights even though Seller has, by
publishing certain materials, certain rights under copyright laws even though
the copyright is not registered.
Section 2.16
(a)(1) Each employee of Seller and Company receives an offer letter
which outlines the terms of their employment. Seller and Company have made
available to Buyer copies of the form of such letters, a copy of which is
attached as Exhibit B to Schedule 2.16. Seller represents and warrants that all
of the offer letters are substantially in the form attached as Exhibit B to
Schedule 2.16. Seller enters into non-disclosure, invention and assignment
agreements with all of its employees. Seller has provided Buyer with forms of
such agreements. Seller represents and warrants that all of the non-disclosure,
inventions and assignment agreements between Seller and its employees are
substantially in the forms provided to Buyer.
Section 2.17
Kevin Hunter and Timothy Boland have executed promissory notes in favor
of Seller for the aggregate principal amount of $85,000. Exhibit A to Schedule
2.5(1) sets forth the details relating to such promissory notes.
Section 2.18
Seller (with respect to the Business) and Company are party to certain
customer contracts with Seller's units not within the Business. A list of such
contracts is set forth on Exhibit B to Schedule 2.5(1).
2
<PAGE>
SCHEDULE 1.1
Excluded Assets
1. Accounts Receivable.
2. Deferred Tax Assets.
3. Other Current Assets - Prepaids.
4. All licensed intellectual property identified as such in Schedule 2.7.
5. All excluded patents identified on Exhibit A to this Schedule 1.1.
<PAGE>
SCHEDULE 1.1 EXCLUDED ASSETS
EXCLUDED PATENTS/PATENT APPLICATIONS/INVENTION DISCLOSURES
The following are excluded from license or transfer to TSMD:
(a)
<TABLE>
<CAPTION>
====================================================================================================================================
Serial No./ Patent No./
Reference No. Title/First Named Inventor Filing Date Issue Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
A-16178-6/AJT LOW TEMPERATURE CHEMICAL VAPOR DEPOSITION OF SILICON USSN 07/068,727 US 4,845,054
DIOXIDE Filed 06/29/87 Issued 07/04/89
- ------------------------------------------------------------------------------------------------------------------------------------
A-16178-7/AJT CVD REACTOR AND GAS INJECTION SYSTEM USSN 07/044,326 US 4,834,022
Filed 10/27/87 Issued 05/30/89
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
A-44048/AJT ATMOSPHERIC PRESSURE CHEMICAL VAPOR DEPOSITION USSN 07/128,806 US 4,834,020
APPARATUS AND METHOD; Bartholomew Filed 12/04/87 Issued 05/03/89
- ------------------------------------------------------------------------------------------------------------------------------------
A-44153/AJT CLEAN ROOM ROBOT; Stevens USSN 07/089,591 US 4,787,813
08/26/87 Issued 11/29/88
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
SCHEDULE 1 TO PATENT CROSS LICENSE AGREEMENT
EXCLUDED PATENTS/PATENT APPLICATIONS/INVENTION DISCLOSURES October 30, 1997
</TABLE>
* Indicates that certain material has been omitted pursuant to a request
for confidential treatment. Such material is contained in a copy
of this document provided to the Securities and Exchange Commission.
1
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Serial No./ Patent No./
Reference No. Title/First Named Inventor Filing Date Issue Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
*
- ------------------------------------------------------------------------------------------------------------------------------------
A-52244/AJT ELECTRICALLY INSULATED PIPE COUPLING APPARATUS; Gralenski USSN 07/570,122 US 5,088,773
Filed 08/17/90 Issued 02/18/92
- ------------------------------------------------------------------------------------------------------------------------------------
A-52353/AJT/WSG INJECTOR AND METHOD FOR DELIVERING GASEOUS CHEMICALS TO USSN 07/542,243 US 5,136,975
A SURFACE; Bartholomew Filed 06/21/90 Issued 08/11/92
- ------------------------------------------------------------------------------------------------------------------------------------
A-52354/AJT/WSG SELF CLEANING ORIFICE; Kamian USSN 07/513,807 US 5,113,789
Filed 04/24/90 Issued 05/19/92
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
A-53836/AJT LIQUID SOURCE BUBBLER; Richie USSN 07/601,270 US 5,078,922
Filed 10/22/90 Issued 01/07/92
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
A-53859/AJT LIQUID LEVEL SENSOR ASSEMBLY; Goodrich USSN 07/601,408 US 5,029,471
Filed 10/23/90 Issued 07/09/91
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
SCHEDULE 1 TO PATENT CROSS LICENSE AGREEMENT
EXCLUDED PATENTS/PATENT APPLICATIONS/INVENTION DISCLOSURES October 30, 1997
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Serial No./ Patent No./
Reference No. Title/First Named Inventor Filing Date Issue Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
A-56598/AJT HEATER FOR PROCESSING GASES; Collins USSN 07/971,490 US 5,377,300
Filed 11/04/92 Issued 12/27/94
- ------------------------------------------------------------------------------------------------------------------------------------
A-56818/AJT LOW PHASE NOISE REFERENCE OSCILLATOR; Nardi USSN 08/091,615 US 5,341,110
Filed 07/14/93 Issued 08/23/94
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
A-58019/AJT CHEMICAL VAPOR DEPOSITION OF SILICON DIOXIDE USING USSN 08/071,516 US 5,304,398
HEXAMETHYLDISILAZANE; Krusell Filed 06/03/93 Issued 04/19/94
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
SCHEDULE 1 TO PATENT CROSS LICENSE AGREEMENT
EXCLUDED PATENTS/PATENT APPLICATIONS/INVENTION DISCLOSURES October 30, 1997
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Serial No./ Patent No./
Reference No. Title/First Named Inventor Filing Date Issue Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
*
- ------------------------------------------------------------------------------------------------------------------------------------
A-60164 /AJT/MSS METHOD OF PLANARIZING A LAYER OF MATERIAL; Fry USSN 08/447,809 US 5,668,063
Filed 5/23/95 Issued 09/16/97
- ------------------------------------------------------------------------------------------------------------------------------------
A-60785/AJT/MSS METHOD OF FORMING A FLUORINATED SILICON OXIDE LAYER USSN 08/386,647 US 5,571,576
USING PLASMA CHEMICAL VAPOR DEPOSITION; Qian Filed 02/10/95 Issued 11/05/96
- ------------------------------------------------------------------------------------------------------------------------------------
SCHEDULE 1 TO PATENT CROSS LICENSE AGREEMENT
EXCLUDED PATENTS/PATENT APPLICATIONS/INVENTION DISCLOSURES October 30, 1997
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Serial No./ Patent No./
Reference No. Title/First Named Inventor Filing Date Issue Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
*
- ------------------------------------------------------------------------------------------------------------------------------------
SCHEDULE 1 TO PATENT CROSS LICENSE AGREEMENT
EXCLUDED PATENTS/PATENT APPLICATIONS/INVENTION DISCLOSURES October 30, 1997
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Serial No./ Patent No./
Reference No. Title/First Named Inventor Filing Date Issue Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
*
- ------------------------------------------------------------------------------------------------------------------------------------
SCHEDULE 1 TO PATENT CROSS LICENSE AGREEMENT
EXCLUDED PATENTS/PATENT APPLICATIONS/INVENTION DISCLOSURES October 30, 1997
</TABLE>
6
<PAGE>
SCHEDULE 2.1
Officers & Directors
Officers
President: W. Keith Kennedy, Jr.
Secretary: Claudia D. Kelly
Treasurer: Scott G. Buchanan
Directors
Dean A. Watkins
H. Richard Johnson
W. Keith Kennedy, Jr.
<PAGE>
SCHEDULE 2.5(g)
Certain Extensions of Credit
None
<PAGE>
SCHEDULE 2.5(h)
Restrictions on Competition
1. Strategic Agreement and FOTT Agreement with Hughes dated May 23, 1996
2. Teaming Agreement with Kaman Sciences Corporation dated August 13, 1996
3. Stock Purchase Agreement with Condor Systems, Inc. dated as of April 28,
1995
<PAGE>
SCHEDULE 2.5(i)
Guarantees/Indemnities
Exhibit A attached to Schedule 2.5(i) is a copy of the indemnity agreement
between Seller and Keith D. Gilbert dated May 31, 1988.
<PAGE>
EXHIBIT A
INDEMNITY AGREEMENT
This Indemnity Agreement ("Agreement") is made as of
May 31, 1988 by and between Watkins-Johnson Company, a California corporation
("Company"), and Keith D. Gilbert ("Indemnitee"), an officer of the Company.
RECITALS
A. The Indemnitee is currently serving or has agreed to
serve as an officer of the Company and in such capacity has rendered or will
render valuable services to the Company.
B. The Company has investigated the availability and
sufficiency of liability insurance and California statutory indemnification
provisions to provide its directors, officers, employees, and agents with
adequate protection against various legal risks and potential liabilities to
which such individuals are subject due to their positions with the Company and
has concluded that such insurance and statutory provisions may provide
inadequate and unacceptable protection to certain individuals requested to serve
as directors, officers, employees, and agents.
C. In order to induce and encourage highly experienced and
capable persons such as the Indemnitee to serve as officers of the Company, the
Board of Directors has determined, after due consideration and investigation of
the terms and provisions of this Agreement and the various other options
available to the Company and the Indemnitee in lieu hereof, that this Agreement
is not only reasonable and prudent but necessary to promote and ensure the best
interests of the Company and its shareholders.
AGREEMENT
NOW, THEREFORE, in consideration of the services of the
Indemnitee and in order to induce the Indemnitee to serve as an officer, the
Company and the Indemnitee do hereby agree as follows:
1. Definitions. As used in this Agreement
(a) The term "Proceeding" shall include any threatened,
pending or completed action, suit or proceeding, formal or
informal, whether brought in a civil, criminal or
administrative or investigative nature, by reason of the fact
that the Indemnitee is or was an officer of the Company, or is
or was serving at the request of the Company as a director,
officer, employee or agent of another corporation or other
enterprise, including service with respect to employee benefit
plans, whether or not he or she is serving in such capacity at
the time any liability or expense is incurred for which
indemnification or reimbursement is to be provided under this
Agreement.
-1-
<PAGE>
(b) The term "Expenses' includes, without limitation,
attorneys' fees, disbursements and retainers, accounting and
witness fees, travel and deposition costs, expenses of
investigations, judicial or administrative proceedings and
appeals, amounts paid in settlement by or on behalf of
Indemnitee, and any expenses of establishing a right to
indemnification, pursuant to this Agreement or otherwise,
including reasonable compensation for time spent by the
Indemnitee in connection with the investigation, defense or
appeal of a Proceeding or action for indemnification for
which he or she is not otherwise compensated by the
Company or any third party. The term "Expenses" does not
indude the amount of judgments, fines, penalties or ERISA
excise taxes actually levied against the Indemnitee.
2. Agreement to Serve. The Indemnitee agrees to serve as an
officer of the Company at the will of the Company for so long as he or she
is duly elected or appointed or until such time as he or she tenders his
or her resignation in writing or is removed as an officer.
3. Indemnification in Third Party Actions. The Company
shall indemnify the Indemnitee if the Indemnitee is a party to or
threatened to be made a party to or is otherwise involved in any
Proceeding (other than a Proceeding by or in the name of the Company to
procure a judgment in its favor), by reason of the fact that the Indemnitee
is or was an officer of the Company, or is or was serving at the request of
the Company as a director, officer, employee or agent of another
corporation or other enterprise, including service with respect to employee
benefit plans, against all Expenses, judgments, fines, penalties and ERISA
excise taxes actually and reasonably incurred by the Indemnitee in
connection with the defense or settlement of such a Proceeding, to the
fullest extent permitted by California law and the Company's Articles of
Incorporation; provided that any settlement of a Proceeding be approved in
writing by the Company.
4. Indemnification in Proceedings By or In the Name of the
Company. The Company shall indemnify the Indemnitee if the Indemnitee is a
party to or threatened to be made a party to or is otherwise involved in
any Proceeding by or in the name of the Company to procure a judgment in
its favor by reason of the fact that the Indemnitee was or is an officer of
the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation or other
enterprise, including service with respect to employee benefit plans,
against all Expenses, judgments, fines, penalties and ERISA excise taxes
actually and reasonably incurred by the Indemnitee in connection with the
defense or settlement of such a Proceeding, to the fullest extent permitted
by California law and the Company's Articles of Incorporation.
5. Conclusive Presumption Regarding Standards of Conduct.
The Indemnitee shall be conclusively presumed to have met the relevant
standards of conduct, if any, as defined by California law, for
indemnification pursuant to this Agreement, unless a determination is made
that the Indemnitee has not met such standards (i) by the Board of
Directors by a majority vote of a quorum thereof
-2-
<PAGE>
consisting of directors who were not parties to the Proceeding due to which
a claim is made under this Agreement, (ii) by the shareholders of the
Company by majority vote of a quorum thereof consisting of shareholders who
are not parties to the Proceeding due to which a claim is made under this
Agreement, (iii) in a written opinion by independent counsel, selection of
whom has been approved by the Indemnitee in writing, or (iv) by a court of
competent jurisdiction.
6. Indemnification of Expenses of Successful Party.
Notwithstanding any other provision of this Agreement, to the extent that
the Indemnitee has been successful in defense of any Proceeding or in
defense of any claim, issue or matter therein, on the merits or otherwise,
including the dismissal of a Proceeding without prejudice or the settlement
of a Proceeding without an admission of liability, the Indemnitee shall be
indemnified against all Expenses incurred in connection therewith to the
fullest extent permitted by California law.
7. Advances of Expenses. The Expenses incurred by the
Indemnitee in any Proceeding shall be paid promptly by the Company in
advance of the final disposition of the Proceeding at the written request
of the Indemnitee to the fullest extent permitted by California law;
provided that the Indemnitee shall undertake in writing to repay any
advances if it is ultimately determined that the Indemnitee is not entitled
to indemnification.
8. Partial Indemnification. If the Indemnitee is entitled
under any provision of this Agreement to indemnification by the Company for
a portion of the Expenses, judgments, fines, penalties or ERISA excise
taxes actually and reasonably incurred by him or her in the investigation,
defense, appeal or settlement of any Proceeding but not, however, for the
total amount of his or her Expenses, judgments, fines, penalties or ERISA
excise taxes, the Company shall nevertheless indemnity the Indemnitee for
the portion of Expenses, judgments, fines, penalties or ERISA excise taxes
to which the Indemnitee is entitled.
9. Indemnification Procedure; Determination of Right to
Indemnification.
(a) Promptly after receipt by the Indemnitee of notice
of the commencement of any Proceeding, the Indemnitee shall,
if a claim in respect thereof is to be made against the
Company under this Agreement, notify the Company of the
commencement thereof in writing. The omission to so notify the
Company will not relieve it under this Agreement unless the
Company shall have lost to the defense of any Proceeding as a
result of such omission to so notify.
(b) If a claim for indemnification or advances under this
Agreement is not paid by the Company within 30 days of receipt
of written notice, the rights provided by this Agreement shall
be enforceable by the Indemnitee in any court of competent
jurisdiction. The burden of providing by clear and convincing
evidence that indemnification or advances are not appropriate
shall be on the Company. Neither the failure of the directors
-3-
<PAGE>
or shareholders of the Company or its independent legal
counsel to have made a determination prior to the commencement
of such action that indemnification or advances are proper in
the circumstances because the Indemnitee has met the
applicable standard of conduct, if any, nor an actual
determination by the directors or shareholders of the Company
or independent legal counsel that the Indemnitee has not met
the applicable standard of conduct, shall be a defense to the
action or create a presumption for the purpose of an action
that the Indemnitee has not me: the applicable standard of
conduct.
(c) The Indemnitee's Expenses incurred in connection
with any proceeding concerning his right to indemnification or
advances in whole or in part pursuant to this Agreement shall
also be indemnified by the Company regardless of the outcome
of such a proceeding.
(d) With respect to any Proceeding for which
indemnification is requested, the Company will be entitled to
participate therein at its own expense and, except as
otherwise provided below, to the extent that it may wish, the
Company may assume the defense thereof, with counsel
satisfactory to the Indemnitee. After notice from the Company
to the Indemnitee of its election to assume the defense of a
Proceeding, the Company will not be liable to the Indemnitee
under this Agreement for any Expenses subsequently incurred by
the Indemnitee in connection with the defense thereof, other
than as provided below. The Company shall not settle any
Proceeding in any manner which would impose any penalty or
limitation on the Indemnitee without the Indemnitee's written
consent. The Indemnitee shall have the right to employ his or
her own counsel in any Proceeding, but the fees and expenses
of such counsel incurred after notice from the Company of its
assumption of the defense of the Proceeding shall be at the
expense of the Indemnitee, unless (i) the employment of
counsel by the Indemnitee has been authorized by the Company,
(ii) the Indemnitee shall have reasonably concluded that there
may be a conflict of interest between the Company and the
Indemnitee in the conduct of the defense of a Proceeding, or
(iii) the Company shall not in fact have employed counsel to
assume the defense of a Proceeding, in each of which cases the
fees and expenses of the Indemnitee's counsel shall be
advanced by the Company. The Company shall not be entitled to
assume the defense of any Proceeding brought by or behalf of
the Company or as to which the Indemnitee has concluded that
there may be a conflict of interest between the Company and
the Indemnitee.
-4-
<PAGE>
10. Limitations on Indemnification. No payments pursuant to
this Agreement shall be made by the Company:
(a) To indemnify or advance funds to the Indemnitee for
Expenses with respect to Proceedings initiated or brought
voluntarily by the Indemnitee and not by way of defense,
except with respect to Proceedings brought to establish or
enforce a right to indemnification under this Agreement or any
other statute or law or otherwise as required under California
law, but such indemnification or advancement of expenses may
be provided by the Company in specific cases if the Board of
Directors finds it to be appropriate;
(b) To indemnify the Indemnitee for any Expenses,
judgments, fines, penalties or ERISA excise taxes sustained in
any Proceeding for which payment is actually made to the
Indemnitee under a valid and collectible insurance policy,
except in respect of any excess beyond the amount of payment
under such insurance;
(c) To indemnify the Indemnitee for any Expenses,
judgments, fines or penalties sustained in any Proceeding for
an accounting of profits made from the purchase or sale by the
Indemnitee of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of
1934, the rules and regulations promulgated thereunder and
amendments thereto or similar provisions of any federal, state
or local statutory law; and
(d) If a court of competent jurisdiction finally
determines that any indemnification hereunder is unlawful.
11. Maintenance of Liability Insurance.
(a) The Company hereby covenants and agrees that, as
long as the Indemnitee continues to serve as an officer of the
Company and thereafter as long as the Indemnitee may be
subject to any possible Proceeding, the Company, subject to
subsection (c), shall promptly obtain and maintain in full
force and effect directors' and officers' liability insurance
("D&O Insurance") in reasonable amounts from established and
reputable insurers.
(b) In all D&O Insurance policies, the Indemnitee shall
be named as an insured in such a manner as to provide the
Indemnitee the same rights and benefits as are accorded to the
most favorably insured of the Company's officers.
(c) Notwithstanding the foregoing, the Company shall
have no obligation to obtain or maintain D&O Insurance if the
Company determines, in its sole discretion, that such
insurance is not reasonably available, the premium costs for
such insurance are disproportionate to the
-5-
<PAGE>
amount of coverage provided, the coverage provided by such
insurance is so limited by exclusions that it provides an
insufficient benefit, or the Indemnitee is covered by similar
insurance maintained by a subsidiary of the Company.
12. Indemnification Hereunder Not Exclusive. The
indemnification provided by this Agreement shall not be deemed exclusive of
any other rights to which the Indemnitee may be entitled under the Articles
of Incorporation, Bylaws, any agreement, vote of shareholders or
disinterested directors, provision of California law, or otherwise, both as
to action in his or her official capacity and as to action in another
capacity on behalf of the Company while holding such office.
13. Successors and Assigns. This Agreement shall be binding
upon, and shall inure to the benefit of the Indemnitee and his or her
heirs, executors, administrators and assigns, whether or not Indemnitee has
ceased to be a director or officer, and the Company and its successors and
assigns; provided that the obligations of the Company under this Agreement
shall not be assigned or delegated without the prior written consent of the
Indemnitee except that in the event that the Company shall merge or
consolidate with any other corporation or all or substantially all the
Company's business or assets shall be transferred in any manner to any
other person, such successor shall thereupon succeed to, and be subject to,
all rights, interests, duties and obligations of, and shall thereafter be
deemed for all purposes hereof to be, the Company hereunder.
14. Separability. Each and every paragraph, sentence, term and
provision of this Agreement is separate and distinct so that if any
paragraph, sentence, term or provision thereof shall be held to be invalid
or unenforceable for any reason, such invalidity or unenforceability shall
not affect the validity or enforceability of any other paragraph, sentence,
term or provision hereof. To the extent required, any paragraph, sentence,
term or provision of this Agreement may be modified by a court of competent
jurisdiction to preserve its validity and to provide the Indemnitee with
the broadest possible indemnification permitted under California law.
15. Savings Clause. If this Agreement or any paragraph,
sentence, term or provision hereof is invalidated on any ground by any
court of competent jurisdiction, the Company shall nevertheless indemnify
the Indemnitee as to any Expenses, judgments, fines, penalties or ERISA
excise taxes incurred with respect to any Proceeding to the full extent
permitted by any applicable paragraph, sentence, term or provision of this
Agreement that has not been invalidated or by any other applicable
provision of California law.
16. Interpretation; Governing Law. This Agreement shall be
construed as a whole and in accordance with its fair meaning. Headings are
for convenience only and shall not be used in construing meaning. This
Agreement shall be governed and interpreted in accordance with the laws of
the State of California.
<PAGE>
17. Amendments. No amendment, waiver, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by the party against whom enforcement is sought. The
indemnification rights afforded to the Indemnitee hereby are contract
rights and may not be diminished, eliminated or otherwise affected by
amendments to the Articles of Incorporation, Bylaws or by other agreements,
including D&O Insurance policies.
18. Counterparts. This Agreement may be expected in one or
more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have
been signed by each party and delivered to the other.
19. Notices. Any notice required to be given under this
Agreement shall be directed to Watkins-Johnson Company, 3333 Hillview
Avenue, Palo Alto, California 94304-1204, Attention: General Counsel, and
to Indemnitee at 3333 Hillview Avenue, Palto Alto, CA 94304 or such other
address as either shall designate in writing.
IN WITNESS WHEREOF, the parties have executed this Indemnity
Agreement as of the date first written above.
INDEMNITEE
/s/ Keith D. Gilbert
---------------------------------------------
WATKINS-JOHNSON COMPANY
By: /s/ W. Keith Kennedy
---------------------------------------------
Its: President
---------------------------------------------
-7-
<PAGE>
SCHEDULE 2.5(j)
Power of Attorney & Agency
Because of geographical considerations, distributors and representatives of
Seller disclosed on Exhibit A to Schedule 2.5(f) have been granted agency
authority to negotiate on behalf of Seller as specified therein.
Freight forwarders have powers of attorney to execute customs documents to ship
Seller and Company products.
<PAGE>
SCHEDULE 2.5(k)
Right of First Refusal
None
<PAGE>
SCHEDULE 2.5(l)
Certain Obligations
1. Exhibit A attached to Schedule 2.5(I) sets forth a list of notes
receivable by Seller from certain affiliates of Seller.
2. Exhibit B attached to Schedule 2.5(1) sets forth a list of open orders
placed by the Seller with its affiliates as such orders relate to the
business.
<PAGE>
EXHIBIT A
WATKINS-JOHNSON COMPANY
ANALYSIS OF NOTES RECEIVABLE
APRIL, 1997
1. Note receivable, Timothy Boland per agreement 12/16/94 $100,000.00
1st year forgiveness (95) (25,000.00)
2nd year forgiveness (96) (25,000.00)
3rd year forgiveness (97) (8,654.00)
2. Note receivable, Kevin Hunter per agreement 8/23/96 $35,000.00
1st year forgiveness (96) (3,533.00)
2nd year forgiveness (97) (3,028.00)
<PAGE>
EXHIBIT B
OPEN ORDERS PLACED BY WATKINS-JOHNSON
Purchase Sales Ordered
Customer Order Order Date Total Amount
- -------- -------- ------- ------- ------------
WATKINS-JOHNSON/GAITHERSBURG 29849 2010379 5/22/97 558.00
26156-15 2010469 5/31/97 920.00
26156-18 2010660 6/14/97 6,409.00
26156-18 2010717 6/19/97 57,817.00
30679 2010745 6/21/97 415.00
26156-21 2010804 6/26/97 21,199.00
31282 2010994 7/14/97 400.00
26156-23 2010998 7/14/97 480.00
28156-22 2011021 7/16/97 8,381.00
26156-24 2011068 7/23/97 2,593.00
26156-26 2011174 7/31/97 922.00
26156-25 2011175 7/31/97 1,605.00
26156-27 2011338 8/19/97 344.00
26156-28 2011367 8/21/97 8,081.00
WATKINS-JOHNSON EUROPE, LIMITED 033739 2008742 12/20/96 540.00
033741 2008804 12/31/96 540.00
033744 2008813 12/31/96 540.00
101178 2010783 6/24/97 1,147.50
100461 2011220 8/6/97 46,086.39
100676 2011221 6/6/97 56,422.98
100457 2011222 8/6/97 47,234.88
101490 2011337 8/1/97 20,493.00
101570 2011365 8/21/97 5,310.00
1
<PAGE>
SCHEDULE 2.5(o)
Non-Ordinary Course Contracts
None
<PAGE>
SCHEDULE 2.6(a)
Real Property/Personal Property
Real Property
Set forth below is a list of real property leases that are material to the
Business:
1. Real property lease relating to Building 3.
2. Real property lease relating to Building 6.
Personal Property
Set forth below is a list of personal property that is material to the Business:
1. Master lease agreement with Comdisco, Inc. Dated January 14, 1985 and
related purchase order number 9726-1.
2. Purchase order number 20831-1 with Scott Specialty Gas.
3. Purchase order number D-2645500-1 with VPSI.
4. Purchase order numbers 15765 and 8115 with Electro Rent Corporation.
5. Purchase order number 8090 with Continental Resources, Inc.
6. Financing Agreement 4124-50788 and related Product Schedule and Payment
Agreement with Hewlett-Packard dated April 12, 1997 and related
purchase order number 24752.
This Schedule 2.6(a) also incorporates by reference the contents of the
velo-bound "Asset List Summary".
<PAGE>
SCHEDULE 2.7
Intellectual Property
Schedule 2.7 does not list Seller's (with respect to the Business) or
Company's Intellectual Property Rights because listing all such rights would be
unduly burdensome. Nonetheless, Seller acknowledges and agrees that each and
every Intellecutal Property Right used in the conduct of, connected with or
comprising the Business is a Purchased Asset. The parties agree that the
Intellectual Property Rights related to the fabrication and processing of Thin
Film parts will be transferred to Company and will be included as a Purchased
Asset. Subject to the terms and conditions of the GaAs/Thin Film Agreement and
the License Agreement, Seller will be licensed to such Intellectual Property
Rights. The parties further agree that the Intellectual Property Rights related
to the fabrication and processing of Gallium Arsenide parts remains the property
of Seller. Subject to the terms and conditions of the GaAs/Thin Film Agreement
and the License Agreement, Buyer and Company will be licensed to such
Intellectual Property.
1
0087704.01
<PAGE>
SCHEDULE 2.7 to Purchase Agreement
TRANSFERRED Patents/Pending Patent Applications/Invention Disclosures to TSMD
<TABLE>
<CAPTION>
====================================================================================================================================
Serial No./ Patent No./ Foreign
Reference No. Title/Inventors Filing Date Issue Date Countries
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
G-16178-1/AJT VARIABLE LINE EXTENDER FOR WAVE USSN 721,333 US 4,677,400
GUIDE/Griffith, et al. Filed 04/08/85 Issued 06/30/87
- ------------------------------------------------------------------------------------------------------------------------------------
G-16178-2/AJT HIGH FREQUENCY CONVERTER USSN 668,718 US 3,584,306
Filed Issued 06/08/71
Expired
- ------------------------------------------------------------------------------------------------------------------------------------
G-16178-3/AJT HIGH FREQUENCY CONVERTER/Robert Griffith, et al USSN 851,923 US 3,638,126
Filed Issued 01/25/72
Expired
- ------------------------------------------------------------------------------------------------------------------------------------
G-16178-4/AJT MILLIMETER-WAVE ODD HARMONIC USSN 278,815 US 4,394,632
FREQUENCY MULTIPLIER/ Hu Filed 06/29/81 Issued 07/19/83
- ------------------------------------------------------------------------------------------------------------------------------------
G-16178-5/AJT MILLIMETER-WAVE STRIPLINE PLANAR USSN 364,289 US 4,412,354
MIXER/ Hu Filed 04/01/82 Issued 10/25/83
- ------------------------------------------------------------------------------------------------------------------------------------
A-25007/AJT PERIODIC PERMANENT MAGNET FOCUSED USSN 120,466 US 3,684,914
TRAVELING WAVE TUBE/ Purnell Issued 03/30/71 Issued 08/15/72
Expired
- ------------------------------------------------------------------------------------------------------------------------------------
A-31892/AJT/SCS THIN FILM MICROWAVE VOLTAGE USSN 851,458 US 4,156,211
CONTROLLED OSCILLATOR/Buswell, Evers, Heichel Filed 11/14/77 Issued 05/22/79
Expired
- ------------------------------------------------------------------------------------------------------------------------------------
A-36756/AJT Controlled Voltage Yttrium Iron Garnet (YIG) USSN 291,618 USSN 4,420,731
Resonator Apparatus Filed 8/10/81 Issued 12/13/83
Schiebold, Green Expired
- ------------------------------------------------------------------------------------------------------------------------------------
1
- --------
* Indicates that certain material has been omitted pursuant to a request
for confidential treatment. Such material is contained in a copy
of this document provided to the Securities and Exchange Commission.
Schedule 2.7 to Purchase Agreement September 3, 1997
Transferred Patents/Patent Applications/Invention Disclosures
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Serial No./ Patent No./ Foreign
Reference No. Title/Inventors Filing Date Issue Date Countries
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FA-36756-JP/AJT Controlled Voltage Yttrium Iron Garnet (YIG) Appl. 139083/1982 JP 1470456 Japan
Resonator Apparatus Filed 08/10/82 Issued 12/14/88
Schiebold, Green
- ------------------------------------------------------------------------------------------------------------------------------------
A-37012/AJT RF Amplifier Circuit Employing FET Devices USSN 316,130 US 4,423,388
Crescenzi, Wilser, Oglesbee, Gold Filed 10/29/81 Issued 12/27/83
Expired
- ------------------------------------------------------------------------------------------------------------------------------------
A-37341/AJT HOUSING FOR MICROWAVE ELECTRONIC USSN 06/326,757 US 4,455,448
DEVICES; Bertolina Filed 12/02/81 Issued 06/19/84
- ------------------------------------------------------------------------------------------------------------------------------------
A-40351/AJT Microwave Circuit Structure and Method of Mounting USSN 593,908 US 4,547,755
Roberts Filed 03/27/84 Issued 10/15/85
- ------------------------------------------------------------------------------------------------------------------------------------
A-43820/AJT WIDEBAND MICROWAVE MATRIX AMPLIFIER USSN 015,908 US 4,752,746
Niclas Filed 02/18/87 Issued 06/21/88
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
A-45171/AJT CONNECTOR ASSEMBLY FOR MICROWAVE USSN 38,539 US 4,737,123 All foreign
INTEGRATED CIRCUITS Filed 04/15/87 Issued 04/12/88 cases expired
Paler, Johnson, Buchholz, Galli Expired
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
A-50202/AJT MICROWAVE NOTCH FILTER SUING PIN USSN 360,312 US 4,965,539
DIODE SHUNTED YIG RESONATOR Filed 06/02/89 Issued 10/23/90
Korber
- ------------------------------------------------------------------------------------------------------------------------------------
A-50847/AJT APPARATUS FOR LOW STRESS POLISHING USSN 455,182 US 4,965,967
OF SPHERICAL OBJECTS Filed 12/22/89 Issued 10/30/90
London
- ------------------------------------------------------------------------------------------------------------------------------------
2
Schedule 2.7 to Purchase Agreement September 3, 1997
Transferred Patents/Patent Applications/Invention Disclosures
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Serial No./ Patent No./ Foreign
Reference No. Title/Inventors Filing Date Issue Date Countries
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A-51965/AJT SURFACE MOUNT PACKAGE FOR RF DEVICES USSN 570,121 US 5,117,068
Ledford, Seieroe Filed 08/17/90 Issued 05/26/92
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
A-54458/AJT RF GLASS FEEDTHROUGH SEAL AND METHOD USSN 756,462 US 5,170,142
Bier Filed 09/09/91 Issued 12/08/92
Expired
- ------------------------------------------------------------------------------------------------------------------------------------
A-56617/AJT HIGH FREQUENCY LIMITER AND SWITCH USSN 940,072 US 5,300,900
LIMITER CIRCUIT HAVING IMPROVED RECOVERY Filed 09/03/92 Issued 04/05/94
TIME
Bellantoni
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
A-57396/AJT DUAL MODE LOGARITHMIC AMPLIFIER USSN 016,073 US 5,414,313
HAVING CASCADED STAGES Filed 02/10/93 Issued 05/09/95
Bamford, Crescrenzi, O'Mahoney, Wandinger
- ------------------------------------------------------------------------------------------------------------------------------------
A-58859/AJT PROCESS FOR FORMING SOLID USSN 181,665 US 5,454,928
CONDUCTIVE VIAS IN SUBSTRATES Filed 01/14/94 Issued 10/03/95
Besser, Novice, Rogers, Washburn, White
- ------------------------------------------------------------------------------------------------------------------------------------
FA-58859-IL/AJT PROCESS FOR FORMING SOLID Appl. 112294 IL 112294 Israel
CNDUCTIVE VIAS IN SUBSTRATES Filed 01/10/95 Issued 02/02/97
Besser, Novice, Rogers, Washburn, White
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
3
Schedule 2.7 to Purchase Agreement September 3, 1997
Transferred Patents/Patent Applications/Invention Disclosures
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Serial No./ Patent No./ Foreign
Reference No. Title/Inventors Filing Date Issue Date Countries
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
*
- ------------------------------------------------------------------------------------------------------------------------------------
SS-578-01 MICROWAVE INTEGRATED CIRCUIT USSN 542,724 US 5,102,029
PACKAGE TO ELIMINATE ALUMINA SUBSTRATE Filed 06/22/90 Issued 04/07/92
CRACKING
Brody, Richardson, Richardson
- ------------------------------------------------------------------------------------------------------------------------------------
SS-578-01/DIV MICROWAVE INTEGRATED CIRCUIT USSN 809,699 US 5,175,611
PACKAGE TO ELIMINATE ALUMINA SUBSTRATE Filed 12/16/91 12/29/92
CRACKING
- ------------------------------------------------------------------------------------------------------------------------------------
SS-578-01/J MICROWAVE INTEGRATED CIRCUIT JP 2544031 Japan
PACKAGE TO ELIMINATE ALUMINA Issued 07/25/96
SUBSTRATE CRACKING
Brody, Richardson, Richardson
- ------------------------------------------------------------------------------------------------------------------------------------
SS-578-01/UK MICROWAVE INTEGRATED CIRCUIT UK 2246470 UK
PACKAGE TO ELIMINATE ALUMINA Issued 10/05/94
SUBSTRATE CRACKING
Brody, Richardson, Richardson
- ------------------------------------------------------------------------------------------------------------------------------------
4
Schedule 2.7 to Purchase Agreement September 3, 1997
Transferred Patents/Patent Applications/Invention Disclosures
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Serial No./ Patent No./ Foreign
Reference No. Title/Inventors Filing Date Issue Date Countries
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SS-578-02 DC-40 GHZ MODULE INTERFACE USSN 578,668 US 5,065,124
Chrzan Filed 09/04/90 Issued 11/12/91
- ------------------------------------------------------------------------------------------------------------------------------------
SS-578-02/F DC-40 GHZ MODULE INTERFACE FR 91 10348 France
Chrzan Issued 12/12/93
- ------------------------------------------------------------------------------------------------------------------------------------
SS-578-02/J DC-40 GHZ MODULE INTERFACE JP 2097472 Japan
Chrzan Issued 10/02/96
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
SS-578-09 WIDE PERCENTAGE BANDWIDTH USSN 778,303 US 5,175,518
MICROWAVE FILTER NETWORK AND METHOD OF Filed 10/15/91 Issued 12/29/92
MANUFACTURING SAME/
Swanson
- ------------------------------------------------------------------------------------------------------------------------------------
SS-578-09/J WIDE PERCENTAGE BANDWIDTH MICROWAVE JP 2558419 Japan
FILTER NETWORK AND METHOD OF Issued 09/05/96
MANUFACTURING SAME/
Swanson
- ------------------------------------------------------------------------------------------------------------------------------------
SS-578-09/UK WIDE PERCENTAGE BANDWITH UK 2260646 U.K.
MICROWAVE FILTER NETWORK AND METHOD Issued 01/10/96
OF MANUFACTURING SAME/ Singapore
Swanson Registration No.
9690452.9
- ------------------------------------------------------------------------------------------------------------------------------------
5
Schedule 2.7 to Purchase Agreement September 3, 1997
Transferred Patents/Patent Applications/Invention Disclosures
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Serial No./ Patent No./ Foreign
Reference No. Title/Inventors Filing Date Issue Date Countries
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SS-578-09/UK-DIV WIDE PERCENTAGE BANDWIDTH MICROWAVE UK 2266195 U.K.
FILTER NETWORK AND METHOD OF Issued 01/10/96
MANUFACTURING SAME/ Singapore
Swanson Registration No.
9690453.7
- ------------------------------------------------------------------------------------------------------------------------------------
N/A HOUSING FOR MICROWAVE ELECTRONIC USSN 326,757 US 4,455,448 Japan
DEVICES Filed 12/02/81 Issued 06/19/84
Bertolina Expired
- ------------------------------------------------------------------------------------------------------------------------------------
A-28035 ELECTRON BOMBARDED SIMICONDUCTOR US 4,328,466
DEVICE WITH DOUBLY-DISTRIBUTED DEFLECTION Issued: 05/04/82
MEANS/ Bates
- ------------------------------------------------------------------------------------------------------------------------------------
A-31006 YIG-TUNED BULK SEMICONDUCTOR OSCILLATOR/ US 4,048,588
Wilser Issued: 9/13/77
- ------------------------------------------------------------------------------------------------------------------------------------
A-30451 ELECTRON BOMBARDED SEMICONDUCTOR US 4,045,705
DEVICE/ Knight Issued: 08/30/77
- ------------------------------------------------------------------------------------------------------------------------------------
A-28757 METHOD OF FABRICATING AN ARRAY OF US 4,040,169
SEMICONDUCTOR DEVICES/ Rose Issued: 08/09/77
- ------------------------------------------------------------------------------------------------------------------------------------
A-29539 INTERCONNECTING CIRCUIT FOR EBS US 4,001,600
DIODES AND METHOD/ Carter Issued: 01/04/77
- ------------------------------------------------------------------------------------------------------------------------------------
A-27209 RECTANGULAR BEAM LAMINAR FLOW ELECTRON US 3,980919
GUN/ Bates Issued: 09/14/76
- ------------------------------------------------------------------------------------------------------------------------------------
6
Schedule 2.7 to Purchase Agreement September 3, 1997
Transferred Patents/Patent Applications/Invention Disclosures
</TABLE>
<PAGE>
SCHEDULE 2.7 to Purchase Agreement
LICENSED Patents/Pending Patent Applications/Invention Disclosures to TSMD
<TABLE>
<CAPTION>
====================================================================================================================================
Serial No./ Patent No./ Foreign
Reference No. Title/Inventors Filing Date Issue Date Countries
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A-49500/AJT LINEARIZED ATTENUATOR; Fisher Closed
- ------------------------------------------------------------------------------------------------------------------------------------
A-50064/AJT METHOD OF FABRICATING MICROWAVE FET USSN 388,627 US 4,935,377
HAVING GATE WITH SUBMICRON LENGTH; Filed 08/01/89 Issued 06/19/90
GALLIUM-ARSENIC, ALUMINUM AND
FLUORINATED POLYMER
Strifler, Cantos
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
A-57779-AJT METHOD OF FABRICATING GROUP III-IV USSN 37,074 US 5,374,328
COMPUND SENICONDUCTOR DEVICES USING Filed 03/25/93 Issued 12/20/94
SELECTIVE ETCHING/Brunemeier, Remba, UNDER REISSUE
Resenblatt, Schmukler, Strifler
- ------------------------------------------------------------------------------------------------------------------------------------
FA-57779-IL/AJT ETCH STOP MMIC PROCESS/Brunemeier, Appl. 108762 IL 108762 Israel
Remba, Resenblatt, Schmukler, Strifler Filed 02/24/94 Issued 02/28/96
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
1
Schedule 2.7 to Purchase Agreement September 3, 1997
Licensed Patents/Patent Applications/Invention Disclosures
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Serial No./ Patent No./ Foreign
Reference No. Title/Inventors Filing Date Issue Date Countries
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
*
- ------------------------------------------------------------------------------------------------------------------------------------
A-58046/AJT BIASED FET MIXER / USSN 149,671 US 5,513,390
Vice Filed 11/09/93 Issued 04/30/96
- ------------------------------------------------------------------------------------------------------------------------------------
A-58410/AJT FET MIXER HAVING TRANSMISSION LINE USSN 08/004,234 US 5,361,409
TRANSFORMER/Vice Filed 01/14/93 Issued 11/01/94
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
A-58410-2/AJT/RMA BALANCED REFLECTION TRANSFORMER/Vice USSN 08/376,126 US 5,551,074
Filed 01/19/95 Issued 08/07/96
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
2
Schedule 2.7 to Purchase Agreement September 3, 1997
Licensed Patents/Patent Applications/Invention Disclosures
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Serial No./ Patent No./ Foreign
Reference No. Title/Inventors Filing Date Issue Date Countries
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
*
- ------------------------------------------------------------------------------------------------------------------------------------
3
Schedule 2.7 to Purchase Agreement September 3, 1997
Licensed Patents/Patent Applications/Invention Disclosures
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Serial No./ Patent No./ Foreign
Reference No. Title/Inventors Filing Date Issue Date Countries
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
*
- ------------------------------------------------------------------------------------------------------------------------------------
A-62592/AJT/MSS METHOD OF CHARACTERIZING GROUP III-V USSN 08/571,518 US 5,639,343
EPITAXIAL SEMICONDUCTOR WAFERS Filed 12/13/95 Issued 06/17/97
INCORPORATING AN ETCH STOP LAYER
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
A-63334/AJT Co-Planar Waveguide Coupler/Frick USSN 08/643,852 US 5,629,654
Filed May 6, 1996 Issued 05/13/97
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
A-63348/AJT/MSS METHOD OF FABRICATING SUB-MICRON USSN 08/638,950 US 5,652,179
GATE ELECTRODE BY ANGLE AND DIRECT Filed April 24, 1996 Issued 07/29/97
EVAPORATION; Strifler, Lee, Hitchens, Remba
- ------------------------------------------------------------------------------------------------------------------------------------
4
Schedule 2.7 to Purchase Agreement September 3, 1997
Licensed Patents/Patent Applications/Invention Disclosures
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Serial No./ Patent No./ Foreign
Reference No. Title/Inventors Filing Date Issue Date Countries
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
*
- ------------------------------------------------------------------------------------------------------------------------------------
A-62726/AJT CONNECTOR ASSEMBLY FOR DETACHABLY USSN 08/563,299 US 5,613,859
CONNECTING A PRINTED WIRING BOARD TO Filed 11/28/95 Issued 03/25/97
A COAXIAL TRANSMISSION LINE /Tobias,
Bellantoni
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
5
Schedule 2.7 to Purchase Agreement September 3, 1997
Licensed Patents/Patent Applications/Invention Disclosures
</TABLE>
<PAGE>
SCHEDULE 2.7 to Purchase Agreement
TRANSFERRED TRADEMARK REGISTRATIONS TO TSMD
<TABLE>
<CAPTION>
====================================================================================================================================
Serial No./ Registration No/
Reference No. Trademark Filing Date Issue Date Country Next Renewal Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TA-21828-15/AJT MINPAC Appl. 194830 Reg. 1175891 US Nov. 3, 2001
Filed 11/24/78 Issued 11/03/91
- ------------------------------------------------------------------------------------------------------------------------------------
TA-21828-16/AJT MINPAC & Design Appl. 194831 Reg. 1170981 US Sept. 29, 2001
Filed 11/24/78 Issued 09/29/81
- ------------------------------------------------------------------------------------------------------------------------------------
TA-21828-19/AJT VERSA-AMP Appl. 73/736890 Reg. 1527959 US Mar. 7, 2009
Filed 06/27/88 Issued 03/07/89
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-15/AJT MINPAC Appl. 1114802 Reg. 1114802 UNITED
Filed 05/23/79 Issued 05/23/79 KINGDOM
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-15/AJT MINPAC Appl. 38407/1979 Reg. 1510177 JAPAN
Filed 05/22/79 Issued 04/30/82
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-16-AJT MINPAC & DESIGN Appl. 1114803 Reg. B1114803 UNITED
Filed 05/23/79 Issued 05/23/79 KINGDOM
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-16/AJT MINPAC & DESIGN Appl. 38408/1979 Reg. 1510178 JAPAN
05/22/79 Issued 4/30/82
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-19/AJT VERSA-AMP Appl. 616970 Reg. 372628 CANADA
Filed 10/12/88 Issued 08/31/90
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-19/AJT VERSA-AMP Appl. 962966 Reg. 1495606 FRANCE
Field 10/25/88 Issued 10/25/88
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-19/AJT VERSA-AMP Appl. 24709C/88 Reg. 543452 ITALY
Filed 10/07/88 Issued 04/12/91
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1
Schedule 2.7 to Purchase Agreement
September 3, 1997
Transferred Trademark Registrations to TSMD
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Serial No./ Registration No/
Reference No. Trademark Filing Date Issue Date Country Next Renewal Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FTA-21828-19/AJT VERSA-AMP Appl. W38546/9WZ Reg. 1137904 GERMANY
Filed 10/05/88 Issued 04/17/89
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-19/AJT VERSA-AMP Appl. 1359376 Reg. 1359376 UNITED
Filed 09/30/88 Issued 09/30/88 KINGDOM
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-19/AJT VERSA-AMP Appl. 719847 Reg. 448982 BENELUX
Filed 09/27/88 Issued 03/06/89
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-19/AJT VERSA-AMP Appl. 63-111480 Reg. 2385429 JAPAN
Filed 09/29/88 Issued 02/28/92
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-19/AJT VERSA-AMP Appl. 88-08249 Reg. 218261 SWEDEN
Field 09/29/88 Issued 08/03/90
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-19/AJT VERSA-AMP Appl. 70558 Reg. 70558 ISRAEL
Filed 10/06/88 Issued 10/06/88
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
Schedule 2.7 to Purchase Agreement
September 3, 1997
Transferred Trademark Registrations to TSMD
<PAGE>
SCHEDULE 2.7 to Purchase Agreement
TRANSFERRED TRADEMARK REGISTRATIONS TO TSMD
<TABLE>
<CAPTION>
====================================================================================================================================
Serial No./ Registration No/
Reference No. Trademark Filing Date Issue Date Country Next Renewal Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TA-21828-001/AJT WJ & DESIGN Appl. Reg. 856401 US 09/10/2008
Filed Issued 09/10/68
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-001/002/AJT WJ & DESIGN Appl. 301929 Reg. 154299 Canada 11/24/2012
Filed 01/10/67 Issued 11/24/97
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-001/007/AJT WJ & DESIGN Appl. 2507/1967 Reg. 1237636 Japan 06/03/2006
Filed 01/17/67 Issued 12/03/76
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-001/008/AJT WJ & DESIGN Appl. 5502/66 Reg. 120792 Sweden 08/25/2007
Filed 12/28/66 Issued 08/25/67
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-001/009/AJT WJ & DESIGN Appl. 2212 Reg. 356515 Switzerland 04/10/2007
Filed 04/11/67 Issued 04/10/87
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-001/010/AJT WJ & DESIGN Appl. 544980 Reg. 053238 Benelux 09/03/2006
Filed 09/03/71 Issued 09/03/86
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-001011/AJT/MSS WJ & DESIGN Appl. 312973 Reg. 312973 India 03/08/2004
Filed 03/08/76 Issued 03/08/76
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-001/012/AJT WJ & DESIGN Appl. 65504 Reg. 44579 Iran 03/14/2006
Filed 03/14/76 Issued 03/14/76
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-001/013/AJT/MSS WJ & DESIGN Appl. 41726 Reg. 41726 Israel 01/11/2011
Filed 01/11/76 Issued 01/11/76
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-001/FR/AJT WJ & DESIGN Appl. 844849 Reg. 1398886 France 03/16/2007
Filed 03/16/87 Issued 03/16/87
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1
Licensed Trademarks
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Serial No./ Registration No/
Reference No. Trademark Filing Date Issue Date Country Next Renewal Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FTA-21828-001/IT/AJT WJ & DESIGN Appl. 33747C/87 Reg. 537687 Italy 04/03/2007
Filed 04/03/87 Issued 12/21/90
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-001/JP/007/AJT/MSS WJ & DESIGN Appl. 08-136910 Reg. Japan
Filed 12/04/96 Issued
- ------------------------------------------------------------------------------------------------------------------------------------
TA-21828-002/AJT WATKINS-JOHNSON Appl. 259870 Reg. 866185 US 03/11/2009
Filed Issued 03/11/69
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-002/001/AJT WATKINS-JOHNSON Appl. Reg. 111239 Belgium
Filed Issued 04/12/67
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-002/002/AJT WATKINS-JOHNSON Appl. 301932 Reg. 164962 Canada 09/05/1999
Filed 01/10/67 Issued 09/05/69
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-002/004/AJT WATKINS-JOHNSON Appl. W19000/22BWZ Reg. 879087 Germany 01/02/2007
Filed 01/02/67 Issued 01/02/67
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-002/009/AJT WATKINS-JOHNSON Appl. 5499/1966 Reg. Sweden
Filed 10/28/66 Issued
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-002/009/AJT WATKINS-JOHNSON Appl. 2493 Reg. 356476 Switzerland 04/11/2007
Filed 04/11/67 Issued 04/11/67
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-002/010/AJT WATKINS-JOHNSON Appl. 544981 Reg. 053239 Benelux 09/03/2006
Filed 09/03/71 Issued 09/03/86
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-002/011/AJT/MSS WATKINS-JOHNSON Appl. 312974 Reg. 312974 India 03/08/2004
Filed 03/08/76 Issued 03/08/76
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-002/013/AJT/MSS WATKINS-JOHNSON Appl. 41727 Reg. 41727 Israel 01/10/2011
Filed 01/11/76 Issued 01/11/76
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-002/FR/AJT WATKINS-JOHNSON Appl. 844848 Reg. 1398885 France 03/16/2007
Filed 03/16/87 Issued 03/16/87
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
Licensed Trademarks
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Serial No./ Registration No/
Reference No. Trademark Filing Date Issue Date Country Next Renewal Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FTA-21828-002/IT/AJT WATKINS-JOHNSON Appl. 33746C/87 Reg. 506363 Italy 04/03/2007
Filed 04/03/87 Issued 03/22/89
- ------------------------------------------------------------------------------------------------------------------------------------
TA-21828-003/AJT WATKINS-JOHNSON WJ (AND Appl. Reg. 866186 US 09/10/2008
DESIGN) Filed Issued 03/11/69
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-003/001/AJT WATKINS-JOHNSON WJ (AND Appl. Reg. 11241 Belgium
DESIGN) Filed Issued 04/12/67
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-003/002/AJT WATKINS-JOHNSON WJ (AND Appl. 301930 Reg. 167687 Canada 01/30/2000
DESIGN) Filed 01/10/67 Issued 01/30/70
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-003/004/AJT WATKINS-JOHNSON WJ (AND Appl. W19002/22BWZ Reg. 878116 Germany 01/02/2007
DESIGN) Filed 01/02/67 Issued 01/02/87
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-003/008/AJT/MSS WATKINS-JOHNSON WJ (AND Appl. 5500/66 Reg. 121677 Sweden 12/01/2007
DESIGN) Filed 12/28/66 Issued 12/01/67
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-003/009/AJT WATKINS-JOHNSON WJ (AND Appl. 2213 Reg. 356517 Switzerland 04/11/2007
DESIGN) Filed 04/11/67 Issued 04/11/67
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-003/010/AJT WATKINS-JOHNSON WJ (AND Appl. 544982 Reg. 053240 Benelux 09/03/2006
DESIGN) Filed 09/03/71 Issued 09/03/86
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-003/011/AJT/MSS WATKINS-JOHNSON WJ (AND Appl. 312975 Reg. 312975 India 03/08/2004
DESIGN) Filed 03/08/76 Issued 03/08/76
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-003/013/AJT WATKINS-JOHNSON WJ (AND Appl. 41728 Reg. 41728 Israel 01/11/2001
DESIGN) Filed 01/11/76 Issued 01/11/76
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-003/FR/AJT WATKINS-JOHNSON WJ (AND Appl. 844847 Reg. 1398884 France 03/16/2007
DESIGN) Filed 03/16/87 Issued 03/16/87
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-003/IT/AJT WATKINS-JOHNSON WJ (AND Appl. 33745C/87 Reg. 537688 Italy 04/03/2007
DESIGN) Filed 04/03/87 Issued 12/21/90
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
Licensed Trademarks
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Serial No./ Registration No/
Reference No. Trademark Filing Date Issue Date Country Next Renewal Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TA-21828-004/AJT WATKINS-JOHNSON WJ (AND Appl. 259872 Reg. 856400 US 09/10/1998
DESIGN) Filed 12/02/66 Issued 09/10/68
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-004/001/AJT WATKINS-JOHNSON WJ (AND Appl. Reg. 11240 Belgium
DESIGN) Filed Issued 04/12/67
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-004/002/AJT WATKINS-JOHNSON WJ (AND Appl. 301931 Reg. 167688 Canada 01/30/2000
DESIGN) Filed 01/10/67 Issued 01/30/70
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-004/004/AJT WATKINS-JOHNSON WJ (AND Appl. W18999/22BWZ Reg. 879086 Germany 01/02/2007
DESIGN) Filed 01/02/67 Issued 01/02/67
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-004/008/AJT/MSS WATKINS-JOHNSON WJ (AND Appl. 5501/66 Reg. 121678 Sweden 12/012007
DESIGN) Filed 12/28/66 Issued 12/01/67
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-004/009/AJT WATKINS-JOHNSON WJ (AND Appl. 2214 Reg. 356516 Switzerland 04/10/2007
DESIGN) Filed 04/11/67 Issued 04/11/67
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-004-010/AJT WATKINS-JOHNSON WJ (AND Appl. 544983 Reg. 053241 Benelux 09/03/2006
DESIGN) Filed 09/03/71 Issued 09/03/86
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-004/FR/AJT WATKINS-JOHNSON WJ (AND Appl. 844846 Reg. 1398883 France 03/16/2007
DESIGN) Filed 03/16/87 Issued 03/16/87
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-004/IT/AJT WATKINS-JOHNSON WJ (AND Appl. 33748C/87 Reg. 506362 Italy 04/03/2007
DESIGN) Filed 04/03/87 Issued 03/22/89
- ------------------------------------------------------------------------------------------------------------------------------------
TA-21828-008/AJT W-J DES Appl. Reg. 1041669 US 06/22/2006
Filed Issued 06/22/96
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-008/KR/AJT WJ & DESIGN (WHITE ON Appl. 28521/92 Reg. 281023 South Korea 12/08/2003
BLACK) Filed 10/12/92 Issued 12/08/93
- ------------------------------------------------------------------------------------------------------------------------------------
TA-21828-009/AJT WATKINS JOHNSON Appl. Reg. 1041670 US 06/22/2006
Filed Issued 06/22/96
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
Licensed Trademarks
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Serial No./ Registration No/
Reference No. Trademark Filing Date Issue Date Country Next Renewal Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FTA-21828-009/KR/AJT WATKINS-JOHNSON Appl. 28522/92 Reg. 281024 South Korea 12/08/2003
Filed 10/12/92 Issued 12/08/93
- ------------------------------------------------------------------------------------------------------------------------------------
TA-21828-010/AJT WJ & DESIGN Appl. Reg. 1042169 US 06/29/2006
Filed Issued 06/29/96
- ------------------------------------------------------------------------------------------------------------------------------------
FTA-21828-010/KR/AJT WJ WATKINS-JOHNSON & Appl. 28520/92 Reg. 281022 South Korea 12/08/2003
DESIGN Filed 10/12/92 Issued 12/02/93
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
Licensed Trademarks
<PAGE>
SCHEDULE 2.8
Seller/Company Approval and Permits
Approva1s
1. Expiration of applicable waiting period under Hart-Scott Rodino.
2. Facility Security Clearance.
3. Third-Party Consents on Contracts.
All Customer Contracts listed on Schedule 2.5(a) require consent prior to
assignment. Supplier Contracts that require consents prior to assignment are the
Oracle software license (PO 22802), the Comdisco lease (PO 9726), and the Sun
Finance lease (PO 9602). The nondisclosure/teaming agreements disclosed on
Schedule 2.5(h) require consents prior to assignment.
<PAGE>
SCHEDULE 2.9
LITIGATION
1. The California EPA issued an order finding that Seller is a responsible party
for groundwater contamination which flows through Seller's Palo Alto Plant site
and on the site itself. A number of other companies in the area as well as
Stanford University, the land owner, have been included in the order which
required the responsible parties to conduct an investigation into the cause of
the contamination. The order further required the parties to submit
recommendations on the actions to remediate the contamination. This regional
order applies to what has been designated by the State as the "Hillview/Porter
site." The primary sources of contamination were found to have migrated onto
Seller's property from off-site. Subsequent to a mediation among the responsible
parties to the Hillview/Porter site, a formula for allocation of costs for
investigation and remediation based on a determination of liability for such
costs was developed. The parties are in compliance with orders relating to this
cleanup effort. In 1991 Seller established a reserve for expected costs
associated with this effort, and nothing has occurred since that time which
would cause Seller to change that reserve.
2. The California EPA also ordered responsible or potentially responsible
parties to the Hillview/Porter site, in addition to participating in the total
site remediation, to investigate and remediate contamination that is specific to
their properties ("site specific"). The State has, in that regard, ordered
Seller to take necessary measures to clean up certain contamination which the
State believes was caused by Seller and not by contaminants flowing on-site from
other sources. Seller has likewise established a reserve for expected costs
associated with this effort, and nothing has occurred since that time which
would cause Seller to change that reserve.
3. On February 26, 1992 the DCAA held an exit conference with representatives
of Seller to present preliminary audit findings on Purchase Order No.
6-991010-B-F2 issued by Hughes Aircraft Company and Purchase Order Nos.
75-R###-##-#### and 2561 issued
<PAGE>
LITIGATION SCHEDULE
Page 2
by Raytheon Corporation. Both of these contracts are for Lot III data links
and RF processors in the AMRAAM missile program.
The DCAA contends that Seller failed to provide data that was current,
complete and accurate as of the date of final agreement on price between the
government and the prime contractors, Hughes and Raytheon. The preliminary
findings indicated claims in the amount of $141,168 on the Hughes contract and
$566,541 on the Raytheon contract. The Raytheon amount was later finalized by
DCAA at $520,211. Seller filed a reply to the findings issued by DCAA. A
contracting officer's final decision has not thereafter been received.
4. A dispute with the Naval Air Warfare Center ("NAWC"), Pt. Mugu, CA, has
arisen under Contract N00123-87-C-0059. For several years NAWC had taken the
position that certain frequency monitoring and direction-finding equipment that
Seller had supplied to NAWC in 1991 had failed to demonstrate compliance with
Contract requirements. On August 25, 1994 NAWC issued a Contracting Officer's
final decision terminating the Contract for default. On September 6, 1994 Seller
submitted a certified claim to NAWC for payment of the balance due under the
Contract in the amount of $620,030. On November 9, 1994 Seller filed an appeal
from the default termination decision with the Armed Services Board of Contract
Appeals ("ASBCA"). NAWC has thereafter issued a final decision in response to
Seller's September 6, 1994 claim denying the claim and Seller also filed an
appeal with the ASBCA from that final decision. NAWC filed a claim against
Seller for return of the progress payments made to Seller under the Contract in
the amount of $l,699.802. Discovery is pending.
5. By letter dated October 8, 1996, counsel for Synergy Microwave Corporation of
Paterson, NJ, claimed that Seller's use of the designation "SMJ" for its
surface-mount J-lead devices constituted a violation of Synergy Microwave's
rights of use to the initials "SMJ." Seller replied on November 22, 1996 that
those initials are merely used for identification and that Seller's use is
legally permitted. Synergy Microwave did not reply to the Seller's November 22,
1996 letter. No suit has been filed.
<PAGE>
LITIGATION SCHEDULE
Page 3
6. By letter dated October 16, 1996, an attorney for Mini-Circuits, Inc. of New
York, alleged that Seller had violated Mini-Circuits' rights by recruiting one
named and other unnamed employees from Mini-Circuits' employ. Mini-Circuits had
threatened litigation based on unspecified violations of New York law. In
response, Seller has denied any wrongdoing in connection with the employment of
former Mini-Circuits' employees. No suit has been filed.
7. By letter dated September 30, 1996, PolyPhaser Corporation of Minden, NV
asserted that a Watkins-Johnson 1800 MHz amplifier infringes two PolyPhaser
patents. Following investigation of the claim, Seller responded stating that
there is no basis for a claim of infringement. No suit has been filed.
8. In 1991 Seller entered into a fixed price contract, MPO Contract No. MDA
904-91-C-3061 with the Maryland Procurement Office at Fort George G. Meade,
Maryland for forty-five (45) digitally refreshed displays (DRD's), with an
option to purchase twenty-three (23) additional units. The option was exercised
fully and the total contract value was $2,102,575. A certificate of current cost
or pricing data was executed on January 31, 1991 and was transmitted to the
government on that date. Based upon a post-award audit, the DCAA issued two
reports dated September 24 and November 10, 1993, recommending a price
adjustment to the contract of $558,317.00, and alleging noncompliance with the
provisions of the Truth in Negotiations Act ("TINA") 10 U.S. Code Section
2306(s). The basis of the alleged noncompliance was the Seller's decision to
purchase certain parts used in the manufacture of the DRD's from outside vendors
rather than fabricating them internally. The Seller responded that while the
decision to purchase the parts resulted in a cost savings to Seller, there was
no knowledge of such potential savings because Seller had received no responses
to requests for quotation at the time the cost data was prepared and certified.
As of this date, the procurement office has not issued a final decision in the
matter.
9. Richard Lassen, an employee resident in Massachusetts, filed a complaint with
the Massachusetts Commission Against Discrimination and the EEOC in April 1996
alleging age and disability discrimination in connection with his termination as
a
<PAGE>
LITIGATION SCHEDULE
Page 4
sales representative for Seller in March 1996. Mr. Lassen sought compensatory
damages for emotional suffering and damages for loss of future wages. Seller
responded to his complaint. The Commission has determined that there was no
cause to pursue Mr. Lassen's claim. He has not thereafter filed suit, but has
sought a review, by the Commission of its finding.
10. Acevedo v. Watkins-Johnson Company was filed on April 26, 1996 as Case No.
CV 757641 in the Santa Clara County Superior Court. The plaintiffs are 49 former
employees of Seller's Microwave Surveillance Systems Department who accepted
offers of employment by Condor Systems, Inc., when Condor purchased this unit in
May 1995. The original complaint sought damages of not less than $25,000 per
plaintiff plus punitive damages for alleged invasion of privacy, intentional and
negligent infliction of emotional distress, fraud and negligent
misrepresentation and intentional and negligent interference with prospective
economic advantage. In addition to Seller, the complaint named W. Keith Kennedy,
Jr., and Richard G. Bell, as defendants. On July 6, 1996, an amended complaint
was filed, adding a cause of action for benefits under the Severance Pay Plan
for Reduction in Force or Layoff adopted by Seller in July 1991, together with
interest and attorney's fees. On August 27, 1996, a motion was filed on behalf
of defendants to compel 32 of the plaintiffs to submit their claims to
arbitration before The American Arbitration Association. These plaintiffs had
signed agreements with Seller providing for arbitration of employment disputes.
The motion also sought to stay the court proceedings as to the remaining
plaintiffs. On January 21, 1997, the court entered an order granting the motion
to compel arbitration, but denying the motion to stay proceedings as to the 17
plaintiffs who are not party to arbitration agreements. A responsive pleading
with respect to these plaintiffs was thereafter filed. Settlement with all
plaintiffs has been reached but release documents have not been executed by the
parties.
<PAGE>
SCHEDULE 2.12
Insurance
See attached.
<PAGE>
WATKINS-JOHNSON COMPANY
Summary of Insurance
Date: 29 Aug 1997 Page 1 of 3
<TABLE>
<CAPTION>
Carrier Limits Deductible Expires
------- ------ ---------- -------
<S> <C> <C> <C> <C>
Commercial General Liability Chubb $1 mil/occur $0 4/1/98
$2 mil gen agg ($50,000 WJE)
$2 mil products
$1 mil PI/Advert
$1 mil Fire
Business Auto Liability Chubb $1 mil liability $250 compreh. 4/1/98
$1 mil uninsured $500 collision
PD: listed vehicles
(only)
Umbrella (over CGL, auto, foreign GL National $10 mil xs primary None 4/1/98
and auto, EL (domestic & foreign)) Union
Excess Liability (follow form Umbrella) Chubb $25 mil xs $10 mil None 4/1/98
Workers' Comp/Employers' Liability Lumbermens WC: Statutory None 4/1/98
(For coverage outside California) EL: $1 mil
Excess Workers' Comp & EL National WC: Statutory excess None 4/1/00
(California excess over self-ins.) Union of $250,000 self-ins.
EL: $1 mil
D&O Liability Chubb $10 mil $0 Individual 10/15/97
$500,000 Corp
Fidicuiary & Employee Benefits Chubb $10 mil $10,000 10/15/97
Liability
Special Accident Coverage Chubb $5 mil None 10/15/97
</TABLE>
(California excess over self-ins.)
<PAGE>
Page 2 of 3
<TABLE>
<CAPTION>
Carrier Limits Deductible Expires
------- ------ ---------- -------
<S> <C> <C> <C> <C>
Errors and Omissions (WJ Environ) London $1 mil/occur $100,000 1/1/98
$2 mil aggreg
Foreign CGL/Auto/Workers' Comp Chubb $1 mil None 4/1/98
(controlled master program)
Foreign Property/BI/B&M Chubb $10 mil/occur: PD&BI $ 1,000 4/1/98
(controlled master program) $1 mil OPP $5,000 EQ
$1 mil Contin BI 24 hr BI
$250,000 Tenants
Marine Cargo Firemans $5 mil/conv - Int'l $ 10,000 Until
Fund $2 mil/conv - USA Cancellation
Aviation Products Liability USAIG $20 mil aggregate None 4/1/98
Business Travel Accident AIG Life $300,000/accident None 1/1/99
$3 mil aggregate
Crime - Employee Recr Ass'n Hartford $40,000/occur None Until
Cancellation
CGL/Auto - Employee Recr Ass'n Chubb $1 mil/occur None 4/1/97
$2 mil gen aggr
Notary Bonds (various) Safeco $10,000 None Various
U.S. Customs-Importer/Broker Bond St. Paul $100,000 None 5/2/98
Fidelity and Crime Arkwright $2 mil employee theft $25,000 7/1/98
$2 mil forgery and
alteration
</TABLE>
<PAGE>
Page 3 of 3
<TABLE>
<CAPTION>
Carrier Limits Deductible Expires
------- ------ ---------- -------
<S> <C> <C> <C> <C>
Domestic Property Insurance Arkwright $500 mil/occur: PD&BI $50,000 7/1/98
$100 mil/occur: Flood
$100 mil/occur: EQ
(but $0 EQ in Calif)
$1 mil MUL
$5 mil Svc Interruption
$3 mil CTE
$10 mil extra expense
</TABLE>
<PAGE>
SCHEDULE 2.20
Inventory Valuation
See attached.
<PAGE>
Inventory shall be valued as determined in accordance with generally accepted
accounting principles (GAAP) consistently applied and practices normally used by
Seller in preparing its frnancial statements using the lower of cost or market.
Finished Goods inventory on production catalog orders is valued based on actual
physical count multiplied by a unit price based either on historical actuals or
a cost roll-up of the bill of material.
Raw Material inventory (prior to stockroom receipt) is valued based on purchase
order receipts multiplied by purchase order price.
Stockroom inventory is valued based on actual physical count multiplied by a
unit price based either on historical actuals, a cost roll-up of the bill of
material, or weighted moving average.
Work in process inventory on production fixed-price catalog orders is valued
based on actual costs incurred on outstanding work orders.
Work in process inventory on non-catalog fixed-price short-term contracts is
valued based on actual costs incurred and anticipated cost estimates-to-
complete in meeting contractual commitments or required milestones. Any
anticipated losses on contracts are charged to earnings when identified.
Seller's estimates have been consistently applied in accordance with
GAAP, and are based on the most recent cost input data at the time of the
estimate. Buyer should note that changes in business conditions and/or
operational structure and other unanticipated technical issues arising after the
date of the estimate may cause the actual total costs to vary substantially.
Long-term fixed-price contract costs and cost-plus-fixed-fee (CPPF) contract
costs are excluded from inventory.
<PAGE>
SCHEDULE 3.3
Buyer Approvals and Permits
1. Buyer's ultimate parent entity will be required to file under the
Hart-Scott-Rodino Act. Buyer's purchase of the Stock will be subject to
the applicable waiting period (and any other restrictions) thereunder.
2. Buyer plans to make a voluntary filing with the Committee on Foreign
Investment in the United States under the Exon-Florio Amendment to
the Defense Production Act of 1950.
<PAGE>
SCHEDULE 6.2(d)
[N.B.: This list covers third-party (i.e., non-governmental) consents only.
Section 6.1(b) of the Stock Purchase Agreement provides that all Permits and
Approvals (other than Government Contract Novations) required to be obtained
from any Governmental Entity (including the facility security clearances,
environmental and other permits, export licenses, consent to the transfer of the
Government Furnished Items, etc.) shall have been obtained on or prior to the
Closing Date and the HSR waiting period shall have expired or been terminated.]
1. Consents to assignment/change in control with respect to any and all
contracts with the following (and any subsidiaries or other affiliates
thereof):
a. Hughes (including, but not limited to, Hughes Missile
Systems Company and Hughes Aircraft Co.).
b. Lockheed Martin (including, but not limited to,
Lockheed Martin Federal Systems, Lockheed Martin
Aerospace, Martin Marietta, Martin Marietta Millimeter
Technologies, etc.).
c. Raytheon (including, but not limited to, Raytheon Co. and
Raytheon TI Systems (RTIS), and including all consents/
documentation necessary to transfer the liened AMRAAM
inventory).
d. EDL Communications Ltd.
e. Motorola Inc.
f. E-Systems.
9. Nortel Ltd.
h. Litton Systems, Inc.
i. Boeing (including, but not limited to, Boeing North America)
2. "Split" of Oracle license/new Oracle license to Company.
3. Consent to assignment/change in control of Calif. Eastern Labs.
4. Consent to assignment/change in control of Hana Semiconductor.
5. Consent to assignment/change in control of MP World Electronic
Corporation.
1
<PAGE>
6. Consent to assignment/change in control of Pacific Microwave
Corporation.
7. Consent to assignment/change in control of Fastech Microelectronics.
8. Consent to assignment/change in control of Comdisco.
9. Flatirons Labs Inc. shall have unconditionally assigned to Seller all
rights to the Jointly Owned Technology (as defined in the Technology
Development Agreement dated June 16, l994, as amended on September 2,
1997), which rights shall be transferred to Company or to Buyer at the
Closing. [Under review.]
10. Consent to assignment/change in control/release of collateral/negative
pledge of ABN-AMRO Bank, N.V., as Agent under Credit Agreement with
Seller dated November 30, 1995.
11. Consent to assignment/change in control of the counterparties to all
Nondisclosure/Proprietary/Teaming Agreements with any of the parties
referred to in Item 1 above.
12. [Representative/Distributor Agreements.] [Need to discuss
with Vogel.]
13. Consent to assignment/change in control of Stanford (ground lessor) and
Taylor-Woodrow (master lessor) re: Buildings 3, 5 and 6 leases.
2
<PAGE>
SCHEDULE 8.3(a)
None.
The parties acknowledge that the Buyer is responsible for payment of Taxes due
for Tax periods ending after the Closing Date that apply to property leased by
the Company (subject to (a) the Tax allocation provisions of the Agreement
including, but not limited to, Section 5.3(c) of the Agreement and (b) any
indemnification by the Seller with respect thereto provided for under the
Agreement including, but not limited to, indemnification under Section
8.3(a)(vi) of the Agreement).
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made and
entered into as of May 23, 1997, by and among KII ACQUISITION CORP., or its
permitted assigns ("Buyer"), and Kleinert Industrie Holding AG, a Swiss
corporation ("Seller"), and Kleinert Industries, Inc., a California corporation
(the "Company").
RECITALS
A. Seller owns all of the issued and outstanding shares of
common stock (the "Company Shares") of the Company.
B. Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, the Company Shares for the consideration and on the terms
and conditions set forth in this Agreement.
TERMS AND CONDITIONS
NOW, THEREFORE, in consideration of the foregoing recitals and
the mutual covenants, agreements, representations and warranties contained in
this Agreement, and other good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. Sale and Purchase of the Company Shares.
1.1 Agreement to Sell. Upon the terms and subject to
all of the conditions contained herein, Seller hereby agrees to sell, assign,
transfer and deliver to Buyer on the Closing Date (as defined in Section 2.4
hereof), and Buyer hereby agrees to purchase and accept from Seller on the
Closing Date, the Company Shares.
2. Purchase Price and Payment Thereof.
2.1 Purchase Price. The aggregate purchase price for
the Company Shares being purchased pursuant to Section 1.1 shall be
US$26,500,000 less the aggregate of the outstanding principal balance and
accrued but unpaid interest due on the Closing Date in respect of each of (i)
that certain Note Secured by Deed of Trust dated September 6, 1991, in the
original principal amount of US$2,850,000, by Paragon Precision Products, Inc.,
as Maker, in favor of Farm Bureau Life Insurance Company (the "Mortgage") (ii)
that certain Promissory Note dated October 29, 1990, in the original principal
amount of US$10,000,000, by the Company in favor of Credit Suisse (the
"Unsecured Note"), and (iii) US$4,300,000, plus the outstanding balance in
excess of US$4,600,000 of that certain Business Loan Agreement, dated as of
October 27, 1995, as amended to date, between Bandy, Paragon, GIL and SEAL (each
as defined below in Section 3.2), as Borrowers, and Bank of America National
Trust and Savings Association, relating to a revolving line of credit commitment
in the maximum principal amount of US$6,550,000 (the "Line of Credit"); (such
net amount, the "Purchase Price").
1
<PAGE>
2.2 Payment of Purchase Price. At the Closing (as
defined in Section 2.4 hereof), as payment of the Purchase Price, Buyer shall:
(a) execute and deliver to Seller the Note
(as defined in Section 9.1 hereof) in the principal amount of US$1,750,000;
(b) transfer and deliver the remaining
balance of the Purchase Price to Seller in cash, by wire transfer in immediately
available funds to such account as shall be specified by Seller.
2.3 Delivery of the Company Shares. At the Closing,
Seller shall deliver or cause to be delivered to Buyer stock certificates for
the Company Shares duly executed in blank or accompanied by stock powers duly
executed in blank, in proper form for transfer.
2.4 Closing Date. The closing ("Closing") of the
transactions contemplated by this Agreement shall take place at the offices of
Brown Raysman Millstein Felder & Steiner LLP, 120 West 45th Street, New York,
New York, on June 30, 1997, subject to extension pursuant to Section 7.1.12
hereof or at such other date, time and/or place as may hereafter be agreed upon
in writing by all of the parties hereto (the "Closing Date").
3. Representations and Warranties of Seller and the Company.
3.1 Representations and Warranties of the Seller.
Seller represents and warrants the following to Buyer, subject to exceptions and
other disclosures to be set forth in the various schedules referred to below.
The phrases "to the knowledge of," "known by" and phrases of similar import,
when applied to Seller, shall mean only that any of (i)Robert Bodmer, Chairman
of Seller, and (ii) Hans Notter, member of the board of Seller (neither of whom
shall have any personal liability to Buyer in connection with this Agreement) is
actually aware of such fact or other matter or should have been aware of such
fact or matter, whether through appropriate internal investigation or inquiry or
otherwise.
3.1.1 Authority. Seller has full corporate
power and authority to own, lease and operate its assets, properties and
business and to carry on its business as it is now being and has been conducted.
This Agreement constitutes the legal, valid and binding obligation of Seller
enforceable in accordance with its terms. Seller has the absolute and
unrestricted right, power, authority and capacity to execute and deliver this
Agreement and to perform its obligations hereunder. The execution and delivery
of this Agreement and the performance hereof has been authorized and ratified by
the Board of Directors of Seller.
3.1.2 Organization and Good Standing of
Seller. Seller is a corporation duly organized, validly existing and in good
standing under the laws of Switzerland.
3.1.3 Title to the Company Shares. Seller
owns beneficially and of record, free and clear of any lien, claim, right,
charge, security interest, option or other encumbrance, and has full power and
authority to convey free and clear of any lien, claim, right, charge, security
interest option or other encumbrance, the Company Shares, and, upon
2
<PAGE>
delivery of any payment for such Company Shares as herein provided, Seller will
convey to Buyer good and valid title thereto, free and clear of any lien or
other encumbrance.
3.1.4 No Brokerage or Finder's Fees. Seller
has not incurred any liability to any broker, finder or agent for any brokerage
fees, finder's fees or commissions with respect to the transactions contemplated
by this Agreement other than to Coopers & Lybrand Securities LLC, the fees of
which will be the sole responsibility of Seller.
3.1.5 No Violation. Except as set forth in
Schedule 3.1.5, neither the execution and delivery of this Agreement nor the
consummation or performance of any of the transactions contemplated hereby will,
directly or indirectly: (a) contravene, conflict with or result (with or without
notice or lapse of time) in a violation of (i) any of the provisions of the
current charter documents of Seller or (ii) any resolution adopted by the Board
of Directors or shareholders of Seller; (b) contravene, conflict with or result
(with or without notice or lapse of time) in a violation of any federal, state,
local, municipal, foreign or other law, statute, ordinance, rule, regulation,
directive or other legal requirement or any order, judgment, injunction, ruling,
decision, writ or sentence rendered by any court, agency or other governmental
body to which Seller, or any of the assets owned or used by Seller including the
Company Shares, may be subject which would restrict or prohibit Seller from
performing its obligations hereunder; (c) contravene, conflict with or result
(with or without notice or lapse of time) in a violation or breach of any of the
provisions of, or give any person or entity the right (with or without notice or
lapse of time) to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of or cancel, terminate or modify, any
contract, mortgage, license, permit or authorization to which Seller is a party
or under which the Seller has any rights, or by which Seller, or any of the
assets owned or used by Seller may be bound, which would in turn restrict or
prohibit Seller from performing its obligations hereunder; or (d) result (with
or without notice or lapse of time) in the imposition or creation of any
security interest, lien or other encumbrance upon, or with respect to, any of
the assets owned or used by Seller which would in turn restrict or prohibit
Seller from performing its obligations hereunder.
3.1.6 Third Party Consents. No consent,
approval or other action of any third party, including any Swiss court or other
Swiss governmental authority, is required to be obtained by Seller in connection
with the transactions contemplated in this Agreement except as set forth in
Schedule 3.1.6 attached hereto.
3.1.7 No Litigation. Except as set forth in
Schedule 3.1.7 attached hereto, (i) there are no legal, administrative,
arbitration or other proceedings, or claims, actions, disputes or
investigations, pending or, to the knowledge of Seller, threatened against
Seller or affecting Seller's, the Company's or any Subsidiary's businesses,
operations or properties which would restrict or prohibit Seller from performing
its obligations hereunder; and (iii) none of the Seller, the Company nor any
Subsidiary is subject to any judgment, order or decree entered in any lawsuit or
proceeding which would restrict or prohibit Seller from performing its
obligations hereunder.
3.2 Representations and Warranties of the Company.
The Company and each Subsidiary (as defined in Section 3.2.24) represents and
warrants the following to Buyer, subject to exceptions and other disclosures to
be set forth in the various schedules
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referred below. The phrases "to the knowledge of," "known by" and phrases of
similar import, when applied to the Company, shall mean only that any of (i)
Bradley C. Call, Chairman, CEO and President of the Company and President, Bandy
Machining International ("Bandy"), (ii) Julius E. Hodge, Chief Financial Officer
and Corporate Controller of the Company, (iii) Lawrence R. Smith, President,
Paragon Precision Products, Inc. ("Paragon"), (iv) John Barriatua, President,
General Inspection Laboratories, Inc. ("GIL"), and (v) Roland H. Marti,
President, Scanning Electron Analysis Laboratories, Inc. ("SEAL") (none of whom
shall have any personal liability to Buyer in connection with this Agreement) is
actually aware of such fact or other matter or should have been aware of such
fact or matter, whether through appropriate internal investigation or inquiry or
otherwise.
3.2.1 Authority. The Company and each
Subsidiary has full corporate power and authority to own, lease and operate its
assets, properties and business and to carry on its business as it is now being
and has been conducted. This Agreement constitutes the legal, valid and binding
obligation of the Company enforceable against it in accordance with its terms,
and (ii) the Company has the absolute and unrestricted right, power, authority
and capacity to execute and deliver this Agreement and to perform its
obligations hereunder. The Company has delivered to Buyer true and correct
copies of (i) its Articles of Incorporation, (ii) its Bylaws and (iii)
resolution of its Board of Directors and its shareholder authorizing all the
transactions contemplated by this Agreement.
3.2.2 Organization and Good Standing of the
Company and Subsidiaries.
(a) The Company. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California. The Company is duly qualified or otherwise
authorized as a foreign corporation to transact business and is in good standing
in each jurisdiction set forth on Schedule 3.2.2(a), which are the only
jurisdictions in which the Company owns or leases real property or conducts
business, and in all other jurisdictions where such qualification or
authorization is otherwise required by law and in which the failure so to
qualify or be authorized could have a material adverse effect on the business or
properties of the Company. The Company has all requisite power and authority to
own and operate its assets and properties and carry on its business as and where
such is now being conducted.
(b) The Subsidiaries. Each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the State of California. Each Subsidiary is duly
qualified to transact business and is in good standing in each jurisdiction set
forth on Schedule 3.2.2(b), which are the only jurisdictions in which such
Subsidiary owns or leases real property or conducts business, and in all other
jurisdictions where such qualification or authorization is otherwise required by
law and in which the failure so to qualify or be authorized could have a
material adverse effect on the business or properties of such Subsidiary. Each
Subsidiary has all requisite power and authority to own and operate its
respective assets and properties and carry on its respective business as and
where such is now being conducted.
3.2.3 Outstanding Stock of the Company and
the Subsidiaries.
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(a) The Company. The Company is
authorized to issue 1,000,000 shares of common stock, of which 10,000 shares are
issued and outstanding, all of which outstanding Company Shares are owned
directly by Seller. No other class of capital stock of the Company is authorized
or outstanding. All of the Company Shares are duly authorized and are validly
issued, fully paid and nonassessable.
(b) The Subsidiaries. The number of
shares of common stock, the par values of such shares, and the number of shares
which are issued and outstanding for each Subsidiary are set forth on Schedule
3.2.3(b). All of the outstanding shares of each Subsidiary are owned by the
Company. No other class of capital stock of any Subsidiary is authorized or
outstanding. All of the shares of each Subsidiary are duly authorized, validly
issued, fully paid and nonassessable.
3.2.4 Options or Other Rights in Stock of
the Company. There are no outstanding rights, subscriptions, warrants, calls,
unsatisfied preemptive rights, options, conversion rights, commitments or other
agreements of any kind to purchase or otherwise to receive from the Company any
of the outstanding, authorized but unissued, unauthorized or treasury shares of
the capital stock of the Company or any Subsidiary, including the Company Shares
or any other security of the Company or any Subsidiary, and there is no
outstanding security of any kind convertible into such capital stock, including
the Company Shares.
3.2.5 Title to Assets of the Company. Except
as set forth in Schedule 3.2.5 attached hereto, and without limiting the
representations and warranties set forth in Section 3.2.15 or elsewhere herein,
the Company and each Subsidiary has title to all of its assets (other than Real
Property as defined in Section 3.2.15), including, without limitation, all
assets shown on the Unaudited Balance Sheet (as defined in Section 3.2.6(a)) or
the Balance Sheet (as defined in Section 3.2.6(a)), free and clear of all
mortgages, liens, leases, pledges, charges, encumbrances, equities, claims under
bailment and storage agreements, charges and restrictions other than (i) liens,
if any, for personal property taxes and assessments not yet due and payable, or
(ii) inventories sold since the date of the Balance Sheet in the ordinary course
of business and consistent with past practice.
3.2.6 The Company's Financial Condition.
(a) Financial Statements. The
Company has delivered to Buyer: (a) audited consolidated balance sheets of the
Company, as of December 31, 1996, and the related audited consolidated
statements of income, changes in stockholders' equity and cash flow for the
fiscal year then ended, together with the report thereon of Coopers & Lybrand
LLP, independent certified public accountants (such financial statements as of
December 31, 1996, including the notes thereto, are referred to herein
collectively as the "Balance Sheet") and (b) unaudited consolidated balance
sheets of the Company as of March 31, 1997 and the related unaudited
consolidated statements of income and cash flow (collectively, the "Unaudited
Balance Sheet"). Such financial statements and notes fairly present the
financial condition and results of operations of the Company and the
Subsidiaries at the respective dates thereof and for the periods therein
referred to, all in accordance with generally accepted accounting principles
consistently applied ("GAAP"), and the financial statements referred to in this
Section reflect the consistent application of such accounting principles
throughout the periods involved, except as disclosed in the notes to such
financial
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statements. No person or entity other than the Company and the Subsidiaries is
required by GAAP to be included in the consolidated financial statements of the
Company.
(b) Absence of Certain Changes.
Except as set forth on Schedule 3.2.6(b), the Unaudited Balance Sheet and the
notes thereto, since the date of the Balance Sheet, there has not been: (i) any
transaction not in the ordinary course of the Company's or any Subsidiary's
business; (ii) any change in the Company's or any Subsidiary's accounting
methods or practices (including, but not limited to, any change in depreciation
or amortization policies or rates); (iii) any sale or transfer of any of the
assets of the Company or any Subsidiary or any cancellation of any debts, claims
or contracts, except for the sale of inventory in the ordinary course of
business and consistent with past practice; (iv) any entering into, amendment or
termination of any material lease, or other material contract, purchase order or
other agreement to which the Company or any Subsidiary is a party or any waiver
of any material right thereunder; (v) any purchase by the Company or any
Subsidiary of fixed assets, including real property, in excess of amounts
budgeted therefor in the Company's fiscal 1997 operating budget, a copy of which
has been delivered to Buyer; (vi) any other event or condition of any character
which has materially and adversely affected, or is presently expected, to the
knowledge of the Company, to affect, the assets or the businesses of the Company
or any Subsidiary; (vii) any material loss, damage or destruction, whether
covered by insurance or not, affecting the assets, business or property of the
Company or any Subsidiary; (viii) any declaration, setting aside or payment of
any dividend or any other distribution in respect of the Company's capital
stock, any redemption, purchase or other acquisition by the Company of any of
the Company's common stock or any security relating thereto, or any other
payment to any shareholder of the Company as such; (ix) any material
indebtedness incurred, assumed or guaranteed by the Company or any Subsidiary;
(x) any lien made or created on any of the assets of the Company or any
Subsidiary; (xi) any loan or advance to any person (other than advances to
employees in the ordinary course of business) or any grant of credit to any
customer or distributor on terms or in amounts more favorable than those which
have been extended to such customer or distributor in the past, any change in
the terms of any credit heretofore extended, or any other change of the
Company's or any Subsidiary's policies or practices with respect to the granting
of credit; or (xii) any agreement, in writing or otherwise, by the Company or
any Subsidiary to do any of the things described in any of the preceding
subsections (i) through (xi).
(c) No Undisclosed Liabilities. To
the knowledge of the Company, the Company and the Subsidiaries have no
liabilities or obligations of any nature (contingent, absolute, direct,
indirect, matured, unmatured, accrued or otherwise) except (i) liabilities which
are fully reflected or reserved against in the Balance Sheet (which reserves are
appropriate and reasonable) or disclosed in the related notes; and (ii)
non-material liabilities incurred in the ordinary course of business and
consistent with past practice since the date of the Balance Sheet; and (iii)
liabilities set forth in Schedule 3.2.6(c) hereto.
3.2.7 Books and Records. The books of
account, minute books, stock record books and other records of the Company and
each Subsidiary, all of which have been made available to Buyer, are complete
and correct in all material respects (with respect to each of the Subsidiaries
of the Company acquired from third parties, only insofar as the foregoing
representation relates to the period from and after the acquisition of said
Subsidiary). The minute books of the Company and its Subsidiaries each contain
records
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which are accurate and complete in all material respects of all meetings held
of, and corporate action taken by, the stockholders, the Boards of Directors and
committees of the Boards of Directors of the Company and each Subsidiary,
respectively. At the Closing, all of those books and records will be in the
possession of the Company and its Subsidiaries, respectively.
3.2.8 Compliance with Laws. Without limiting
the representations and warranties set forth in Section 3.2.25 or elsewhere
herein, and except as set forth in Schedule 3.2.8, to the knowledge of the
Company, the Company and each Subsidiary and the respective assets and
businesses of each, have, and on the Closing Date will have, complied in all
material respects with all laws, orders, regulations and rules of any
governmental department, commission, board, agency or instrumentality, domestic
or foreign, having jurisdiction over it or its operations, including but not
limited to, all laws, orders, regulations and rules relating to zoning, building
codes, antitrust, occupational safety and health, environmental protection,
water, ground or air pollution, the generation, treatment, storage,
transportation or disposal of waste or toxic or hazardous materials, consumer
product safety, product liability, hiring, wages, hours, employee benefit plans
and programs, collective bargaining and the payment of withholding and social
security taxes and all regulations of the Federal Aviation Administration. None
of Seller, the Company, or any of the Subsidiaries have received any notice of
any violation or alleged violation of any laws, orders, regulations or rules of
any governmental department, commission, board, agency or instrumentality.
3.2.9 Condition and Sufficiency of Assets.
Without limiting the representations and warranties set forth in Section 3.2.15,
to the knowledge of the Company the buildings, plants, structures and equipment
owned or occupied by the Company and each Subsidiary are structurally sound with
no known material defects, are in good operating condition and repair and are
adequate for the uses to which they are being put, and none of such buildings,
plants, structures or equipment is in need of maintenance or repairs except for
maintenance and repairs that are not material in nature or cost. To the
knowledge of the Company, the buildings, plants, structures and equipment owned
or occupied by the Company and each Subsidiary are sufficient for the continued
conduct of their respective businesses after the Closing in substantially the
same manner as conducted prior to the Closing.
3.2.10 No Brokerage or Finder's Fees.
Neither the Company nor any Subsidiary has incurred any liability to any broker,
finder or agent for any brokerage fees, finder's fees or commissions with
respect to the transactions contemplated by this Agreement.
3.2.11 No Violation. Except as set forth in
Schedule 3.2.11, neither the execution and delivery of this Agreement nor the
consummation or performance of any of the transactions contemplated hereby will,
directly or indirectly: (a) contravene, conflict with or result (with or without
notice or lapse of time) in a violation of (i) any of the provisions of the
current Articles of Incorporation or the Bylaws of the Company or any Subsidiary
or (ii) any resolution adopted by the Board of Directors or the stockholder of
the Company or any Subsidiary; (b) contravene, conflict with or result (with or
without notice or lapse of time) in a violation of any federal, state, local,
municipal, foreign or other law, statute, ordinance, rule, regulation, directive
or other legal requirement or any order, judgment, injunction, ruling, decision,
writ or sentence rendered by any court, agency or other
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governmental body to which the Company or any Subsidiary, or any of the assets
owned or used by the Company or any Subsidiary may be subject; (c) contravene,
conflict with or result (with or without notice or lapse of time) in a violation
or breach of any of the provisions of, or give any person or entity the right
(with or without notice or lapse of time) to declare a default or exercise any
remedy under, or to accelerate the maturity or performance of or cancel,
terminate or modify, any contract, mortgage, license, permit or authorization to
which the Company or any Subsidiary is a party or under which the Company or any
Subsidiary have any rights, or by which the Company or any Subsidiary, or any of
the assets owned or used by the Company or any Subsidiary may be bound; (d)
result (with or without notice or lapse of time) in the imposition or creation
of any security interest, lien or other encumbrance upon, or with respect to,
any of the assets owned or used by the Company or any Subsidiary. Neither the
Company nor any Subsidiary is in default under, or in material breach or
violation of, any contracts, mortgages, licenses, permits, commitments or
restrictions to which the Company or any Subsidiary is a party by which any of
them or the Company Shares or any shares of any Subsidiary is or are bound.
3.2.12 Third Party Consents. No consent,
approval or other action of any third party is required to be obtained by the
Company or any Subsidiary in connection with the transactions contemplated in
this Agreement except as set forth in Schedule 3.2.12 attached hereto.
3.2.13 No Litigation. Except as set forth in
Schedule 3.2.13 attached hereto, (i) there are no legal, administrative,
arbitration or other proceedings, or claims, actions, disputes or
investigations, pending or, to the knowledge of the Company, threatened against
the Company or any Subsidiary or affecting their respective businesses,
operations or properties; and (ii) neither the Company nor any Subsidiary is
subject to any judgment, order or decree entered in any lawsuit or proceeding
which has had a material adverse effect on the businesses, operations or
properties of the Company or any Subsidiary.
3.2.14 Employee Benefit Matters.
(a) Plans. Except as set forth in
Schedule 3.2.14(a) attached hereto, there are no Plans (as herein defined) in
which any current or former employees, officers or directors of the Company or
the Subsidiaries participate. As used in this Agreement, "Plan" and "Plans"
shall mean (i) any "employee benefit plan" within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended from time to
time, and the regulations promulgated thereunder ("ERISA"), (ii) any written or
unwritten profit sharing, pension, deferred compensation, bonus, stock option,
stock purchase, severance, retainer, consulting, health, welfare or incentive
plan or agreement whether legally binding or not, (iii) any written or unwritten
plan, policy, arrangement or commitment providing for "fringe benefits" to
employees, including but not limited to vacation, paid holidays, personal leave,
employee discount, perquisites, educational benefit or similar programs, or (iv)
any employment agreement, now or heretofore maintained, or contributed to, by
the Company or any ERISA Affiliate for the benefit of any present or former
employees, officers or directors of the Company. As used in this Agreement,
"ERISA Affiliate" means any trade or business (whether or not incorporated) that
is part of the same controlled group, or under common control with, or part of
an affiliated service group that includes, the Company, the Subsidiaries and/or
the Seller and any United States
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affiliates of Seller within the meaning of Sections 414(b), (c), (m) or (o) of
the Internal Revenue Code of 1986, as amended from time to time, and the
regulations promulgated thereunder (the "Code") and/or ERISA Section
4001(a)(14).
(b) Health Benefits. Except as set
forth in Schedule 3.2.14(b) attached hereto, no current or former employees,
officers or directors of the Company or the Subsidiaries (or their dependents)
participate in any Plan which provides health benefits after the employee's,
officer's or director's termination of employment or termination of position,
except as required under COBRA (as defined herein). "COBRA" shall mean the group
health plan continuation coverage provisions of Section 4980B of the Code or
Sections 601 through 608 of ERISA.
(c) Claims Related to Plans. Except
as set forth in Schedule 3.2.14(c) attached hereto, no actions, claims,
investigations, audits or complaints (other than routine claims for benefits
made in the ordinary course of Plan administration for which Plan administrative
review procedures have not been exhausted) are pending, or, to the knowledge of
the Company threatened or imminent against or with respect to the Plan, any
employer (including, without limitation, the Company and any Subsidiary) who is
participating (or who has participated) in any Plan or, to the knowledge of the
Company, any fiduciary (as defined in Section 3(21) of ERISA), of the Plan and
neither the Company nor, to the knowledge of the Company, any fiduciary has any
knowledge of any facts which could give rise to any such action, claim,
investigation, audit or complaint.
(d) Liability Relating to
Multiemployer Plans. Neither the Company nor any ERISA Affiliate has incurred,
nor as a consequence of the transaction to be completed pursuant to this
Agreement will incur any withdrawal liability with respect to any Plan described
in Section 3(37) of ERISA ("Multiemployer Plan") within the meaning of Sections
4201 and 4204 of ERISA, and no liabilities exist with respect to withdrawals
from any Multiemployer Plans which could subject the Company or any Subsidiary
to any controlled group liability under Section 4001(b) of ERISA.
(e) Plans in Compliance. Except as
set forth in Schedule 3.2.14(e), all of the Plans listed in Schedule 3.2.14(a)
hereto, to the extent applicable, are in compliance in all material respects
with COBRA, ERISA and the Code and have been administered in material compliance
with their terms. Each Plan that is subject to Section 1862(b)(1) of the Social
Security Act has been administered in compliance with the secondary payor
requirements of Section 1862 (b)(1) thereof in all material respects.
(f) Documents Relating to Plans.
True, correct and complete copies of all documents creating or evidencing any
Plan listed in Schedule 3.2.14(a) (including, without limitation, all summary
plan descriptions for such Plans) have been delivered to Buyer, and true,
correct and complete copies of all reports, forms and other documents required
to be filed with any governmental entity (including, without limitation, all
Forms 5300 and 5500) have been delivered to Buyer.
(g) No Negotiations, Demands or
Proposals. There are no negotiations, demands or proposals which are pending or,
to the knowledge of the Company, have been made which concern matters now
covered, or that would be covered, by
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the type of Plans listed in Schedule 3.2.14(a).
(h) Plan Administration. Except as
set forth in Schedule 3.2.14(h) attached hereto, with respect to the Plans:
(i) there are no Plans that are
Multiemployer Plans;
(ii) each Plan that is an "employee pension
benefit plan" within the meaning of ERISA Section 3(2) has received a
favorable determination letter from the Internal Revenue Service
("IRS") stating that such Plan meets all the requirements of the Code,
and that any trust or trusts associated with such Plan are tax exempt
under Section 501(a) of the Code; and the Company knows of no reason
why the tax-qualified status of any such Plan should be revoked,
whether retroactively or prospectively, by the IRS;
(iii) all amendments to the Plans which were
required by the IRS or any applicable statute rule or regulation to be
made through the date hereof and the Closing Date under Section 401(a)
of the Code, and any other applicable law, subsequent to the issuance
of each such Plan's IRS determination letter have been made; and the
Company knows of no amendments which are required to be made to such
Plans which adversely affect, or may result in the revocation or
discontinuance of, the continuing tax-qualification status of such
Plans under the Code;
(iv) all filings, notices, and disclosures,
required by ERISA, the Code or any other applicable laws that would
materially and adversely affect the Company and its subsidiaries have
been timely filed and made;
(v) all contributions and payments made or
accrued with respect to each Plan are deductible in full as an income
tax deduction under the Code; and all contributions, premiums or
payments required to be made with respect to each such Plan have been
made on or before their due date(s);
(vi) the Company and the Subsidiaries have
not, and to the knowledge of Seller and the Company, no ERISA
Affiliates have, incurred any liability to, or adopted any Plan or
other arrangement which may expose the Company or any Subsidiary to
liability of any nature whatsoever, to (1) the Pension Benefit Guaranty
Corporation under Title IV or Section 502 of ERISA, or (2) the IRS
under Chapter 43 of the Code, or (3) the Department of Labor;
(vii) with respect to each Plan, there has
not occurred, and no person or entity is contractually bound to enter
into, any nonexempt "prohibited transaction" within the meaning of
Section 4975 of the Code or Section 406 of ERISA;
(viii) no payment that is owed or may become
due to any current or former director, officer, employee or agent of
the Company or any Subsidiary is subject to Section 280G of the Code,
nor is the Company or any Subsidiary obligated, orally or in writing,
to "gross up" or otherwise compensate any such person due to the
imposition of an excise or similar tax on payments made to such person
by the
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Company, any Subsidiary or its ERISA Affiliates under Section 4999 of
the Code;
(ix) the consummation of the transactions
contemplated by this Agreement will not accelerate or terminate, nor
does there exist any basis for the acceleration or termination of, (1)
benefits payable to current or former employees of, or other
compensated personnel at, the Company or an ERISA Affiliate under any
Plan, or any other plan, arrangement, contract or agreement, written or
oral, maintained by the Company or any Subsidiary, (2) a participant's
vesting credits or years of service under any Plan, or (3) accruals
with respect to any other benefits or amounts reserved under any such
Plan; and
(x) only current and former employees
(excluding "leased employees" as defined in Code Section 414(n)(2)) of
the Company and its ERISA Affiliates participate in, and are entitled
to receive benefits from, the Plans.
(i) Funding. Except as set forth in
Schedule 3.2.14(i), as of the last day of the most recent prior plan year, the
market value of assets of each Plan that is subject to Title IV of ERISA (a
"Defined Benefit Plan"), other than any Multiemployer Plan, equaled or exceeded
(and will, as of the Closing Date, equal or exceed) the present value of
"benefit liabilities" (within the meaning of ERISA Section 4001(a)(16))
thereunder determined in accordance with both (1) the Defined Benefit Plan's
actuarial valuation assumptions in effect for such prior plan year, and (2) the
provisions of Title IV of ERISA on a Defined Benefit Plan termination basis
(assuming each Defined Benefit Plan terminated on each of such dates). No
accumulated funding deficiency, whether or not waived, exists with respect to
any Defined Benefit Plan; no Defined Benefit Plan amendment with respect to
which security is required under ERISA Section 307 has been or will be made; and
the Pension Benefit Guaranty Corporation has not instituted, and, to the
knowledge of the Company, is not reasonably expected to institute, any
proceedings to terminate any Defined Benefit Plan.
(j) Funding of Deferred
Compensation Plan. Except as set forth in Schedule 3.2.14(j), to the Company's
knowledge, assuming payment of annual insurance premium payments, the
accumulated cash surrender values and anticipated death benefits of the life
insurance policies used to fund the deferred compensation agreements of the
Company which have been disclosed on Schedule 3.2.14(a) will be sufficient to
satisfy any liability of the Company without any contribution from the Company
or any other person and to reimburse the Company for its costs of providing the
insurance.
3.2.15 Real Property. All real property interests
owned by the Company or its Subsidiaries (the "Owned Real Property") or leased,
occupied or operated by the Company or its Subsidiaries (the "Leased Real
Property" and, collectively with Owned Real Property, the "Real Property")
consists of the sites described on Schedule 3.2.15A attached hereto (the
"Sites"). The Sites constitute all the Real Property of the Company and its
Subsidiaries. Sellers enjoy peaceful and undisturbed possession of all Leased
Real Property and all the leases of Leased Real Property are valid and
subsisting and in full force and effect, and there does not exist any default or
event that with notice or lapse of time, or both, would constitute a default by
the Company or any Subsidiary or, to the Company's best knowledge, by any other
party, under any of these leases. There is now in full force and
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effect duly issued a certificate of occupancy permitting such Owned Real
Property and the improvements located thereon to be legally used and occupied as
the same are now constituted, and the Company has no knowledge of any violations
of the respective certificates of occupancy relating to any of the Sites which
are part of the Leased Real Property. The Company or its Subsidiaries has good
and marketable title to all of the Owned Real Property. There are no mortgages,
deeds of trust, encumbrances, liens and charges of any kind or character, rights
of way, building use restrictions, exceptions, variances, reservations or
limitations of any nature whatsoever on the Owned Real Property, except such as
are listed in the preliminary title report attached hereto as Schedule 3.2.15B,
and the Company has no knowledge of any mortgages, deeds of trust, encumbrances,
liens and charges of any kind or character, rights of way, building use
restrictions, exceptions, variances, reservations or limitations of any nature
whatsoever on the Leased Real Property which would restrict or prohibit the
Company and its Subsidiaries from carrying on their respective businesses as
presently conducted. Neither the whole nor any portion of the Owned Real
Property (or, to the knowledge of the Company, the Leased Real Property), nor
any other assets of the Company or any Subsidiary is subject to any governmental
decree or order to be sold or is being condemned, expropriated or otherwise
taken by any public authority with or without payment of compensation therefor,
nor to the best of the Company's knowledge, has any such condemnation,
expropriation or taking been proposed or threatened.
3.2.16 Condition of Accounts Receivable. Except as
set forth on Schedule 3.2.16, the accounts receivable of the Company and each
Subsidiary that are reflected in the Balance Sheet or the Unaudited Balance
Sheet, as of the Closing Date (i) have arisen in the ordinary course of business
of the Company or the applicable Subsidiary; (ii) represent or will represent
valid obligations due to the Company or any Subsidiary, as the case may be,
enforceable in accordance with their terms; (iii) subject only to reserves for
bad debts set forth on the Balance Sheet or the Unaudited Balance Sheet,
respectively, which reserves have been computed in a manner consistent with GAAP
and subject to customer trade discounts consistent with past practice, are
current and have been collected or are collectible in the ordinary course of
business of the Company or any Subsidiary in the aggregate recorded amounts
thereof in accordance with their terms; and (iv) to the knowledge of the
Company, will not be subject to any recoupments, set-offs or counterclaims,
except as allowed in clause (iii). At the Closing, the Company will confirm the
foregoing representation as of the Closing Date, as to the accounts receivable
on such date.
3.2.17 Inventory. Except as set forth on Schedule
3.2.17, all inventory of the Company and the Subsidiaries reflected on the
Unaudited Balance Sheet consists of a quality and quantity usable and salable in
the ordinary course of business, had a commercial value at least equal to the
value shown on such Unaudited Balance Sheet and is valued in accordance with
GAAP at the lower of cost (on a FIFO basis) or market, all determined in
accordance with Company's Inventory Valuation Policy attached hereto as part of
Schedule 3.2.17. Schedule 3.2.17 sets forth a list of all inventory which, given
its age or other characteristics, is of questionable value or may not be salable
in the ordinary course of business. All inventory acquired since the date of the
Unaudited Balance Sheet consists of a quality and quantity usable and salable in
the ordinary course of business. All inventory of the Company and the
Subsidiaries is located on the Real Property. All work-in-process contained in
inventory constitutes items in process or production (i) pursuant to contracts
or open orders taken in the ordinary course of business from regular customers
of the Company
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or a Subsidiary, or (ii) pursuant to Company's normal policies of manufacturing
products in excess of amounts currently covered by open contracts or purchase
orders, in order to take advantage of production economies of scale or for items
as to which Company anticipates future demand. Neither the Company or any
Subsidiary nor, to the knowledge of the Company , any such customer is in
material breach of the terms of any obligation to the other, and to the
knowledge of the Company , no valid grounds exist for any set-off of amounts
billable to such customers on the completion of orders to which work-in-process
relates. All work-in-process is of a quality ordinarily produced, and to the
knowledge of the Company will require no material rework with respect to work
done prior to the Closing other than reworking in connection with the Company's
normal quality control efforts.
3.2.18 Customers. Schedule 3.2.18 contains a list of
the ten (10) largest customers of each Subsidiary for each of the two most
recent fiscal years (determined on the basis of the total dollar amount of net
sales) showing the total dollar amount of net sales to each such customer during
each such year. Except as set forth on Schedule 3.2.18, the Company has no
knowledge or information of any facts indicating, nor any other reason to
believe, that any of the customers listed on Schedule 3.2.18 will not continue
to be customers of the Subsidiaries after the Closing.
3.2.19 Product Warranty and Product Liability.
Schedule 3.2.19 contains a true, correct and complete copy of the Company and
Subsidiaries' standard warranties for sales of all products currently or
previously manufactured or services performed by the Company or any Subsidiary
(including by any businesses which are no longer owned by the Company) and,
except as stated therein, there are no warranties, commitments or obligations
with respect to the return, repair or replacement of such products or the cure
of any errors or omissions in the performance of services. Schedule 3.2.19 sets
forth the estimated aggregate annual cost to the Company on a consolidated basis
of performing warranty obligations for customers since 1995 and a description of
all product liability claims or claimed errors or omissions and similar claims,
actions, litigation and other proceedings relating to products manufactured or
sold, or services rendered, which are presently pending or which, to the
Company's knowledge, are threatened, which have been asserted or commenced
against the Company or any of the Subsidiaries within the last five years, in
which a party thereto requests injunctive relief or alleges damages (whether or
not covered by insurance). To the best of the Company's knowledge, there are no
defects in manufacture of the Company's or any Subsidiary's products or errors
or omissions in the performance of any service by the Company or any Subsidiary
which would adversely affect performance or create an unusual risk of injury to
persons or property.
3.2.20 Adequate Insurance. Schedule 3.2.20 attached
hereto contains an accurate and complete description of all material policies of
fire, liability, workers' compensation and other forms of insurance owned or
held by the Company and each Subsidiary. Such policies (i) are in full force and
effect; and (ii) to the knowledge of the Company, are sufficient for compliance
with all requirements of law imposed on the Company or the Subsidiaries. Without
limitation on the generality of the foregoing, the Company and each Subsidiary
each maintain liability insurance adequate to cover all losses, claims,
liabilities, damages, actions, costs and expenses (including attorneys' fees and
expenses) of the type customarily insured against in the conduct of their
respective businesses,
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arising out of, in connection with, or relating to the operation or conduct of
their respective businesses prior to the Closing Date. All such insurance shall
be in effect through the Closing Date. No insurance coverage of the Company or
any Subsidiary is maintained through self-insurance.
3.2.21 Machinery and Equipment. The facilities,
machinery, equipment, furniture, leasehold improvements, fixtures, vehicles,
structures, any related capitalized items and other tangible property material
to the business of the Company and each Subsidiary are, and on the Closing Date
will be, owned by the Company and each Subsidiary, respectively, free and clear
of all liens and encumbrances, except as listed on Schedule 3.2.21.
3.2.22 Intellectual Properties. The Company and its
Subsidiaries use no Intellectual Properties, except as set forth on Schedule
3.2.22. "Intellectual Properties" shall include the Company's and each
Subsidiary's names, all fictitious business names, trade names, registered and
unregistered trademarks, service marks and applications (collectively "Marks"),
all patents and patent applications (collectively "Patents"), all copyrights in
both published works and unpublished works which are material to the business
("Copyrights"), all rights in mask works (collectively "Rights in Mask Works"),
and all know-how, trade secrets, confidential information, software (including
documentation and source code listings), technical information, process
technology, plans, drawings, blue prints and other proprietary properties or
information ("Trade Secrets") owned, used or licensed by the Company and each
Subsidiary as licensee or licensor in connection with their respective
businesses. Except as set forth on Schedule 3.2.22, the Intellectual Properties
are, and on the Closing Date will be, owned by the Company or any Subsidiary, as
the case may be, free and clear of all liens and encumbrances, and not subject
to any license, royalty arrangement or dispute. The Company and each Subsidiary
has filed fictitious business name statements necessary to be filed with respect
to trade names presently in use. No officer, director, trustee or employee of
the Company or any Subsidiary and, to the Company's knowledge, no other person
owns or has, nor at the Closing Date will own or have, any interest in any
Intellectual Property used by the Company or any Subsidiary in connection with
its business.
(a) Schedule 3.2.22 is an accurate and
complete listing and summary of all Marks. The Company or its Subsidiaries,
respectively, (i) is the owner of all right, title and interest in and to each
of the Marks free and clear of all liens, claims, rights, security interests,
collateral assignments, licenses, charges, encumbrances, equities and other
claims; (ii) none of the Marks have been registered; (iii) no Mark has been or
is now involved in any opposition, invalidation or cancellation proceeding nor,
to the best of the Company's knowledge, is any such action threatened with
respect to any of the Marks; (iv) the Company is not aware of any potentially
interfering trademark or trademark application of any third party; and (v) no
Mark is infringed or, to the best of the Company's knowledge, has been
challenged or threatened in any way. None of the Marks used by the Company or
any Subsidiary infringe or are alleged to infringe any trade name, trademark or
service mark of any third party.
(b) Neither the Company nor any Subsidiary
owns or uses any Patents, Copyrights, Rights in Mask Works or Trade Secrets.
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3.2.23 Capital Projects and Expenditures.
All capital projects and capital expenditures undertaken by the Company and each
Subsidiary, or to which the Company or any Subsidiary is committed, which have
not been completed by the date hereof are set forth on Schedule 3.2.23 attached
hereto which schedule sets forth a description of the capital project, the
status of such project, the amount committed thereto, and the amount expended as
of the date hereof.
3.2.24 Subsidiaries. At the Closing Date,
the Company will not, directly or indirectly, own any stock or other equity
interest in any other person or entity, except for those entities (each a
"Subsidiary" and collectively, the "Subsidiaries") set forth on Schedule 3.2.24
attached hereto.
3.2.25 Hazardous Substances. Without
limiting the representations and warranties contained in Section 3.2.8 or
elsewhere herein:
(a) Use, Storage, Disposition of
Hazardous Materials. Except as set forth in Schedule 3.2.25(a) attached hereto,
none of the Company and the Subsidiaries, and, to the knowledge of the Company,
no other person (including predecessors to the business of any of the Company
and the Subsidiaries) (i) has ever caused or permitted any release, disposal or
discharge of any Hazardous Materials (as defined in Section 3.2.25(e) hereof) to
occur in, on, under or from about the Real Property or any part thereof, or any
property or facility previously owned, leased, occupied or operated by the
Company or any Subsidiary ("Prior Facilities"), in a manner which would require
reporting and/or remediation, or that could cause the Real Property or any part
thereof to be subject to any restrictions on the ownership, occupancy,
transferability or use thereof, under any Hazardous Materials Law; or (ii) has
ever caused or permitted to be incorporated into or utilized in the construction
of any improvements located on the Real Property any chemical, material, or
substance to which exposure is prohibited, limited or regulated by any Hazardous
Materials Laws or which, even if not so regulated, is known by the Company to
pose a hazard (either in its present form or if disturbed or removed) to the
health and safety of the occupants of the Real Property or of property adjacent
to the Real Property. .
(b) Asbestos; Urea Formaldehyde;
PCBs. Except as set forth in Schedule 3.2.25(b), to the knowledge of the
Company, none of the Company or any Subsidiary or any other person has ever
caused or permitted to be located on the Real Property any asbestos in any form,
any urea formaldehyde foam insulation or any transformers or other equipment
which contain dielectric fluid containing levels of polychlorinated biphenyls in
excess of 50 parts per million.
(c) Environmental Litigation.
Except as set forth in Schedule 3.2.25(c) attached hereto, no litigation, claim,
demand, notice of material violation, administrative enforcement action or
proceeding exists or has been brought or, to the knowledge of the Company,
threatened against the Company or any Subsidiary or the business or property of
the Company or any Subsidiary, nor have any settlements been reached by or with
any party or parties, public or private, relating to damage, contribution, cost
recovery, compensation, loss or injury resulting from any Hazardous Materials,
or directly or indirectly arising out of or attributable to their use,
generation, storage, release, threatened release, discharge, transportation or
disposal and, to the knowledge of the Company, no litigation,
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claim, demand, notice of material violation, administrative enforcement action
or proceeding exists or has been brought or threatened against any predecessor
of or any business previously owned or operated by the Company or any
Subsidiary.
(d) Compliance. Except as set forth
in Schedule 3.2.25(d): (i) the business of the Company and of each Subsidiary,
as currently conducted, does not result in any material non-compliance with
Hazardous Materials Laws; (ii) neither the Company nor any Subsidiary has failed
to file any reports, apply for and/or obtain, or comply with, any licenses,
approvals and permits, or generate and maintain all data, documentation and
records, required under Hazardous Materials Laws, which failure results in the
Company and/or any Subsidiary being in material non-compliance with Hazardous
Materials Laws; (iii) neither the Company nor any Subsidiary, or to the
knowledge of the Company, any other person, has stored, used, generated,
manufactured, processed, treated, transported or disposed of Hazardous Materials
on or about, or to or from, the Real Property or any Prior Facilities in any
manner which results in the Company and/or any Subsidiary being in material
non-compliance with Hazardous Materials Laws; (iv) the Company and each
Subsidiary are and at all relevant times have been in compliance with all
enforcement, cleanup, removal or other governmental or regulatory actions
instituted, completed or threatened pursuant to any Hazardous Materials Laws;
and (v) neither the execution of this Agreement nor the consummation of the
transactions required hereunder shall require or result in any remedial action
with respect to any Real Property. For purposes of this Section 3.2.25(d), the
term "material non-compliance" shall mean any failure to comply with Hazardous
Materials Laws which results in the Company or any Subsidiary being (x) liable
for any fines, penalties or similar impositions imposed by a governmental
authority having jurisdiction under applicable Hazardous Materials Laws, (y)
unable to continue its business operations in the ordinary course; or (z)
required to make additional capital improvements to its facilities in order to
bring such facilities into compliance with applicable Hazardous Materials Laws.
(e) Storage and Disposal of
Hazardous Materials; Underground Storage Tanks. To the actual knowledge of the
Company, without duty to investigate, all on-site and off-site locations where
the Company or any Subsidiary stores, disposes or arranges for the disposal of
Hazardous Materials are identified in Schedule 3.2.25(e), and, as to off-site
locations operated by third parties, are utilized pursuant to contracts with
vendors which are, to the actual knowledge of the Company and the Subsidiaries
without duty to investigate, properly licensed. To the actual knowledge of the
Company, without duty to investigate, all underground storage tanks located on
the Real Property, including the location, capacity and contents of such tanks,
are identified on Schedule 3.2.25(e).
(f) Environmental Reports. All
written compliance audits and site assessment reports prepared by or on behalf
of the Company or any Subsidiary which relate to the Company's or any
Subsidiary's compliance with Hazardous Materials Laws or the presence of any
Hazardous Materials on the Real Property or the Prior Facilities or the effects
or consequences thereof have been made available to Buyer.
(g) Definitions. For purposes
hereof, the term "Hazardous Materials" means and includes, but shall not be
limited to, any chemical,
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compound, substance, pollutant, contaminant, waste, by-product, or material, the
generation, manufacture, handling, use, storage, emission, discharge, disposal,
treatment, transportation, or management of which, or exposure to which, is
prohibited, limited or regulated by, or for which reporting, testing, worker
safety measures, or remedial action may be required by, any Hazardous Materials
Laws, as defined below, including, but not limited to, hazardous substances,
toxic substances, petroleum, waste oil and petroleum by-products, asbestos in
any form, urea formaldehyde and solid and hazardous wastes. For purposes herein,
the term "Hazardous Materials Laws" means and includes, but shall not be limited
to, any federal, state or local statute, law, ordinance, code, rule, regulation,
guidance, policy, order or decree regulating, relating to or imposing liability
or standards of conduct concerning any Hazardous Materials, including but not
limited to the Comprehensive Environmental Response, Compensation, and Liability
Act, as amended (42 U.S.C. Section 9601 et seq.); the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801 et seq.); Resource Conservation and
Recovery Act (42 U.S.C. Section 6901 et seq.); the Emergency Planning and
Community Right-to-Know Act of 1986 (42 U.S.C. Section 11001 et seq.); the
Federal Water Pollution Control Act, as amended (33 U.S.C. Section 1257 et
seq.); the Safe Drinking Water Act (42 U.S.C. Section 300f et seq.); the Toxic
Substances Control Act (15 U.S.C. Section 2601 et seq.); the Clean Air Act (42
U.S.C. Section 7401 et seq.); the Oil Pollution Control Act (33 U.S.C. Section
2701 et seq.) and analogous or similar state, regional or local law and any
so-called "Superfund" or "Superlien" law.
3.2.26 Tax Matters.
(a) Definitions. For purposes of
this Agreement, the following definitions shall apply:
(1) The term "Group" shall
mean, individually and collectively, (i) the Company, (ii) each Subsidiary, and
(iii) any other entity that is or was a member of the affiliated group of
corporations that file a consolidated federal income tax return with the
Company, and as to which the Company or any Subsidiary is liable for Taxes
incurred by such entity pursuant to Treasury Regulations Section 1.1502-6.
(2) The term "Taxes" shall
mean all taxes however denominated, including any interest, penalties or other
additions to tax that may become payable in respect thereof, imposed by any
federal, territorial, state, local or foreign government or any agency or
political subdivision of any such government, which taxes shall include, without
limiting the generality of the foregoing, all income or profits taxes
(including, but not limited to, federal income taxes and state income taxes),
payroll and employee withholding taxes, unemployment insurance, social security
taxes, sales and use taxes, ad valorem taxes, excise taxes, franchise taxes,
gross receipts taxes, business license taxes, occupation taxes, real and
personal property taxes, stamp taxes, environmental taxes, transfer taxes,
workers' compensation, and other governmental charges of a similar nature, and
other obligations of the same or of a similar nature to any of the foregoing,
which the Group is required to pay, withhold or collect.
(3) The term "Returns"
shall mean all reports, estimates, declarations of estimated tax, information
statements and returns relating to, or required to be filed in connection with,
any Taxes, including information returns or reports
17
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with respect to backup withholding and other payments to third parties.
(b) Returns Filed and Taxes Paid.
All Returns required to be filed by or on behalf of any member of the Group have
been duly filed on a timely basis (including extensions) and such Returns are
true, complete and correct in all material respects. Schedule 3.2.26(b) sets
forth a list of all Returns for Taxes as to which extensions have been
requested, and the date to which each such extension runs. All Taxes shown to be
payable on the Returns or on subsequent assessments with respect thereto have
been paid in full on a timely basis, or adequate reserves (as set forth on
Schedule 3.2.26(c)) have been established to cover any such Taxes not paid as of
the date of this Agreement. Each member of the Group has withheld and paid over
all Taxes required to have been withheld and paid over, and complied with all
information reporting and backup withholding requirements, including maintenance
of required records with respect thereto, in connection with amounts paid or
owing to any employee, creditor, independent contractor, or other third party.
There are no liens on any of the assets of any member of the Group with respect
to Taxes, other than liens for Taxes not yet due and payable or for Taxes that a
member of the Group is contesting in good faith through appropriate proceedings
and for which appropriate reserves have been established.
(c) Tax Reserves. Schedule
3.2.26(c) sets forth all reserves for Taxes (including deferred Taxes) as of the
date hereof. Except as set forth in Schedule 3.2.26(c), the amount of the
Group's liability for unpaid Taxes for all periods ending on or before the date
of this Agreement does not, in the aggregate, exceed the amount of the reserves
for Taxes solely with respect to the Company and the Subsidiaries, as such
reserves are reflected on said Schedule, and the amount of the Group's liability
for unpaid Taxes for all periods ending on or before the Closing Date shall not,
in the aggregate, exceed the amount of the reserves for Taxes solely with
respect to the Company and its Subsidiaries, as such reserves are reflected on
said Schedule.
(d) Returns Furnished. Buyer has
been furnished by the Company with true and complete copies of (i) all income
tax audit reports, statements of deficiencies, closing or other agreements or
other notices of any kind from and any requests for rulings to and rulings from
governmental authorities pertaining to the Company and/or the Subsidiaries
received by any member of the Group or on behalf of any member of the Group
relating to Taxes, and (ii) all federal and state income or franchise tax
returns for the Group to the extent they pertain to the Company and/or the
Subsidiaries for all periods ending on and after December 31, 1993 and until the
date of this Agreement. All such reports, statements, agreements and notices of
the type described in clause (i) above are listed on Schedule 3.2.26(d) attached
hereto. The Company and the Subsidiaries have never been members of an
affiliated group filing consolidated returns other than a group of which the
Company and the Subsidiaries and their corporations and other entities, the
names of which are set forth on Schedule 3.2.26(d), were the only members.
Except as set forth on Schedule 3.2.26(d), to the Company's knowledge, neither
the Company nor any member of the Group do business in or derive income from any
state, local, territorial or foreign taxing jurisdiction other than those for
which the above-referenced Returns have been furnished to Buyer. The Company and
the Subsidiaries have never filed an election under 341(f) of the Code.
(e) Tax Deficiencies; Audits;
Statutes of Limitations.
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The Returns of the Group have never been audited by a government or taxing
authority, nor is any such audit in process, pending or, to the Company's
knowledge, threatened (either in writing or verbally, formally or informally).
The Return of Paragon was audited for the 1987 tax year, resulted in a "no
changes" determination, and has not been audited since. No deficiencies exist or
have been asserted (either in writing or to the Company's knowledge verbally,
formally or informally), with respect to Taxes of the Group, and no member of
the Group has received notice (either in writing or to the Company's knowledge
verbally, formally or informally), or expects to receive notice that it has not
filed a Return or paid Taxes required to be filed or paid by it. No member of
the Group is a party to any action or proceeding for assessment or collection of
Taxes, nor has such action or proceeding been asserted or, to the Company's
knowledge, threatened (either in writing or verbally, formally or informally)
against any member of the Group or any of its assets. No waiver or extension of
any statute of limitations is in effect with respect to Taxes or Returns of any
member of the Group. The Company and each member of the Group have disclosed on
its federal income tax returns all positions taken therein that could give rise
to a substantial understatement penalty within the meaning of Code Section 6662.
Any exceptions to any of the foregoing are set forth in Schedule 3.2.26(e)
hereto.
(f) Tax Sharing and Other
Agreements. None of the Company or any Subsidiary is (or ever has been) a party
to any tax sharing or tax allocation agreement with any person or to any
closing, pricing or other agreement with any governmental authority with respect
to the payment of any Taxes.
3.2.27 Employment Matters. Attached hereto
as Schedule 3.2.27 is (i) a list of the names, titles and annual compensation of
each salaried employee of the Company or any Subsidiary; (ii) a list of the
names, titles and compensation of each hourly employee of the Company or any
Subsidiary who, as of the date hereof, is expected to receive compensation in
excess of US$50,000 per annum; and (iii) the accrued vacation time of all
employees of the Company and the Subsidiaries. There is shown as a liability on
the Unaudited Balance Sheet vacation and holiday pay and bonuses, commissions or
other compensation of every kind with respect to work done prior to the date of
the Unaudited Balance Sheet due to any present or former employees. Except as
set forth on Schedule 3.2.27, there have been no increases in salary or
compensation or any bonus paid to any employee since the date of the Unaudited
Balance Sheet. Except as set forth on Schedule 3.2.27, there are no written or
oral contracts, agreements, policies or arrangements which would restrict the
ability of the Company or any Subsidiary to terminate an employee without having
to make any severance payment.
3.2.28 Labor Matters. None of the Company's
or any Subsidiaries employees are subject to, and the Company and the
Subsidiaries are not parties to, any collective bargaining agreement. Within the
last five years, neither the Company nor any Subsidiary has experienced a labor
dispute, union organization attempt or any work stoppage due to labor disputes
in connection with its business. There is no (a) unfair labor practice charge or
complaint against the Company or any Subsidiary pending or, to the Company's
knowledge, threatened; (b) labor strike, lockout, dispute, request for
representation, slowdown or stoppage actually pending or, to the Company's
knowledge, threatened against or affecting the Company or any Subsidiary or any
secondary boycott with respect to products of the Company or any Subsidiary; or
(c) grievance which, if adversely
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decided, might have a material adverse affect on the assets, business, financial
condition or results of operation of the Company or any Subsidiary.
3.2.29 Bank Accounts and Investments.
Attached hereto as Schedule 3.2.29 is a list of (a) each financial institution
in which the Company and each Subsidiary maintain an account or safety deposit
box, the number of such account or safety deposit box, and the names of all
persons holding check signing or withdrawal powers or other authority with
respect thereto and (b) all certificates of deposit, securities and other
investments owned by or on behalf of the Company or any Subsidiary.
3.2.30 Contracts and Other Agreements.
Schedule 3.2.30 sets forth all of the following contracts and other agreements
to which the Company or any Subsidiary is currently a party or by which either
is bound or to which a material part of their respective assets or properties
are subject: (i) contracts and other agreements with any current or former
shareholder or any current officer, director, trustee or relative of the
foregoing or other affiliate of Seller, the Company or any Subsidiary or with
any other current employee or consultant or with an entity in which the Company
or any Subsidiary is a controlling person; (ii) contracts and other agreements
with any labor union or association representing any employee; (iii) contracts
and other agreements for the sale of any of its assets other than in the
ordinary course of business or for the grant to any person of any preferential
rights to purchase any of its assets; (iv) joint venture agreements; (v)
contracts and other agreements under which it agrees to indemnify any party;
(vi) material contracts and other material agreements , except those which can
be canceled without liability, premium or penalty on not more than thirty (30)
days' notice; (vii) contracts and other agreements with customers, tenants,
distributors or suppliers for the rebating of charges or other similar
arrangements pursuant to which payments in excess of US$25,000 have been or may
hereafter be made, whether by or to the Company or a Subsidiary; (viii)
contracts and other agreements containing covenants of the Company or any
Subsidiary not to compete in any line of business or with any person in any
geographical area or covenants of any other person not to compete with the
Company or any Subsidiary in any line of business or in any geographical area;
(ix) contracts and other agreements relating to the acquisition by the Company
or any Subsidiary of any assets, operating business or the capital stock of any
other person; (x) contracts and other agreements relating to the management by
the Company or any Subsidiary of any real property owned by a third party, or
the management by a third party of any Real Property; (xi) contracts and other
agreements not entered into in the ordinary course of business pursuant to which
payments in excess of US$25,000 have been or may hereafter be made; (xii)
management, consulting and employment agreements; (xiii) outstanding powers of
attorney empowering any person to act on behalf of the Company or any
Subsidiary; or (xiv) any other contracts or other agreements pursuant to which
payments in excess of US$25,000 may, on a contractual basis, hereafter be made,
whether by or to the Company or a Subsidiary. There have been made available to
Buyer, its affiliates and their representatives true and complete copies of all
of the contracts and other agreements set forth on Schedule 3.2.30 or any other
Schedule. Except as set forth on Schedule 3.2.30, all of such contracts and
other agreements are valid and binding upon the Company or any Subsidiary,
respectively, and, to the knowledge of the Company, on the other parties
thereto, and are enforceable in accordance with their terms. Except as set forth
on Schedule 3.2.30, neither the Company nor any Subsidiary is in default in any
material respect under any such agreements, nor, to the knowledge of the
Company, is any other party to any such contract or
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other agreement in default thereunder in any material respect, nor, to the
knowledge of the Company, does any condition exist that with notice would
constitute a material default thereunder.
3.2.31 Permits and Licenses. Schedule 3.2.31
sets forth all the permits and licenses held by the Company and the Subsidiaries
for the operation of the business of the Company and the Subsidiaries, copies of
which have been furnished to Buyer. Such permits and licenses constitute all
authorizations necessary for the Company and the Subsidiaries to own their
assets or conduct their respective businesses, and (i) each is in full force and
effect, (ii) there is no material violation of any such permit or license and
(iii) no proceeding is pending or threatened seeking the relocation or
limitation of any such permit or license.
3.2.32 Indebtedness. Except as set forth in
Schedule 3.2.32, the Company and the Subsidiaries have no indebtedness, and are
not parties to any contract or other agreements relating to the borrowing of
money, including notes, mortgages, credit agreements, guarantees, equipment
lease agreements or security agreements. Neither the Company nor any Subsidiary
has any indebtedness to Seller or any of Seller's affiliates.
3.2.33 Material Misstatements or Omissions.
No representation or warranty by the Company or the Subsidiaries contained in
this Agreement or the Schedules attached hereto, and no document or certificate
furnished or to be furnished or made available to Buyer in connection herewith
or with the transactions contemplated hereby, contains an untrue statement of a
material fact or omits to state a material fact necessary to make the statements
of fact contained herein or therein not misleading.
4. Representations and Warranties of Buyer. Buyer hereby
represents and warrants to the Seller as follows:
4.1 Authority. Buyer has full corporate power and
authority to own, lease and operate its assets, properties and business and to
carry on its business as it is now being and has been conducted. This Agreement
constitutes the legal, valid and binding obligation of Buyer, enforceable
against it in accordance with its terms. Subject to the approval contemplated in
Section 7.1.12, Buyer has the absolute and unrestricted right, power, and
authority to execute and deliver this Agreement, and to perform the obligations
hereunder. The execution and delivery of this Agreement and the performance
hereof has been authorized and ratified by the Board of Directors of Buyer.
4.2 Organization and Good Standing. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware.
4.3 Brokerage or Finder's Fees. Buyer has not
incurred any liability to any broker, finder or agent for any brokerage fees,
finder's fees or commissions other than to Robert Martens & Company, the fees of
which will be the sole responsibility of Buyer.
4.4 No Violation. Neither the execution and delivery
of this Agreement nor the consummation or performance of any of the contemplated
transactions will, directly or indirectly: (a) contravene, conflict with or
result (with or without notice or
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lapse of time) in a violation of (i) any of the provisions of the current
Certificate of Incorporation or the Bylaws of Buyer or (ii) any resolution
adopted by the Board of Directors or the stockholders of Buyer; (b) contravene,
conflict with or result (with or without notice or lapse of time) in a violation
of any federal, state, local, municipal, foreign or other law, statute,
ordinance, rule, regulation, directive or other legal requirement or any order,
judgment, injunction, ruling, decision, writ or sentence rendered by any court,
agency or other governmental body to which Buyer, or any of the assets owned or
used by the Buyer, may be subject; (c) contravene, conflict with or result (with
or without notice or lapse of time) in a violation or breach of any of the
provisions of, or give any person or entity the right (with or without notice or
lapse of time) to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of or cancel, terminate or modify, any
contract, mortgage, license, permit or authorization to which Buyer is a party
or under which Buyer has any rights, or by which Buyer, or any of the assets
owned or used by Buyer may be bound; (d) result (with or without notice or lapse
of time) in the imposition or creation of any encumbrance upon or with respect
to any of the assets owned or used by Buyer; or (e) result in the creation or
imposition of any security interest, lien or other encumbrance upon the property
or assets of Buyer, which would in turn restrict or prohibit Buyer from
performing its obligations hereunder.
4.5 Sufficient Funds. Buyer will have or has access
to sufficient funds (i) to pay the cash amounts contemplated by Section 2.2 as
of the Closing Date, and (ii) to fulfill its obligations under this Agreement.
5. Covenants and Agreements. Buyer, Seller, the Company and/or
the Subsidiaries, as the case may be, each hereby afford the following
affirmative and negative covenants, thereby agreeing to do or not to do, the
following:
5.1 No Corporate Borrowings. From the date hereof
through the Closing Date, the Company and the Subsidiaries shall not, except in
the ordinary course of their respective businesses, without the prior written
consent of Buyer which shall not be unreasonably withheld, borrow monies for any
reason or draw down on any line of credit or long-term debt obligation, or
become the guarantor, surety or endorser of the obligation of any other person,
partnership, corporation or other business entity.
5.2 Conduct of Business.
5.2.1 Diligent Conduct. From the date hereof
through the Closing Date, the Company and each Subsidiary shall use its
reasonable efforts to (i) conduct its business diligently and in the ordinary
course, (ii) preserve intact its business and marketing organization, (iii)
retain in its employ all of its key employees and (iv) preserve its
relationships with its suppliers, customers, sales representatives, and others
having business relations with it.
5.2.2 Capital Transactions. From the date
hereof through the Closing Date, the Company and each Subsidiary shall not,
without the prior written consent of Buyer, make commitments for capital
expenditures in excess of the amount budgeted therefor in the Company's 1997
operating budget, a copy of which is attached hereto as Schedule 5.2.2.
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5.2.3 Properties and Assets. Schedule 5.2.3
sets forth a list of all of the personal property owned by the Company and the
Subsidiaries as of the date hereof. From the date hereof through the Closing
Date, the Company and each Subsidiary shall not, without the prior written
consent of Buyer, (i) sell or transfer any of the Real Property, terminate or
renew any lease of or other agreement with respect to any Leased Real Property
or mortgage, pledge or subject the Real Property to liens, charges, claims or
encumbrances of any kind, (ii) other than in the ordinary course of business
sell or transfer any other assets (including the Company's shares of stock in
any Subsidiary), cancel any debts or claims, or mortgage, pledge or subject any
of such other assets to liens, charges, claims or encumbrances of any kind (in
the case of clauses (i) and (ii), other than liens for taxes and assessments not
delinquent).
5.2.4 Contracts. From the date hereof
through the Closing Date, the Company and each Subsidiary shall not, without the
prior written consent of Buyer, amend or terminate any material contract or
agreement to which it is a party, including without limitation those set forth
on Schedules 3.2.15B and 3.2.30, or enter into or become a party to any
agreement under which the reasonably anticipated costs and expenses will exceed
the reasonably anticipated revenues or which would materially and adversely
affect its business, enter into or become a party to any agreement or other
arrangement with Seller or with any affiliate of Seller, the Company or any
Subsidiary, or agree to indemnify, defend or hold any person harmless for any
liability of any kind whatsoever.
5.2.5 Insurance. From the date hereof
through the Closing Date, the Company and each Subsidiary shall not voluntarily
discontinue any of their respective insurance policies, as described in Schedule
3.2.20 attached hereto.
5.2.6 Compensation of Employees. From the
date hereof through the Closing Date, neither the Company nor any Subsidiary may
increase the compensation payable or to become payable to any of their
respective officers, employees, independent contractors or agents, or make any
bonus payment or similar arrangement with any such person or increase the
benefits provided or payable to such person, without the prior written consent
of Buyer, except for regular wage increases for non-salaried employees which are
part of a regular review cycle, and are consistent with in amount and timing
with the regular policies of the Company or any Subsidiary, as applicable, and
consistent with past practice.
5.2.7 Taxes; Consent. Schedule 3.2.26(b)
sets forth a list of all Returns of the Company and the Subsidiaries under
extension as of the date hereof. The Company and the Subsidiaries shall use
their best efforts to prepare and timely file all Returns listed on Schedule
3.2.26(b) and amendments thereto required to be filed by them and the Group on
or before the Closing Date. The Company and each member of the Group shall pay
and discharge all Taxes, assessments and governmental charges upon or against
it, the Real Property or any of its properties or assets, and all liabilities at
any time existing, before the same shall become delinquent and before penalties
accrue thereon, except to the extent and as long as: (a) the same are being
contested in good faith and by appropriate proceedings pursued diligently; and
(b) the Company shall have set aside on its books reserves in the amount of the
demanded principal imposition (together with interest and penalties relating
thereto, if any). Any and all refunds of Taxes or Tax credits attributable to
fiscal year 1996
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shall be for Seller's account and, if any such amounts are received by Buyer or
the Company or any Subsidiary, such amounts shall be paid immediately by such
person to Seller. Any and all Taxes due in connection with the returns listed on
Schedule 3.2.26(b) in excess of the reserves therefor shall be borne by Seller
and Seller shall immediately indemnify the Company therefor, without any regard
for the limitations contained in Section 8 of this Agreement.
5.2.8 Matters Affecting the Real Property.
From the date hereof through the Closing Date, in the event the Company or any
Subsidiary receives a written notice regarding any threatened litigation,
condemnation or sale in lieu thereof with respect to any portion of the Real
Property relating to or arising out of the ownership or lease of such portion of
the Real Property, the Company agrees to promptly remit a copy of such notice to
Buyer. Further, in the event that the Company or any Subsidiary receives any
notice regarding a proposed change in the assessed valuation of any portion of
the Real Property, the Company shall remit same to Buyer.
5.2.9 Existing Indebtedness. From and after
the date of this Agreement and until and through the date of the Closing, the
Company agrees that it will pay, as and when same becomes due and payable, all
principal and interest and all deposits and other charges payable under its
existing indebtedness, as set forth on Schedule 3.2.32 including without
limitation all indebtedness secured by the Real Property, and will fully comply
with all the provisions thereof, except as to those items of existing
indebtedness set forth on Schedule 5.2.9. The Principal balance as of the date
of this Agreement of each of the Mortgage, Unsecured Note, and Line of Credit
shall be set forth on Schedule 3.2.32. Notwithstanding the foregoing, the
Company agrees not to voluntarily make, cause or permit any prepayment of the
principal of the Unsecured Note or the Mortgage, respectively, prior to the
scheduled payment date thereof.
5.2.10 Corporate Changes. From the date
hereof through the Closing Date, neither the Company nor any Subsidiary shall
amend its Articles of Incorporation or Bylaws or make any changes in the terms
or amount of their respective authorized, issued or outstanding capital stock
(including authorizing, selling, redeeming or purchasing any shares thereof).
5.2.11 Distributions. From the date hereof
through the Closing Date, the Company may not declare, set aside or pay any
dividend or other distribution in respect of the Company Shares.
5.2.12 Other Changes. From the date hereof
through the Closing Date, the Company and the Subsidiaries will not take any
action which would result in any representation contained in Section 3.2.6(b) of
this Agreement to become untrue or which would have required disclosure
thereunder if such action had occurred immediately prior to execution hereof.
5.3 Due Diligence Cutoff Date; Final Disclosure
Schedules; Access and Information.
5.3.1 In order to expedite the execution of
this Agreement,
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Buyer acknowledges that as of the date hereof the Schedules contemplated herein
have not yet been completed. Without limiting the covenants contained in Section
5.3.3 below, Seller, the Company and the Subsidiaries shall prepare as promptly
as possible and deliver to Buyer not later than May 23, 1997 the "Disclosure
Schedule Completion Date"), Schedules which shall be complete and accurate in
all respects as of the Disclosure Schedule Completion Date.
5.3.2 Subject to Section 5.3.7, not later
than the first to occur of (i) the date upon which the proxy statement referred
to in Section 6.3 below shall have been mailed and (ii) May 30, 1997 or, if
Seller amends any schedule to this Agreement after the Disclosure Schedule
Complete Date pursuant to Section 5.3.7 hereof, then June 2, 1997 (the "Due
Diligence Cutoff Date"). 5:00 p.m. (Pacific daylight time), Buyer must indicate
in writing that either (x) it is satisfied with the results of its due diligence
investigation (including without limitation those investigations contemplated by
Sections 5.3.3 and 5.3.6) and elects to proceed with the transactions
contemplated by this Agreement; or (y) that it is not so satisfied (stating the
reasons therefor), and that it elects to terminate the Agreement pursuant to
Section 10.1.4 hereof. Following the Due Diligence Cutoff Date, Buyer may
continue its due diligence but shall not have the right to terminate this
Agreement pursuant to Section 10.1.4.
5.3.3 UCC/Lien Searches. Buyer may obtain
from a title company or search firm selected by Buyer Uniform Commercial Code
financing statement searches, tax lien searches, judgment lien searches and
pending litigation (including bankruptcy) searches respecting the Company, the
Subsidiaries and Seller in the appropriate local and state offices in the State
of California and all other state and local jurisdictions in which the Company
or any Subsidiary has assets or properties or conducts business (the "Lien
Searches") and any necessary updates of such Lien Searches with as-of or through
dates as near to the Closing as reasonably possible. All Lien Searches shall be
performed at Buyer's cost and expense.
5.3.4 Title Policies. At Buyer's sole
option, Buyer may obtain from a title company selected by Buyer and shall be
satisfied with commitments (the "Commitments") to issue an ALTA Owner's Policy
of Title Insurance in an amount acceptable to Buyer and reasonably reflecting
the value of the Owned Real Property and an ALTA Leasehold Owner's Policy of
Title Insurance with respect to each Leased Real Property location in an amount
acceptable to Buyer and reasonably reflecting the value of the respective
premises (the "Title Policies"). The Title Policies and the Commitments shall
provide for full extended coverage over all general exceptions to Buyer's title
contained in the Title Policies and shall contain such endorsements as Buyer or
its Lenders may reasonably request. The title examination, the Commitments and
the Title Policies shall be performed or issued at Buyer's cost and expense.
5.3.5 Surveys. At Buyer's sole option, Buyer
may obtain a plat survey of the Owned Real Property and any of the Leased Real
Property as Buyer or its lenders may require certified according to ALTA/ACSM
standards (the "Survey"). The Survey shall satisfy the Minimum Standard Detail
Requirements for ALTA/ACSM Land Title Surveys and shall show a legend of all
symbols and abbreviations, a vicinity map showing the property surveyed in
reference to nearby highways or major street intersections, any flood zone
designations, land area, the current zoning for the entire property setback,
height and
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bulk restrictions of record or disclosed by applicable zoning or building codes
(in addition to those recorded in subdivision maps), square footage of all
buildings, improvements and parking areas (and, if striped, the striping and
number of parking spaces), indication of access to a public way, and location of
all utilities serving the property, together with such other additional matters
as Buyer may request. The Survey shall be certified to the Company and the
applicable Subsidiary, the title company designated under Section 5.3.4 above,
Buyer and any lender of Buyer. The Survey shall be performed at Buyer's cost and
expense.
5.3.6 Environmental Compliance Audits. Buyer
may obtain a review of the Dames & Moore reports previously provided by Seller
and such further environmental site assessments, compliance audits and liability
evaluations as Buyer's environmental consultant shall have recommended be
performed (including invasive testing and sampling) of the Company's and the
Subsidiaries' facilities, business and operations and of the Real Property (the
"Environmental Audits") and Buyer and its lenders shall be satisfied, in their
sole and absolute discretion, with the scope, parameters and results of the
Environmental Audits. The Company and the Subsidiaries shall cooperate fully
with Buyer's and its agents', counsel's and consultant's requests for
information and for access to the Company's and the Subsidiaries' records,
employees, and facilities in connection with such investigation. The Company and
the Subsidiaries shall use their best efforts to obtain, at Seller's sole
expense, "reliance letters" and the right for Buyer and Buyer's consultants and
lenders, to rely upon the facts and conclusions of the Company's prior
environmental consultants with respect to the Real Property, including Dames &
Moore, Thorne Environmental, Inc. and Environmental Managers and Auditors, Inc.
The Environmental Audits shall be performed at Buyer's cost and expense.
5.3.7 If, prior to the Due Diligence Cutoff
Date, any party shall become aware of any facts, circumstances or information
which, if they prevailed in a claim after the Closing Date, would constitute a
breach of a representation, warranty or covenant made by such party or another
party hereto, or which would cause one or more of the Schedules to this
Agreement produced by such party to be inaccurate, then such party shall
promptly notify the other party or parties of such breach or inaccuracy. In the
case of any such breach or inaccuracy, the party in breach shall promptly take
such action as may be appropriate under the circumstances to cure such breach or
correct the affected Schedule or Schedules prior to (i) the Disclosure Schedule
Completion Date, as to matters discovered by Seller, the Company or the
Subsidiaries, and the Due Diligence Cutoff Date as to matters discovered by
Buyer and not disclosed to Seller prior to the Disclosure Schedule Completion
Date.
5.3.8 Subject to Section 6.4 hereof, (i) the
Company shall afford to Buyer and Buyer's counsel, accountants, consultants and
other representatives, access to all of its assets, properties (subject to the
rights of tenants under any lease with respect to which the Company or any
Subsidiary is lessor), books, contracts and records and any records concerning
the Company or the Subsidiaries maintained and accumulated by their respective
counsel, accountants and other representatives, and to furnish such persons with
all information, including copies of books, contracts and records, concerning
its affairs which such persons may reasonably request, including without
limitation any documents or information held by the Company, any Subsidiary or
their respective legal counsel concerning or relating to any litigation
involving the Company or any Subsidiary; and (ii) the Company
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shall furnish to Buyer copies of all deeds and recorded instruments by which the
Company or any Subsidiary acquired the Real Property or leasehold or other real
property interests, and copies of all title insurance policies, opinions,
abstracts and surveys in possession of the Company or any Subsidiary relating to
the Real Property, all so that Buyer may have a full opportunity to make such
investigation in advance of the Due Diligence Cutoff Date as it shall desire.
5.4 Loss by Fire or Other Casualty; Condemnation. In
the event that, prior to Closing, the Real Property, or any material portion
thereof, or any other material property of the Company or any Subsidiary is
destroyed or damaged, or if material condemnation proceedings are commenced
against the Real Property, Buyer shall have the right, exercisable by giving
notice of such decision to Seller within fifteen (15) days after receiving
written notice of such damage, destruction or condemnation proceedings, to
terminate this Agreement, in which case the parties shall not have any further
rights or obligations hereunder. If Buyer elects to accept the Real Property or
other property in its then condition, all proceeds of insurance or condemnation
awards payable to the Company and the Subsidiaries by reason of such damage,
destruction or condemnation shall be paid or assigned to Buyer. In the event of
non-material damage to the Real Property or other property, which damage the
Company and the Subsidiaries are unwilling to repair or replace, Buyer shall
have the right, exercisable by giving notice within fifteen (15) days after
receiving written notice of such damage, either (a) to terminate this Agreement
as hereinabove in this Section provided, or (b) to accept the Real Property or
other property in its then condition and proceed with the purchase, in which
case Buyer shall be entitled to any insurance proceeds and, if Seller agrees, a
reduction of the Purchase Price to the extent the cost of repairing or replacing
such damage exceeds such insurance proceeds, but if Seller does not agree to
such reduction Buyer may terminate this Agreement. For the purposes of this
Section, a material portion of the Real Property or other property shall be
deemed to be destroyed or damaged only if the cost of repair exceeds US$100,000
or casualty occurs which cannot be repaired within sixty (60) days.
5.5 No Transfer of Shares. Seller shall not transfer
or attempt to transfer the Company Shares except to Buyer pursuant hereto and
the Company shall refuse to accept any certificates for the Company Shares to be
transferred upon its books except to Buyer pursuant hereto.
5.6 Repayment of Certain Indebtedness by the Company.
Concurrent with the Closing, Buyer shall loan, advance or contribute to the
Company such amounts as are necessary to repay and satisfy all obligations then
outstanding under the Line of Credit and the Unsecured Note, and the Company
(or, as applicable, one or more Subsidiaries) shall use the proceeds of said
advance so to repay and satisfy the Line of Credit and the Unsecured Note,
against evidence reasonably acceptable to Buyer that all liens and encumbrances
relating to such indebtedness shall be released concurrently with such repayment
and satisfaction.
5.7 Use of "Kleinert" Trade Name; License of Kleinert
Mark. Buyer, and, after the Closing, the Company and Subsidiaries, agree that
after the Closing, none of said parties will use the name "Kleinert" in any way,
including without limitation in connection with the operation of the business of
the Company and its Subsidiaries; provided,
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however; that the Company and its Subsidiaries may continue for a period of six
(6) months following the closing use such printed materials such as advertising
brochures, business cards, invoices, purchase orders, letterhead, signs, phone
listings and the like as may exist on the Closing Date (it being understood that
any new materials of this nature which are prepared will not use the name
"Kleinert"). Seller hereby grants to Buyer, Company and each Subsidiary an
exclusive, perpetual, royalty-free right and License to use the Mark consisting
of four (4) overlapping circles (one of which is sometimes blackened), an
example of which appears in Schedule 3.2.22 hereto, within the United States of
America.
6. Mutual Covenants.
6.1 Hart-Scott-Rodino Act; Other Filings. Upon the
execution hereof, Buyer and Seller shall make or cause to be made all filings,
if any, which are required (i) under Title II of the Hart-Scott-Rodino Antitrust
Improvement Act of 1976 (the "HSR Act"), if necessary, and (ii) in order to
comply with any other law, rule or regulation necessary in connection with the
consummation of the transactions contemplated hereby. Each party will furnish to
the other such reasonable assistance as it may request in connection with the
preparation of any filings with or submissions to any governmental agency,
including without limitation any filings necessary under the provisions under
the HSR Act. Any filing fees required to be paid in connection with filings
under the HSR Act and all other filings with other governmental agencies shall
be borne equally by Buyer and Seller. For purposes of the foregoing covenants,
each of Buyer and Seller represent and warrant to the other that within the
meaning of the HSR Act, neither the total assets nor total net sales of its
ultimate parent entity (if other than itself), on a consolidated basis with all
of its controlled entities, exceeds the sum of US$100,000,000.
6.2 Intercompany Matters.
6.2.1 Elimination of Intercompany Accounts.
All intercompany payables from Seller and its affiliates to the Company or the
Subsidiaries, shall be paid upon the Closing. Schedule 6.2.1 contains a complete
and accurate description of all such intercompany accounts.
6.2.2 Termination of Intercompany
Agreements. Schedule 6.2.2. sets forth a description of all contracts and
agreements, written and oral, between the Company and the Subsidiaries, on the
one hand, and Seller and its affiliates (other than the Company and the
Subsidiaries) on the other hand. As of the Closing Date, each party hereto
agrees that all such agreements and contracts shall be deemed terminated on and
as of the Closing Date, and agrees to take such actions and execute such
documents, and shall cause its respective subsidiaries to take such actions and
execute such documents, as are necessary or convenient to effect such
termination. The foregoing shall not apply to the Management Participation Plan
II agreements referred to in Section 7.1.14, which shall be dealt with in the
manner therein described.
6.3 Public Statements. The parties hereto will not
make, issue or release any oral or written public announcement, filing or
statement concerning, or acknowledgment of the existence of, or reveal the
terms, conditions and status of the transaction contemplated by this Agreement,
without first making a good-faith attempt to
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obtain the prior approval of, or concurrence in, the contents of such
announcement, acknowledgment or statement by the other parties, which approval
or concurrence will not be unreasonably withheld or delayed; provided, however,
that any of the parties hereto may at any time make any announcements which are
required by applicable law so long as the party so required to make an
announcement promptly upon learning of such requirement notifies the other
parties of such requirement and discusses with the other parties in good faith
the exact wording of any such announcement. Seller and the Company hereby
consent to the inclusion of the terms, conditions and details of this
transaction and the business of the Company in the proxy statement to be
submitted to the shareholders of Buyer's parent corporation, which is
contemplated pursuant to Section 7.1.12 hereto, in accordance with the rules and
regulations of the Securities and Exchange Commission ("SEC").
6.4 Confidentiality. Except as contemplated by
Section 6.2 hereof, between the date of this Agreement and the Closing Date,
each party will maintain in confidence, and cause its directors, officers,
employees, agents and advisors to maintain in confidence, and not use to the
detriment of another party or any of the Subsidiaries any written, oral or other
information obtained in confidence from another party in connection with this
Agreement or the transactions contemplated hereby unless such information is
already known to such party or to others not bound by a duty of confidentiality
or unless such information becomes publicly available through no fault of such
party, unless the use of such information is necessary or appropriate in making
any filing or obtaining any consent or approval required for the consummation of
the transaction contemplated by this Agreement or unless the furnishing or use
of such information is required by or necessary or appropriate in connection
with any legal proceedings.
If the transactions contemplated by this Agreement
are not consummated, each party will return or destroy as much of such written
information as may reasonably be requested. Whether or not the Closing takes
place, Seller and the Company waive any cause of action, right or claim arising
out of the access of Buyer or its representatives to any trade secrets or other
confidential information of the Company or the Subsidiaries, except for the
intentional competitive misuse by Buyer of such trade secrets or confidential
information, and except for breach of the covenant above in this Section 6.4.
6.5 Other Actions. Each party hereto agrees to
execute and to deliver such instruments, in form and substance mutually
agreeable to the parties, as another party may reasonably require in order to
carry out the terms of this Agreement or the transactions contemplated by this
Agreement.
6.6 Best Efforts. Each party hereto will use those
efforts that a prudent person desirous of achieving a result would use under
similar circumstances to ensure that such result is achieved as expeditiously as
possible in order to cause all conditions to the consummation of the
transactions contemplated hereby to be satisfied, and shall not take any action
that would cause any of its representations and warranties in this Agreement not
to be true and correct as of the Closing Date.
6.7 Notification of Certain Matters. If, prior to the
Closing, any party shall become aware of any facts, circumstances or information
which, if they prevailed on the Closing Date, would constitute a breach of a
representation, warranty or covenant made
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by such party or another party hereto, or which would cause one or more of the
Schedules to this Agreement produced by such party to be inaccurate, then such
party shall promptly notify the other party or parties of such breach or
inaccuracy. In the case of any such breach or inaccuracy, the party in breach
shall promptly take such action as may be appropriate under the circumstances to
cure such breach prior to the Closing Date; provided, however, that no schedule
hereto shall be amended after the Disclosure Schedule Completion Date except in
accordance with Section 5.3.7 hereof.
6.8 Tax Matters and Post-Closing Cooperation.
6.8.1 Seller shall pay all Taxes imposed on
Seller arising from or relating to the transactions contemplated by this
Agreement. In addition, Seller shall pay all other Taxes imposed on Seller that
may be due after the Closing Date in connection with the transaction
contemplated by this Agreement. In order appropriately to apportion any of these
Taxes relating to a period that includes (but that would not, but for this
section, close on) the Closing Date, the parties hereto will, to the extent
permitted by applicable law, elect with the relevant taxing authorities to treat
for all purposes the Closing Date as the last day of the taxable period of the
Company that immediately precedes the Closing Date, and such period shall be
treated as a "Short Period" and a "Pre-Closing Period" for purposes of this
Agreement. In any case where applicable law does not permit the Company to treat
the Closing Date as the last day of a Short Period, then for purposes of this
Agreement, the portion of such Taxes that is attributable to the operations of
the Company for such Interim Period (as defined below) shall be (i) in the case
of Taxes that are not based on income or gross receipts, the total amount of
such Taxes for the taxable period in question multiplied by a fraction, the
numerator of which is the number of days in the Interim Period, and the
denominator of which is the total number of days in the entire taxable period in
question, and (ii) in the case of Taxes that are based on income or gross
receipts, the Taxes that would be due with respect to the Interim Period, if
such Interim Period were a Short Period. "Interim Period" means with respect to
any Taxes imposed on the Company on a periodic basis for which the Closing Date
is not the last day of a Short Period, the period of time beginning on the first
day of the actual taxable period that includes (but does not end on) the Closing
Date and ending on and including the Closing Date.
6.8.2 If for any period ending after the
Closing Date the Group earns any credit or recognizes any loss which cannot be
applied against its tax liability for such period, and is permitted by law to
carry back such credit or loss to a period ending on or prior to the Closing
Date, and if the Group shall receive a tax reduction for the period which it
otherwise would not have enjoyed and to which such credit or loss is properly
carried back, then Seller shall immediately upon receipt of the benefit remit to
Buyer the amount of such tax reduction actually realized by the Group up to the
amount which the Group would have received if such carryback were the only item
giving rise to a tax reduction for such period. Seller agrees that it will
cooperate with Buyer and the Company and their respective representatives, in a
prompt and timely manner, in connection with (i) the preparation and filing of,
and (ii) any administrative or judicial proceedings involving, any return of tax
or information filed or required to be filed by or for the Company or Buyer for
all taxable years of Seller through the taxable year that includes the Closing
Date.
6.8.3 Buyer shall pay all Taxes imposed on
Buyer arising from
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or relating to the transaction contemplated by this Agreement. In addition,
Buyer shall pay all other Taxes imposed on Buyer that may be due after the
Closing Date in connection with the transaction contemplated by this Agreement.
Buyer and the Company shall file and control any Returns required to be filed by
the Company after the Closing Date with respect to any taxable year ending after
the Closing Date. Seller agrees that it shall provide, and shall cause its
accountants and other representatives to provide, to Buyer on a timely basis the
information, including but not limited to all work papers and records relating
to the Company, that it or the accountants or other representatives have within
their control and that may be reasonably necessary or related to (i) the
preparation of any and all Returns required to be filed by Buyer or the Company
and (ii) audits or other tax determinations or proceedings by or before
governmental agencies, such information to be provided in the form in which it
has in the past been maintained by Seller, its accountants or other
representatives.
6.9 Exclusivity. Neither Seller nor any
officer, director, employee, attorney, agent or representative of Seller or any
one or more of them shall contact, consult or negotiate with any other person,
firm, corporation, entity or organization for the potential sale and purchase of
the Company by Seller until the expiration of the date set for the Closing
pursuant to Section 2.4 hereof (subject to extension as provided in this
Agreement) has occurred or such earlier date as this Agreement is terminated
pursuant to Section 10.1 hereof.
7. Conditions Precedent to Closing.
7.1 Conditions Precedent to Obligations of Buyer. The
obligation of Buyer under this Agreement and to purchase the Company Shares
hereunder is subject to the satisfaction of each of the following conditions.
Notwithstanding anything to the contrary contained herein Buyer shall have the
right to waive all or any part of each such condition and to close the
transactions contemplated hereby.
7.1.1 Correctness of Representations and
Warranties. There shall be no representation or warranty of the Company or
Seller contained in this Agreement that is untrue or inaccurate in any respect
on the Closing Date. Buyer shall have received certificates dated the Closing
Date and executed by or on behalf of the Company and Seller and to the effect
that all such representations and warranties are true and accurate in all
respects.
7.1.2 Performance of Covenants and
Agreements. There shall be no covenant or agreement of the Company or Seller
contained in this Agreement which has been breached. Buyer shall have received
certificates dated the Closing Date and executed on behalf of the Company and
Seller to the effect that there has been no such breach of any such covenant or
agreement.
7.1.3 Opinion of the Company's Counsel.
Buyer shall have received from Brown Raysman Millstein Felder & Steiner LLP
and/or Morrison & Foerster LLP, counsel for the Seller, an opinion dated the
Closing Date covering such matters on behalf of the Seller as will be reasonably
acceptable to Buyer (it being understood that opinions as to the law of the
country of Switzerland will be rendered by Swiss legal counsel and certain
opinions relating to the Company and/or the Subsidiaries will be rendered by
Company's counsel, all of which in any event will be reasonably acceptable to
Buyer). Such
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opinions shall be issued for the benefit of Buyer, and Buyer's lenders. In
rendering such opinions such counsel may rely on governmental advice, factual
certificates, opinions of local counsel (so long as such local counsel opinions
are rendered for the benefit of Buyer and Buyer's lenders) and such other
matters as such counsel may deem reasonably appropriate and as are acceptable to
Buyer's counsel. Such opinions may also contain such assumptions and
qualifications as such counsel deems appropriate and as are reasonably
acceptable to Buyer's counsel.
7.1.4 Good Title to Shares. Seller shall
have transferred all the Company Shares to Buyer, free and clear of all liens,
claims, rights, options, charges or other encumbrances or restrictions and any
applicable transfer taxes thereon shall have been paid by Seller. No claim shall
have been filed, made or threatened against Buyer and not withdrawn by any
person or entity (other than Seller) asserting that he, she or it is entitled to
be paid any part of the Purchase Price paid for the Company Shares.
7.1.5 No Prohibition of Transaction. No
proceeding or regulation or legislation shall have been instituted, or to
Buyer's or the Company's knowledge, threatened or proposed before, nor any order
issued by, any administrative, judicial or other governmental body to enjoin,
restrain, prohibit or obtain substantial damages (a) in respect of, relating to,
or arising out of, this Agreement or the consummation of these transactions, or
(b) which, in the reasonable judgment of Buyer, could have a materially adverse
effect on the assets, liabilities, business or condition of the Company or any
Subsidiary.
7.1.6 Compliance with Law. Seller, the
Company and the Subsidiaries shall have obtained any and all permits, approvals
and consents of any governmental body which counsel for Buyer may reasonably
deem necessary or appropriate so that consummation of these transactions will be
in compliance with applicable requirements, including without limitation those
specifically set forth on Schedule 7.1.6.
7.1.7 Statement Under Code Sections 897 and
1445. Buyer shall have received from Seller a copy of a statement, dated not
more than thirty days prior to the Closing, issued by the Company pursuant to
and meeting the requirements of Treasury Regulation Section 1.897-2(h)(1)
stating the Company's determination that the Company does not constitute a
"United States real property holding corporation within the meaning of Section
897(c)(2)of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code. In the event that Seller fails to deliver to Buyer
such a statement on the Closing Date, then Buyer, at its sole option, may deduct
and withhold from the cash payable to Seller at Closing a tax equal to 10
percent of the amount realized on the disposition of the Company Shares,
pursuant to Section 1445(a) of the Code.
7.1.8 Consents. On or prior to the Closing
Date, the Company and Seller shall furnish Buyer with evidence of consents as
the Company or Seller knows or Buyer shall determine to be required to enable
Buyer to continue to enjoy the material benefit of any material license,
agreement, authorization, permit, or other document to or of which the Company
or any Subsidiary is a party or a beneficiary and which can, by its terms (with
consent) be so enjoyed after the transfer of the Company Shares to Buyer. If
such consent is necessary or desirable, Buyer shall have obtained or been
furnished by the Company or Seller,
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as the case may be, an equivalent of that license or permit, effective as of and
after the Closing Date. Buyer agrees to cooperate in the obtaining of any such
consent, permit or license.
7.1.9 Hart-Scott-Rodino. All applicable
waiting periods under the HSR Act shall have expired or earlier been terminated
without any adverse action or determination.
7.1.10 Resignation of Officers and
Directors. Buyer shall have received written resignations, effective as of the
Closing, from all members of the Board of Directors and all corporate officers
of the Company and each Subsidiary, stating that such directors and officers are
resigning from their respective positions as director or officer of the Company
or Subsidiaries, as applicable.
7.1.11 Certificates. Seller, the Company and
the Subsidiaries shall have delivered to Buyer such certificates of their
respective officers, directors and others to evidence compliance with the
conditions set forth in this Section 7.1 as may be reasonably requested by Buyer
which may include, without limitation, Seller's waiver of conditions set forth
in Section 7.2 known by Seller to be unfulfilled as of the Closing.
7.1.12 Shareholder Approval. Buyer's parent
corporation shall have received the approval of its shareholders for the
transactions contemplated hereby, provided, however, that if any SEC comments,
order or waiting period with respect to its proxy statement or other delay in
scheduling of the shareholder meeting resulting from the foregoing results in a
delay of the shareholder vote with respect to the transactions contemplated
hereby, the Closing Date in Section 2.4 shall be extended accordingly.
7.1.13. No Adverse Material Change. There
shall have occurred no material adverse change in the financial condition,
results of operations, net book value, business, assets or prospects of the
Company or its Subsidiaries from the date of the Unaudited Balance Sheet to the
Closing Date.
7.1.14. Management Participation Plan II.
Seller and each of Bradley C. Call, Julius E. Hodge, Lawrence R. Smith, John
Barriatua and Roland H. Marti, or any other participating members of management
(collectively, the "Participating Managers") shall have released the Company
from its obligations under those certain Management Participation Plan II
agreements, each dated as of January 1, 1996, among Seller and the Company, on
the one hand, and each of the Participating Managers and any other similar
participation plan among Seller and/or the Company and other members of
management (the "Management Participation Plans"), and the Participating
Managers shall have acknowledged that any payments owed under the Management
Participation Plans shall be subject to all federal, state and local withholding
taxes. Seller shall have paid or otherwise made reasonable provisions for the
payment of all appropriate withholding taxes payable in connection with payments
by the Seller under the Management Participation Plans and have provided Buyer
with evidence of the same.
7.1.15. Guarantees. Company and each
Subsidiary shall have delivered a Guarantee, in form and substance satisfactory
to Seller, guaranteeing the payment
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of the Note.
7.2 Conditions Precedent to Obligations of Seller.
The obligation of Seller under this Agreement and to sell the Company Shares
hereunder is subject to the satisfaction of each of the following conditions.
Notwithstanding anything to the contrary contained herein Seller shall have the
right to waive all or any part of each such condition and to close the
transactions contemplated hereby.
7.2.1 Correctness of Representations and
Warranties. There shall be no representation or warranty of Buyer contained in
this Agreement which is untrue or inaccurate in any respect on the Closing Date.
Seller shall have received a certificate dated the Closing Date and executed by
or on behalf of Buyer to the effect that all such representations and warranties
are true and accurate in all respects.
7.2.2 Performance of Covenants and
Agreements. There shall be no covenant or agreement of Buyer contained in this
Agreement which has been breached. Seller shall have received a certificate
dated the Closing Date and executed by or on behalf of Buyer to the effect that
there has been no such breach of any such covenant or agreement.
7.2.3 Opinion of Buyer's Counsel. Seller
shall have received from Kelley, McCann & Livingstone, counsel for Buyer, an
opinion dated the Closing Date, covering such matters as shall be reasonably
acceptable to Seller. In rendering such opinion such counsel may rely on
governmental advice, factual certificates, opinions of local counsel and such
other matters as such counsel may deem reasonably appropriate and as are
reasonably acceptable to Seller's counsel. Such opinion may also contain such
assumptions and qualifications as such counsel deems appropriate and as
reasonably are acceptable to Seller's counsel.
7.2.4 Hart-Scott-Rodino. All applicable
waiting periods under the HSR Act shall have expired or earlier been terminated
without any adverse action or determination.
7.2.5 No Prohibition of Transaction. No
proceeding or regulation or legislation shall have been instituted, or to the
Company's or Seller's knowledge, threatened or proposed before, nor any order
issued by, any administrative, judicial or other governmental body to enjoin,
restrain, prohibit or obtain substantial damages (a) in respect of, relating to,
or arising out of, this Agreement or the consummation of these transactions, or
(b) which, in the reasonable judgment of the Seller, could have a materially
adverse effect on the assets, liabilities, business or condition of the Buyer.
7.2.6 Certificates. Buyer shall have
delivered to Seller such certificates of its officers, directors and others to
evidence compliance with the conditions set forth in this Section 7.2 as may be
reasonably requested by Seller which may include, without limitation, Buyer's
waiver of conditions set forth in Section 7.1 which are known by Buyer to be
unfulfilled as of the Closing.
7.2.7 Name Change. The Company shall have
taken all such action necessary (other than filing, which must be done within
five (5) days following the
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Closing) to amend its Articles of Incorporation so as to change its corporate
name to such other name as Buyer may designate, provided that it shall not
include the name "Kleinert".
8. Indemnifications.
8.1 Seller's Promise to Indemnify. Subject to Section
8.5 hereof, Seller agrees to indemnify, defend and hold harmless Buyer against
any and all losses, claims, liabilities, damages, actions, costs or expenses,
including reasonable attorneys' fees and costs, regardless of whether an action
has been filed or asserted against Buyer after the Closing Date, arising from,
in connection with or with respect to (i) any misrepresentation, breach or
inaccuracy of any representation or warranty of Seller under this Agreement (it
being understood that, with respect to any right of offset against the Note by
Buyer pursuant to Section 9.2, Buyer shall not also have a right of
indemnification pursuant to this Section 8.1); (ii) any misrepresentation,
breach or inaccuracy of the representations and warranties of the Company and
the Subsidiaries under this Agreement; or (iii) nonfulfillment of or failure to
comply with any agreement, condition or covenant on the part of Seller, the
Company or any Subsidiary under this Agreement or in any agreement or document
delivered pursuant hereto or in connection herewith or with the closing of the
transactions contemplated hereby (the "Indemnified Losses"); provided, however,
that as a condition precedent to any indemnification pursuant hereto, the
Indemnitor (as hereinafter defined) shall have received written notice of a
claim from the Indemnified Party (as hereinafter defined) prior to that date
which is twenty-four (24) months following the Closing Date except in the event
of any indemnification for any breach of representation contained in Section
3.2.26 hereof in which case Indemnitor shall have received written notice of a
claim from the Indemnified Party prior to the expiration of the applicable
statue of limitations for actions by the IRS. For the purposes of Seller's
indemnifications under this Section 8, after the Closing, the word "Buyer" shall
be deemed to be a reference to Buyer, the Company and the Subsidiaries.
8.2 Buyer's Promise to Indemnify. Buyer agrees to
indemnify, defend and hold harmless Seller against any and all losses, claims,
liabilities (including without limitation liabilities for Taxes), damages,
actions, costs or expenses, including, without limitation, attorneys' fees and
costs, regardless of whether an action has been filed or asserted against Seller
after the Closing Date, arising from, in connection with or with respect to (i)
the operation or conduct of the Company's or any Subsidiary's business after the
Closing Date; (ii) any misrepresentation, breach or inaccuracy of any
representation or warranty under this Agreement; or (iii) nonfulfillment of or
failure to comply with any agreement, condition or covenant on the part of Buyer
under this Agreement or in any agreement or document delivered pursuant hereto
or in connection herewith or with the closing of the transactions contemplated
hereby (the "Indemnified Losses"); provided, however, that as a condition
precedent to any indemnification pursuant to the foregoing, the Indemnitor (as
hereinafter defined) shall have received written notice of a claim from the
Indemnified Party (as hereinafter defined) prior to that date which is
twenty-four (24) months following the Closing Date, unless such claim is for
indemnification pursuant to (i) above and the claim arises solely out of events
that occurred after the Closing, in which case such claim may be submitted at
any time after the Closing.
8.3 Indemnification Period for Fraud. Notwithstanding
the provisions of Sections 8.1 and 8.2 hereof, Seller agrees to indemnify,
defend and hold
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harmless Buyer against any and all losses, claims, liabilities, damages,
actions, costs or expenses, including, without limitation, attorneys' fees and
costs, regardless of whether an action has been filed or asserted against Buyer
after the Closing Date until the applicable statute of limitations has expired,
arising from any fraud by Seller or, on or prior to the Closing Date, the
Company or any Subsidiary, and Buyer agrees to indemnify, defend, and hold
harmless Seller against any and all losses, claims, liabilities, damages,
actions, costs or expenses, including, without limitation, attorneys' fees and
costs, regardless of whether an action has been filed or asserted against Seller
after the Closing Date until the applicable statute of limitations has expired,
arising from any fraud by Buyer or, after the Closing Date, the Company or any
Subsidiary.
8.4 Procedure for Indemnification of Third Party
Claims. If there is asserted by a third party any claim, liability or obligation
(a "Claim") that in the judgment of a party indemnified pursuant to Sections 8.1
or 8.2 above (the "Indemnified Party") may give rise to any Indemnified Losses
(including Indemnified Losses for which Seller may not be responsible pursuant
to Section 8.5 hereof), or if the Indemnified Party determines the existence of
a Claim, whether or not the same shall have been asserted, such Indemnified
Party shall give the party from whom indemnity is sought (the "Indemnitor")
notice within 30 days of the assertion of any Claim, or within 10 days of
receipt of notice of the filing and service upon the Indemnified Party of any
lawsuit based upon such assertion, or, with respect to a Claim not yet asserted
against the Indemnified Party, promptly upon the determination by an executive
officer of the Indemnified Party of the existence of the same, which notice
shall describe the Claim in reasonable detail, and shall include the amount
(estimated if necessary) of the related Indemnified Loss. Failure by the
Indemnified Party to give timely notice pursuant to this Section 8.4 shall not
relieve the Indemnitor of its obligations, except to the extent that the
Indemnitor is actually and materially prejudiced by such failure to give timely
notice. The Indemnified Party shall permit the Indemnitor to assume the defense
of such Claim and any litigation resulting therefrom (and to prosecute by way of
counterclaim or third party complaint any claim against such third party arising
out of or relating to the Claim in question) upon receipt by the Indemnified
Party of Indemnitor's written acknowledgment of its obligation to indemnify the
Indemnified Party pursuant to this Agreement with respect to the Claim and its
agreement to assume the defense of all claims or counts of such Claim. After
giving such notice of assumption, the Indemnitor shall not be liable under this
Agreement for any legal or other expenses subsequently incurred by the
Indemnified Party in connection with such defense but the Indemnitor shall be
responsible for all such expenses incurred by the Indemnified Party in
connection with the Claim prior to such assumption. Notwithstanding the
foregoing, any Indemnified Party shall be entitled to conduct its own defense at
the cost and expense of the Indemnitor if the Indemnified Party can establish,
by reasonable evidence, that the conduct of its defense by the Indemnitor would
reasonably be likely to prejudice the Indemnified Party due to the nature of any
claims or counterclaims presented or by virtue of a conflict between the
interest of the Indemnified Party and the Indemnitor, and provided further that
in any event the Indemnified Party may participate in such defense at its own
expense. Counsel selected by the Indemnitor or by the Indemnified Party to
defend any Claim shall be subject to the reasonable approval of the other party.
If the Indemnitor fails to assume the defense of any such Claim as provided
above within a reasonable time (which shall be such period of time as will not,
in the judgment of the Indemnified Party, result in prejudice to the rights of
the Indemnified Party) after due notice has been given of a Claim, then until
such time as the Indemnitor shall make such
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assumption, the Indemnified Party shall have the right to prosecute and conduct
its own defense by counsel of its choice, and in connection therewith shall have
full right to conduct the defense thereof and to enter into any compromise or
settlement thereof without the consent of the Indemnitor. Such defense shall be
at the cost and expense of the Indemnitor if the Indemnitor subsequently assumes
such defense as provided above, or if it is subsequently determined that the
Indemnitor is or was obligated to defend or indemnify the Indemnified Party with
respect to such Claim. The Indemnitor shall not, without the prior written
consent of the Indemnified Party, consent to the terms of any compromise or
settlement of any Claim or litigation defended by the Indemnitor in accordance
herewith (other than terms related solely to the payment of money damages and
only after the Indemnitor has furnished the Indemnified Party with such evidence
as the Indemnified Party may reasonably request of the Indemnitor's capacity to
pay promptly the amount of such money damages at such times as provided in the
compromise or settlement) which consent will not be unreasonably withheld or
delayed in circumstances where compromise or settlement would not adversely
affect the Indemnified Party. The Indemnitor shall not, except with the prior
written consent of the Indemnified Party, consent to entry of any judgment or
enter into any compromise or settlement of an action or portion of an action
relating to the Indemnified Party which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to the Indemnified Party of
an unconditional release in respect of such Claim or litigation.
If the Indemnitor chooses to defend any Claim, the
Indemnified Party shall cooperate with the Indemnitor and make available to the
Indemnitor any personnel or any books, records or other documents within its
control that are necessary or appropriate for such defense. The Indemnitor shall
pay the Indemnified Party's actual out-of-pocket expenses incurred in connection
with such cooperation.
8.5 Limitations on Seller's Liability. Other than for
claims made by Buyer pursuant to Section 8.3 above which shall have no
limitations, (i) Seller shall not be liable hereunder for Indemnified Losses
pursuant to Section 8.1 sustained by or assessed against Buyer or for the
Inventory Reserve Amount determined pursuant to Section 9.1 until the aggregate
of such Indemnified Losses and said Inventory Reserve Amount exceeds the "Basket
Amount", at which time Seller shall be liable for all Indemnified Losses,
including those comprising the Basket Amount, and thereafter (ii) Seller's
aggregate liability for all such Indemnified Losses and said Inventory Reserve
Amount shall not exceed US$1,750,000. As used above, the term "Basket Amount"
shall mean US$100,000.
8.6 Limitations on Buyer's Liability. (i) Buyer shall
not be liable hereunder for Indemnified Losses pursuant to Section 8.2 sustained
by or assessed against Seller until the aggregate of such Indemnified Losses
exceeds the "Basket Amount" at which time Buyer shall be liable for all
Indemnified Losses, including those comprising the Basket Amount, and thereafter
(ii) Buyer's aggregate liability for all such Indemnified Losses shall not
exceed US$1,750,000. As used in this Section, the term "Basket Amount" shall
mean US$100,000.
8.7 Exclusive Remedy. The rights of Buyer under this
Section 8 and Section 9 shall be the exclusive remedy of Buyer with respect to
claims based upon a breach or alleged breach of the representations and
warranties of Seller contained herein or otherwise made hereunder. The rights of
Seller under this Section 8 shall be the exclusive remedy of
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Seller with respect to claims based upon a breach or alleged breach of the
representations and warranties of Buyer contained herein or otherwise made
hereunder.
8.8 Subrogation. To the extent that an Indemnitor
reimburses an Indemnified Party for any Indemnified Loss sustained by such
Indemnified Party, such Indemnitor shall be subrogated to all rights, claims and
causes of action the Indemnified Party may have against insurers with respect to
any insurance policy held by the Indemnified Party which may cover such
Indemnified Loss, including without limitation claims brought under title
policies, if permitted by such policies of insurance.
9. Buyer Promissory Note; Inventory Reserve Amount.
9.1 Buyer Promissory Note. As part of the Purchase
Price hereunder, Buyer shall issue its promissory note to Seller, in the form
attached hereto as Exhibit A, in the principal amount of US$1,750,000 (the
"Note"). In order to secure and ensure payment of Seller's obligations under
Section 8 and Section 9.2 hereof, Buyer shall have the right to offset any
amounts due to it under said Section 8 and Section 9.2 against the amounts due
to Seller as specified herein and under the terms of the Note. The Note shall be
guaranteed by the Company and each Subsidiary pursuant to guarantees in form and
substance satisfactory to Seller.
9.2 Inventory Reserve Amount. As of the Closing Date,
Buyer shall cause Buyer's independent public accountant to physically observe
and determine the Recorded Inventory Cost of the Bandy Inventory (each as
defined in the Inventory Reserve Policy attached as Schedule 9.2 hereto), and to
prepare an agreed upon procedures report setting forth a costed inventory
detailed on a part number basis ("Closing Inventory"). Buyer shall cause to be
prepared a determination of an amount to be taken as a reserve against the Bandy
Inventory (as defined in Schedule 9.2) as of a date which is the last day of the
calendar month and is at least twenty-two (22) months after the Closing Date
(the "Inventory Adjustment Date"), pursuant to the Inventory Reserve Policy
attached as Schedule 9.2 hereto (such reserve amount, the "Inventory Reserve
Amount"). The Inventory Reserve Amount shall be computed by analyzing sales, by
part number, occurring from the Closing Date through the Inventory Adjustment
Date (using a first-in, first-out methodology), comparing such sales to the
Closing Inventory, and applying the provisions of the Inventory Reserve Policy.
Such Inventory Reserve Amount shall be prepared by Buyer's independent public
accountant, which shall cause its report and determination of said Inventory
Reserve Amount to be delivered to Buyer and Seller within thirty (30) days after
the Inventory Adjustment Date. Within thirty (30) days after its receipt of said
determination, Seller shall notify Buyer of its agreement or disagreement with
Buyer's determination of the Inventory Reserve Amount. If Seller agrees with
said determination, then Buyer will be entitled to offset said amount against
the Note, subject to the procedures and limitations set forth in Section 8.5
hereof. If Seller disputes the determination of the Inventory Reserve Amount,
the Seller shall have the right to cause its own independent public accountant
to review the report of Buyer's accountant and the related determination of the
Inventory Reserve Amount. Buyer and Buyer's accountants shall give to Seller and
its accountant access to the books and records of the Company and the
Subsidiaries, and to the work papers of Buyer's accountant. Seller's accountant
shall complete its review within thirty (30) days after the date upon which
Seller disputed Buyer's determination of the Inventory Reserve Amount. If after
such review by
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Seller, Seller still disagrees with Buyer's determination of the Inventory
Reserve Amount, the parties shall jointly select a neutral independent public
accountant to conduct a review of each party's determination of the Inventory
Reserve Amount, and resolve the dispute within forty-five (45) days by choosing
between the parties' respective determinations. The neutral accountant's
determination shall be binding on all parties hereto. The fees and expenses of
the neutral accountant shall be borne one-half by Buyer and one-half by Seller,
and otherwise each party shall bear its own expenses in connection with the
foregoing procedures. The final Inventory Reserve Amount, determined in
accordance with the foregoing, shall be due from Seller to Buyer, and may be
offset against amounts due Seller under the Note under the terms specified in
the Note.
10. Termination.
10.1 Termination Events. Subject to the provisions of
Section 10.2 below, this Agreement may be terminated by written notice given at
or prior to the Closing in the manner hereinafter provided:
10.1.1 by mutual consent of Buyer and Seller; or
10.1.2 by Buyer or Seller if any court of competent
jurisdiction in the United States or other United States governmental body or
any foreign governmental body shall have issued an order, decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree, ruling or
other action shall have become final and nonappealable; or
10.1.3 by Buyer pursuant to Section 5.4 hereof;
10.1.4 by Buyer pursuant to Section 5.3.2 hereof; or
10.1.5 by either Buyer or Seller if the Closing shall
not have occurred, on or before July 15, 1997; provided, however, that Seller
shall not be permitted to terminate this Agreement pursuant to this Section
10.1.5 until July 31, 1997 if the Buyer used its reasonable efforts to obtain
SEC approval of the proxy statement described in Section 7.1.12 hereof and that
it shall obtain all necessary shareholder approval of the transaction
contemplated herein and/or otherwise be in a position to close the transaction
contemplated hereby on or before July 31, 1997.
10.2 Effect of Termination. In the event this Agreement is
terminated pursuant to Section 10.1, all further obligations of the parties
hereunder shall terminate, except that the provisions of this Section 10.2,
Section 6.4, Section 6.5 and Section 10 shall survive and continue in full force
and effect. Nothing in this Section 10.2 shall relieve any party from liability
for any willful breach of its obligations under this Agreement prior to the
termination hereof. Any election made pursuant to Section 10.1 shall be merely
an election to terminate the Agreement and shall not be deemed to be an election
of remedies.
11. General Provisions.
11.1 Interest. Each party hereto hereby agrees to pay
any other party
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hereto interest at a variable rate per annum equal to the prime rate of interest
as quoted in the "Money Rates" or similar column of the Wall Street Journal, as
such rate may change from time to time, on any amounts required to be paid
hereunder from and after the date upon which such payment becomes due and
payable and continuing until paid in full, together with accrued but unpaid
interest, whether before or after judgment. Each party further agrees to pay
interest to any other party hereto, at said prime rate of interest, on all
amounts due for any damages incurred by such party, based on the breach of each
party's obligations under this Agreement, as the case may be, whether before or
after judgment. Damages shall begin bearing interest as of the date such breach
occurs. Interest shall be paid as agreed above even if the damages are
unliquidated, uncertain, or not capable of being made certain by calculation.
11.2 Expenses. Subject to Section 11.7 below, (i)
Seller shall pay its, the Company's and each Subsidiary's legal, accounting,
out-of-pocket and other costs and expenses incident to this Agreement and the
transactions contemplated thereby, and (ii) Buyer shall pay its legal,
accounting, out-of-pocket and other costs and expenses incident to this
Agreement and the transactions contemplated thereby; provided, however, that (x)
the Company shall be responsible for the payment of up to $13,250 in accounting
fees charged by Coopers & Lybrand LLP in connection with assisting the Company
and the Subsidiaries in the preparation of the Schedules hereto and the
Unaudited Balance Sheet, and (y) none of the parties hereto will be responsible
for any costs and expenses of the Company or any Subsidiary incurred on behalf
of or for the benefit of the "Management Group," as that term is understood
between Buyer and Seller.
11.3 Further Assurances. Each party will, upon
request of another party, from time to time after the Closing, execute and
deliver, and use its reasonable best efforts to cause other persons to execute
and deliver all such further documents and instruments, and will do or use its
reasonable best efforts of cause to be done such other acts, as such other party
may reasonably request more completely to consummate and make effective the
contemplated transactions.
11.4 Notices. Notices and other communications
provided for herein shall be in writing (including wire, telex, telecopy or
similar writing) and shall be sent, delivered, telexed, or telecopied to:
Seller: Kleinert Industrie Holding AG
c/o Schweizerische Treuhandgesellschaft
Coopers & Lybrand AG
Spitalgasse 2
Postfach - CH-3001 Bern
Switzerland
Attention: Mr. Robert Bodmer, Chairman
Voice: 011.41.31.326.7225
Fax: 011.41.31.326.7399
with copies to: Coopers & Lybrand Securities LLC
2400 Eleven Penn Center
Philadelphia, PA 19103
40
<PAGE>
Attention: Mr. Charles Johnson
Voice: 215.963.8869
Fax: 215.963.3530
Brown Raysman Millstein
Felder & Steiner LLP
11th Floor
1925 Century Park East
Los Angeles, CA 90067
Attention: John G. Petrovich, Esq.
Voice: 310.789.2100
Fax: 310.789.2129
and
Morrison & Foerster
555 West Fifth Street, Suite 3500
Los Angeles, CA 90013
Attention: Donald I. Berger, Esq.
Voice: 213.892.5200
Fax: 213.892.5454
Buyer: KII Acquisition Corporation
c/o Mentmore Holdings Corp.
1430 Broadway Avenue, 13th Floor
New York, New York 10018
Attention: Mr. William L. Remley
Voice: 212.391.1392
Fax: 212.391.1393
with copies to: Mentmore Holdings Corporation
1430 Broadway Avenue, 13th Floor
New York, New York 10018
Attention: Michael D. Schenker, General Counsel
Voice: 212.391.1392
Fax: 212.391.1393
Kelley, McCann & Livingstone
35th Floor, BP America Building
200 Public Square
Cleveland, Ohio 44114-2302
Attention: Bruce L. Waterhouse, Jr., Esq.
Voice: 216.241.3141
Fax: 216.241.3707
11.5 Assignment. This Agreement shall not be
assignable by any party without the prior written consent of the other parties;
provided, however, that Buyer will have the right to assign this Agreement to
Mentmore Holdings Corporation, one of its
41
<PAGE>
affiliates, or any company having substantially the same officers or directors
of Mentmore Holdings Corporation, if the shareholder approval contemplated by
Section 7.1.12 shall not have been obtained or shall not be expected to be
obtained. Nothing contained in this Agreement, express or implied, is intended
to confer upon any person or entity other than the parties hereto and their
successors in interest and permitted assignees, any rights or remedies under or
by reason of this Agreement unless expressly so stated to the contrary.
11.6 Venue. Buyer and Seller agree, pursuant to
Section 5-1402 of the New York General Obligations Law, that all actions or
proceedings arising directly, indirectly or otherwise in connection with, out
of, related to or from this Agreement shall be litigated, only in courts having
a situs within the County of New York, State of New York. Seller hereby consents
and submits to the jurisdiction of any local, state or federal Court located
within said County and State. Seller hereby irrevocably appoints and designates
CT Corporation System, having an address at 1633 Broadway, New York, NY 10019,
as their duly authorized agent for service of legal process and agree that
service of such process upon such agent shall constitute personal service of
process upon Seller. In the event service is undeliverable because such agent
moves or ceases to do business, Seller shall, within ten (10) days after Buyer's
request, appoint a substitute agent on their behalf and within such period
notify Buyer of such appointment. If such substitute agent is not timely
appointed, Buyer shall, in its sole discretion, have the right to designate a
substitute agent upon five (5) days notice to Seller.
11.7 Attorneys' Fees and Litigation Costs. If any
legal action is brought for the enforcement of the Agreement, or attorneys are
hired because of an alleged dispute, breach, default or misrepresentation in
connection with any of the provisions of this Agreement, the successful or
prevailing party or parties shall be entitled to recover his, its or their
reasonable attorneys' fees and other costs incurred in such arbitration
proceeding or other legal action, in addition to any other relief to which he,
it or they may be entitled, whether before or after judgment, including any
appeal.
11.8 Time is of the Essence. Time is of the essence
in respect to all provisions of this Agreement in which a definite time for
performance is specified, provided, however, that the foregoing shall not be
construed to limit or deprive a party of the benefit of any grace or use period
provided for in this Agreement.
11.9 Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP
consistently applied.
11.10 Entire Agreement. This Agreement and the
schedules, exhibits and certificates specifically referred to herein or required
to be delivered pursuant to the terms hereof represent the entire agreement of
the parties hereto with respect to the subject matter hereof superseding all
prior agreements, understandings, discussions, negotiations and commitments of
any kind, including without limitation the Letter of Intent between Orion
Acquisition Corp. II, Mentmore Holdings Corp. and Seller dated March 13, 1997,
as amended to the date hereof. This Agreement may not be amended or
supplemented, nor may any rights hereunder be waived, except in a writing signed
by each of the parties.
42
<PAGE>
11.11 Section Headings. The section headings in this
Agreement are included for convenience only, are not a part of this Agreement
and shall not be used in construing it.
11.12 Severability. In the event that any provision
or any part of any provision of this Agreement is held to be illegal, invalid or
unenforceable, such illegality, invalidity or unenforceability shall not affect
the validity or enforceability of any other provision or part hereof.
11.13 Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
11.14 Governing Law. The validity, interpretation,
enforceability, and performance of this Agreement shall be governed by and
construed in accordance with the law of the State of California.
[Remainder of Page Intentionally Left Blank]
43
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above mentioned.
Seller: KLEINERT INDUSTRIE HOLDING AG, a
Swiss corporation
By: /s/ Robert Bodmer
-----------------------------------------
Name & Title: Robert Bodmer
Chairman
By: /s/ Hans Leonz Notter
-----------------------------------------
Name & Title: Hans Leonz Notter
------------------------------
Member of the Board
------------------------------
Company: KLEINERT INDUSTRIES, INC., a California
corporation
By: /s/ Bradley C. Call
-----------------------------------------
Name & Title: Bradley C. Call
------------------------------
Chairman and CEO
------------------------------
Buyer: KII ACQUISITION CORP., a Delaware
corporation
By: /s/ William L. Remley
-----------------------------------------
Name & Title: William L. Remley
------------------------------
Vice Chairman
------------------------------
44
<PAGE>
Exhibit A
US$1,750,000 Los Angeles, California
June __, 1997
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, a Delaware corporation
(hereinafter called the "Maker"), hereby promises to pay to the order of
KLEINERT INDUSTRIE HOLDING AG, a corporation organized under the laws of
Switzerland ("Kleinert") at [____________], or at such other address as shall be
designated from time to time by Kleinert, the sum of ONE MILLION SEVEN HUNDRED
FIFTY THOUSAND and NO/100ths UNITED STATES DOLLARS (US$1,750,000) on the second
anniversary of the date hereof, in immediately available funds, and to pay
interest annually on the Adjusted Principal Balance (as hereinafter defined) in
like funds at said address at the rate of eight per cent (8%) per annum. Unless
otherwise defined herein, capitalized terms in this Note shall have the same
meaning given them in that certain Stock Purchase Agreement (the "Agreement"),
dated May ___, 1997 by and among Maker, Kleinert and Kleinert Industries, Inc.,
a California corporation.
The principal balance of this Note shall be reduced by the
amount of: (a) all payments and losses for which Maker is entitled to
indemnification under Section 8 of the Agreement at the time the same are made
or suffered, and (b) effective as of the date hereof for purposes of interest
Payable hereunder, the credit against the Purchase Price to which Buyer is
entitled pursuant to Section 9.2 of the Agreement. The principal balance as same
may be reduced from time to time hereunder shall constitute the "Adjusted
Principal Balance." If the aggregate of all such payments, losses and credits
exceeds the original principal balance hereof, then the interest accrued
hereunder shall be reduced by the amount by which such payments, losses and
credits exceeded the original principal balance, and any previously paid
interest which should not have been paid or accrued pursuant to this provision
shall be refunded.
If Maker wishes to make a claim for an adjustment to the
Purchase Price pursuant to Section 9.2 of the Agreement, the procedures for such
claim, and the resolution of any disputes with respect thereto, shall be as
specified in said Section 9.2. If Maker wishes to make a claim that Kleinert is
liable to Maker by reason of Section 8.1 of the Agreement, Maker shall serve a
notice of such claim upon Kleinert. Such notice shall explain the claim and
shall state the amount of claimed damages and a reasonably detailed explanation
thereof, including such supporting materials as Maker may then have in its
possession. Within a thirty (30) day period following the delivery of said
notice, Kleinert shall send a notice to Maker as to its agreement or
disagreement with Maker's claim. If Kleinert agrees with such claim, then the
outstanding principal amount of this Note shall be reduced as contemplated by
clause (a) of the immediately preceding paragraph. If Kleinert objects to such
claim, Maker's ultimate entitlement to reduce the principal amount of this Note
as contemplated by said clause (a) shall only be determined by (a) an agreement
in writing executed by Maker and Kleinert, or (b) a final judgment of a court of
competent jurisdiction, as to which the time for appeal form such judgment shall
have expired and no appeal shall be pending.
<PAGE>
Any claim under Section 8.1 or Section 9.2 to which Kleinert objects or
with which Kleinert disagrees shall become a "Disputed Claim" hereunder. Any
Disputed Claim (including accrued but unpaid interest on the amount thereof)
which has not been resolved in accordance with the foregoing or the provisions
of Section 9.2 of the Agreement, as applicable, at the stated maturity of this
Note shall not then be due and payable, but rather shall continue to remain
outstanding hereunder in accordance herewith until such Disputed Claim shall
have been so resolved. Notwithstanding the foregoing, the excess, if any, of the
Adjusted Principal Balance over the amount of the Disputed Claim on the stated
maturity date (said excess, the "Undisputed Amount"), together with accrued but
unpaid interest on said Undisputed Amount, shall be due and payable upon such
stated maturity date in accordance with the provisions of this Note.
The Maker promises to pay interest, on demand, on any overdue
principal and, to the extent permitted by law, overdue interest from their due
dates at the same rate provided above.
The Maker hereby waives diligence, presentment, demand,
protest and notice of any kind whatsoever. The nonexercise by the holder of any
of its rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance. The unenforceability or invalidity
of any one or more provisions of this Note shall not render any other provision
herein contained unenforceable or invalid.
The interest on this Note shall be paid without deduction of
any income, withholding or other tax of any kind imposed by the United States or
any state or local jurisdiction therein, unless required by law.
Kleinert represents and warrants to Maker, its officers,
directors, stockholders, agents, employees, affiliates and associates (under
United States tax and securities laws) as follows: (a) that it is not (i) a
citizen, resident (under U.S. tax or immigration laws) or domestic entity of the
United States of America and is not a corporation, partnership or trust created,
organized or controlled by such persons, (ii) a controlled foreign corporation,
foreign personal holding company, passive foreign investment company with any
U.S. shareholders, foreign partnership with U.S. partners, U.S. grantor trust
with any U.S. beneficiaries, or foreign estate with U.S. distributees, as all of
those terms are understood under the United States Internal Revenue Code of
1986, as amended (the "Code"); and that it is acquiring this Note for
investment, for its own account and not for resale to any such person, and (b)
it is not a foreign individual or entity engaged in a U.S. trade or business to
which any income or gain from this Note is effectively connected. Holder agrees
to execute and deliver a Forms W-8, 1001 and 8306 (and any updates thereto) in
connection herewith.
This Note shall only be transferable to a person who can
properly make the representations and comply with the restrictions set forth in
the previous paragraph. Any transfer of this Note (including any rights to any
principal and/or Interest represented by this Note) shall only be effective and
binding as to any person (including the Maker and/or payee hereof) upon (i)
delivery of written agreement by the transferee to comply with all the
provisions of this Note, (ii) consent of the Maker and/or payee hereof, and
(iii) registration of such transfer of the books and records of Maker at the
office of the Maker, ,
accompanied by a written instrument of transfer in form satisfactory to the
Maker,
<PAGE>
duly executed by the payee hereof or its attorney duly authorized in writing by
the payee. This Note may not be transferred or assigned in any other way and is
specifically not transferable by negotiation. This Note is only issuable in
registered form and is intended to be in registered form as defined in Treas.
Reg. ss.5(f).103-1(c).
This Note shall be construed under the laws of the State of
California, without regard to its conflicts of laws principles. This Note shall
be entitled to the benefits of the respective Guarantees of the Company and each
of its Subsidiaries (as such terms are defined in the Agreement).
KII ACQUISITION CORPORATION,
a Delaware corporation
By:
---------------------------------
Title:
------------------------------
<PAGE>
AGREEMENT
This Agreement is made as of July 1, 1997 by and among KII Holding
Corp., a Delaware corporation (the "Corporation") and Greystoke Capital
Management Limited LDC, a Bahamian international business corporation
established as a limited duration company ("Parent"), and Bradley C. Call,
Julius E. Hodge, Lawrence R. Smith, John Barriatua, Roland H. Marti, and Arun
Kumar (collectively, "Buyers" and individually each a "Buyer") and Louis A.
Brown (Louis A. Brown and Buyers are collectively referred to herein as
"Management Members").
PREAMBLE
KII Acquisition Corp. ("KII Acquisition"), a wholly owned subsidiary of
the Corporation, Kleinert Industrie Holding AG ("Seller") and Kleinert
Industries, Inc. ("Kleinert") have entered into a Stock Purchase Agreement dated
May 23, 1997 (the "Purchase Agreement"), pursuant to which KII Acquisition will
purchase all of the outstanding stock of Kleinert. In connection therewith,
certain of Buyers and KII Acquisition have entered into a binding letter of
intent dated as of May 22, 1997 regarding certain of the matters set forth
herein (the "Letter of Intent").
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, agree as follows:
1. Purchase and Sale of Stock.
(a) Upon the Closing (as hereinafter defined), the Corporation
shall issue and sell to Buyers, and Buyers shall purchase from the
Corporation, a number of shares of the Corporation's Common Stock, such
that immediately following such issuance and all other issuances of the
Corporation's Common Stock to occur on the date of Closing, Buyers will
hold 19.9% (1,990 shares) of the Corporation's Common Stock. In
exchange therefor, Buyers will pay to the Corporation $778,090
("Buyers' Purchase Price"). Such Common Stock shall be issued to
Buyers, and Buyers shall be liable for Buyers' Purchase Price, in the
amounts set forth on Schedule 1(a).
(b) Upon the Closing, the Corporation shall issue and sell to
Parent, and Parent shall purchase from the Corporation, a number of
shares of the Corporation's Common Stock, such that immediately
following such issuance and all other issuances of the Corporation's
Common Stock to occur on the Closing Date, Parent will hold 80.1%
(8,010 shares) of the Corporation's Common Stock. In exchange therefor,
Parent will pay to the Corporation $3,131,910 ("Parent's Common Stock
Purchase Price").
<PAGE>
(c) Upon the Closing, the Corporation shall issue and sell to
Parent and Parent shall purchase from the Corporation 84 shares of the
Corporation's Series A Preferred Stock, with a stated value of $10,000
per share (the "Series A Preferred Stock"). In exchange therefor,
Parent will pay to the Corporation $840,000 ("Parent's Preferred Stock
Purchase Price"). The terms of the Series A Preferred Stock are set
forth in a form of Certificate of Serial Designation to be filed with
the Secretary of State of Delaware, attached hereto as Exhibit A.
(d) The closing of the purchase and sale of the Common Stock
and the Series A Preferred Stock to be purchased by Buyers and Parent
hereunder (the "Closing") shall occur simultaneously with the Closing
under and as defined in the Purchase Agreement, and the obligations of
the parties hereunder shall be conditioned upon the occurrence thereof.
At the Closing, the Corporation shall deliver to Buyers and Parent, as
applicable, certificates evidencing the stock purchased by them
hereunder and Buyers and Parent shall deliver Buyers' Purchase Price,
Parent's Common Stock Purchase Price and Parent's Preferred Stock
Purchase Price, as applicable, in immediately available funds.
(e) In the event that Buyers receive additional payments under
their respective Management Participation Plan II agreements, each
dated as of January 1, 1996, among Seller and Kleinert on the one hand
and each Buyer on the other hand, after the date of the Closing, each
Buyer whose Common Stock has not been redeemed or is not then subject
to an exercised Redemption Right or exercised Put Right pursuant to the
terms of this Agreement will contribute all of such awards, less the
amount of any income taxes due with respect thereto, to the Corporation
in exchange for a number of shares of the Corporation's Series B
Redeemable Preferred Stock, with a stated value of $10,000 per share
(the "Series B Preferred Stock") equal to the amount of such payments
divided by the stated value of the Series B Preferred Stock. The terms
of the Series B Preferred Stock are set forth in a form of Certificate
of Serial Designation to be filed with the Secretary of State of
Delaware, attached hereto as Exhibit B.
2. Representations of the Corporation. The Corporation
represents and warrants to Management Members and Parent as follows:
(a) Organization. The Corporation is a corporation duly
organized, validly existing and in good standing in the State of
Delaware.
(b) Authority. The Corporation has the power and authority to
own its properties and assets, to conduct its business as presently
conducted, to execute and deliver this Agreement, to consummate the
transactions contemplated hereby and to perform its obligations
hereunder. The execution and delivery by the Corporation of this
Agreement, the consummation by the Corporation of the transactions
contemplated hereby and the performance by the Corporation of its
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<PAGE>
obligations hereunder have been duly and validly authorized by all
necessary corporate proceedings on its part.
(c) Execution and Binding Effect. This Agreement has been
duly and validly executed and delivered by the Corporation and
constitutes a legal, valid and binding obligation of the Corporation
enforceable against it in accordance with its terms.
(d) No Breach or Default. The execution and delivery by the
Corporation of this Agreement, the consummation of the transactions
contemplated hereby and the performance by the Corporation of its
obligations hereunder in accordance with the terms hereof do not and
will not: (i) breach or result in a default (or an event which, with
the giving of notice or the passage of time, or both, would constitute
a default) under, require any consent under or give to others any
rights of termination, acceleration, suspension, revocation,
cancellation or amendment of any contract, agreement, instrument or
document to which the Corporation is a party or by which the
Corporation or any of its assets or properties is bound; or (ii) breach
or otherwise violate any order, writ, judgment, injunction or decree
issued by any governmental authority or entity of the United States of
America or of any state, county, municipality or other political
subdivision.
(e) No Violation of Law. The execution and delivery by the
Corporation of this Agreement, the consummation of the transactions
contemplated hereby and the performance by the Corporation of its
obligations hereunder are not prohibited by, and do not and will not
subject the Corporation to any fine, penalty or similar sanction under
any law, statute, rule, regulations, ordinance, code, order, guideline
or directive of any governmental authority or entity of the United
States of America or of any state, county, municipality or other
political subdivision.
(f) No Consent. No consent, authorization, approval,
exemption or other action by, and, except for the filing of a
Certificate of Serial Designation with the Delaware Secretary of State
with respect to the Series A Preferred Stock and the Series B Preferred
Stock and the filing of a Form D with the Securities and Exchange
Commission and a Notice of Transaction Pursuant to Corporations Code
Section 25102(f) with the California Commissioner of Securities, no
filing, registration or qualification with, any person or governmental
authority or entity is or will be necessary in connection with the
execution and delivery by the Corporation of this Agreement, the
consummation of the transactions contemplated hereby or the performance
by the Corporation of its obligations hereunder in accordance with the
terms hereof.
(g) Capitalization. Immediately after the Closing, the
authorized capitalization and the issued and outstanding shares of the
Corporation will be as
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<PAGE>
set forth on Schedule 2(g). Each of the shares of Common Stock and
Series A Preferred Stock issued hereunder will have been duly and
validly authorized and issued, fully paid and non-assessable. Except as
set forth on Schedule 2(g) or provided for in this Agreement, there are
no outstanding (i) options, warrants, agreements or other rights to
acquire any shares of the Corporation's capital stock, (ii) securities
or other obligations of the Corporation which are convertible into such
shares or (iii) to the knowledge of the Corporation, options, sale
agreements, shareholder agreements, pledges, proxies, voting trusts,
powers of attorney, or other agreements or instruments which are
binding on any shareholder of the Corporation and which relate to the
ownership, voting or transfer of such shares.
3. Representations by Management Members. Management Members
represent and warrant to the Corporation as follows:
(a) Capacity. Each Management Member has full capacity, power,
legal right and authority to execute and deliver this Agreement, to
consummate the transactions contemplated hereby and to perform his
obligations hereunder.
(b) Execution and Binding Effect. This Agreement has been duly
and validly executed and delivered by each Management Member and
constitutes a legal, valid and binding obligation of each Management
Member enforceable against each Management Member in accordance with
its terms.
(c) No Breach or Default. The execution and delivery by each
Management Member of this Agreement, the consummation of the
transactions contemplated hereby and the performance by each Management
Member of his obligations hereunder do not and will not: (i) breach or
result in a default (or an event which, with the giving of notice or
the passage of time, or both, would constitute a default) under,
require any consent under or give to others any rights of termination,
acceleration, suspension, revocation, cancellation or amendment of any
contract, agreement, instrument or document to which such Management
Member is a party or by which such Management Member or any of his
assets or properties is bound; or (ii) breach or otherwise violate any
order, writ, judgment, injunction or decree issued by any governmental
authority or entity of the United States of America or of any state,
county, municipality or other political subdivision.
(c) No Violation of Law. The execution and delivery by each
Management Member of this Agreement, the consummation of the
transactions contemplated hereby and the performance by each Management
Member of his obligations hereunder are not prohibited by, and do not
and will not subject such Management Member to any fine, penalty or
similar sanction under any law, statute, rule, regulations, ordinance,
code, order, guideline or directive of any
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<PAGE>
governmental authority or entity of the United States of America or of
any state, county, municipality or other political subdivision.
(d) No Consent. No consent, authorization, approval, exemption
or other action by, and no filing, registration or qualification with,
any person or governmental authority or entity is or will be necessary
in connection with the execution and delivery by each Management Member
of this Agreement, the consummation of the transactions contemplated
hereby or the performance by each Management Member of his obligations
hereunder.
(e) Investment Representations.
(i) Each Buyer represents that the Common Stock and
Series B Preferred Stock to be purchased by him hereunder is
being acquired for his own account for investment purposes and
not with a view towards resale or distribution.
(ii) Each Buyer represents that: (A) his domicile is
located in the State of California; (B) he is an "accredited
investor" as defined in Regulation D under the Securities Act
of 1933, as amended (the "Securities Act"); (C) he is an
executive officer of the Corporation and/or one of its direct
or indirect subsidiaries; and (D) he has a pre-existing
business relationship with Kleinert and its subsidiaries and
the business of the Corporation, has such knowledge and
experience in financial and business matters, and regarding
the business of the Corporation particularly, as to be capable
of evaluating the merits and risks of his investment hereunder
and has the ability to bear the economic risks of such
investment.
(iii) Each Buyer understands that: (A) neither the
Common Stock nor the Series B Preferred Stock purchased
hereunder has been registered under the Securities Act, the
California Corporate Securities Law of 1968, as amended
("California Securities Law"), or any other applicable federal
or state securities law; (B) the Corporation will permit
transfers of the Common Stock and the Series B Preferred Stock
purchased hereunder only: (1) in accordance with this
Agreement; and (2) when such securities have been registered
under the Securities Act and any other applicable federal or
state securities law or when the proposed transfer does not
require any such registration and the Corporation has received
an opinion of counsel (which opinion and counsel shall be
acceptable to the Corporation) to such effect; (C) any
transfer made or purportedly made in violation of the
foregoing restrictions shall be null and void and the
Corporation shall not register or record such attempted
transfer in its books and records; and (D) the legends set
forth in Section 16 of this Agreement shall be placed on the
certificates representing any
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<PAGE>
of the Common Stock and the legends set forth in the
Certificate of Designation for the Series B Preferred Stock
shall be placed on the certificates representing the Series B
Preferred Stock.
(iv) Each Buyer further understands and covenants
and agrees with the Corporation that:
(A) the Common Stock and the Series B
Preferred Stock purchased hereunder constitute
"restricted securities" as that term is defined in
Rule 144 promulgated under the Securities Act;
(B) only the Corporation can register the
Common Stock and the Series B Preferred Stock
purchased hereunder under the Securities Act and
applicable state securities laws, and the Corporation
has not made any undertaking to Buyers with respect
to such registration, or with respect to compliance
with any exemption therefrom;
(C) there are stringent conditions for any
Buyer to obtain an exemption for the resale of the
Common Stock and/or the Series B Preferred Stock
purchased hereunder under the Securities Act,
California Securities Law and other state securities
laws; and
(D) no Buyer nor anyone acting on Buyer's
behalf has paid or will pay any commission or other
comparable remuneration to any person in connection
with the issuance of the Common Stock or the Series B
Preferred Stock purchased hereunder.
4. Representations of Parent. Parent represents and warrants to
the Corporation as follows:
(a) Organization. Parent is an international business
corporation established as a limited duration company duly organized
and validly existing under Bahamian law.
(b) Authority. Parent has the power and authority to execute
and deliver this Agreement, to consummate the transactions contemplated
hereby and to perform its obligations hereunder. The execution and
delivery by Parent of this Agreement, the consummation by Parent of the
transactions contemplated hereby and the performance by Parent of its
obligations hereunder have been duly and validly authorized by all
necessary actions on its part.
(c) Execution and Binding Effect. This Agreement has been
duly and validly executed and delivered by Parent and constitutes a
legal, valid and binding obligation of Parent enforceable against it in
accordance with its terms.
-6-
<PAGE>
(d) No Breach or Default. The execution and delivery by Parent
of this Agreement, the consummation of the transactions contemplated
hereby and the performance by Parent of its obligations hereunder do
not and will not: (i) breach or result in a default (or an event which,
with the giving of notice or the passage of time, or both, would
constitute a default) under, require any consent under or give to
others any rights of termination, acceleration, suspension, revocation,
cancellation or amendment of any contract, agreement, instrument or
document to which Parent is a party or by which Parent or any of its
assets or properties is bound; or (ii) breach or otherwise violate any
order, writ, judgment, injunction or decree issued by any governmental
authority or entity of the United States of America or of any state,
county, municipality or other political subdivision.
(e) No Violation of Law. The execution and delivery by Parent
of this Agreement, the consummation of the transactions contemplated
hereby and the performance by Parent of its obligations hereunder are
not prohibited by, and do not and will not subject Parent to any fine,
penalty or similar sanction under any law, statute, rule, regulations,
ordinance, code, order, guideline or directive of any governmental
authority or entity of the United States of America or of any state,
county, municipality or other political subdivision.
(f) No Consent. No consent, authorization, approval, exemption
or other action by, and no filing, registration or qualification with,
any person or governmental authority or entity is or will be necessary
in connection with the execution and delivery by Parent of this
Agreement, the consummation of the transactions contemplated hereby or
the performance by Parent of its obligations hereunder.
(g) Investment Representations.
(i) Parent represents that the Common Stock and
Series A Preferred Stock to be purchased by it hereunder is
being acquired for its own account for investment purposes and
not with a view towards resale or distribution.
(ii) Parent represents that: (A) it is organized
under the laws of the Bahamas with its primary place of
business located in the Bahamas; (B) it is not a U.S. person
(as defined in Rule 902 promulgated under the Securities Act)
and it is not purchasing on behalf of, for the account of or
for the benefit of a U.S. person; and (C) it has such
knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of its
investment hereunder and has the ability to bear the economic
risks of such investment.
(iii) Parent understands that: (A) neither the Common
Stock nor the Series A Preferred Stock purchased hereunder has
been registered
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under the Securities Act, Bahamian securities laws or any
state securities law; (B) the Corporation will permit
transfers of the Common Stock and Series A Preferred Stock
purchased hereunder only: (1) in accordance with this
Agreement; and (2) when such securities have been registered
under the Securities Act and any other applicable federal or
state securities law, in accordance with the Regulation S
promulgated under the Securities Act or when the proposed
transfer does not require any such registration and the
Corporation has received an opinion of counsel (which opinion
and counsel shall be acceptable to the Corporation) to such
effect; (C) any transfer made or purportedly made in violation
of the foregoing restrictions shall be null and void and the
Corporation shall not register or record such attempted
transfer in its books and records; and (D) the legends set
forth in Section 16 of this Agreement shall be placed on the
certificates representing the Common Stock and the legends set
forth in the Certificate of Designation for the Series A
Preferred Stock shall be placed on the certificates
representing the Series A Preferred Stock.
(iv) Parent further understands and covenants and
agrees with the Corporation that:
(A) the Common Stock and the Series A
Preferred Stock purchased hereunder may constitute
"restricted securities" as that term is defined in
Rule 144 promulgated under the Securities Act;
(B) offers and sales of the Common Stock and
the Series A Preferred Stock purchased hereunder may
be subject to a "restricted period" as defined in
Regulation S promulgated under the Securities Act;
(C) only the Corporation can register the
Common Stock and the Series A Preferred Stock
purchased hereunder under the Securities Act and
applicable state securities laws, and the Corporation
has not made any undertaking to Parent with respect
to such registration, or with respect to compliance
with any exemption therefrom;
(D) there are stringent conditions for
Parent to obtain an exemption for the resale of the
Common Stock and/or the Series A Preferred Stock
purchased hereunder under the Securities Act and
other state securities laws; and
(E) neither Parent nor anyone acting on
Parent's behalf has paid or will pay any commission
or other comparable remuneration to any person in
connection with the issuance of the
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Common Stock or the Series A Preferred Stock
purchased hereunder.
5. Stock Appreciation Rights. The Corporation hereby grants to
certain Management Members stock appreciation rights ("SARs") as follows:
(a) Promotional SARs. The grant of SARs under this Section
5(a) (the "Promotional SARs") shall consist of an aggregate of 355 SAR
Credits, the actual number of SARs outstanding at any time being
determined in accordance with Section 5(e) hereof. The SAR Credits
relating to the Promotional SARs shall be allocated among those certain
Management Members (and others) as identified on and in the numbers set
forth on Schedule 5(a) hereto. Each Management Member's Promotional
SARs and all SAR Credits relating thereto shall, subject to Section
5(d) hereof, vest as follows: 10% on the first anniversary of the
Closing, an additional 22.5% on the second anniversary of the Closing,
an additional 22.5% on the third anniversary of the Closing, an
additional 22.5% on the fourth anniversary of the Closing, and an
additional 22.5% on the fifth anniversary of the Closing. In the event
of a sale of all or substantially all of the assets of the Corporation
on a consolidated basis with its direct and indirect subsidiaries, all
of the Promotional SARs and all SAR Credits relating thereto granted
hereunder, which have not been terminated pursuant to Section 5(d),
shall immediately vest.
(b) Incentive SARs. The grant of SARs under this Section 5(b)
(the "Incentive SARs") shall consist of an aggregate of 1,065 SAR
Credits, the actual number of SARs outstanding at any time being
determined in accordance with Section 5(e) hereof. The SAR Credits
relating to the Incentive SARs shall be allocated among those certain
Management Members (and others) identified on and in the numbers set
forth on Schedule 5(b) hereto. The Incentive SARs and all SAR Credits
relating thereto shall, subject to Section 5(d), vest as follows:
As to the applicable Management Member, the determination as to whether
Incentive SARs and SAR Credits relating thereto have vested shall be
measured upon (and shall vest as of) the first to occur of any of the
following (a "Measurement Date"):
(i) the date of an exercise of a Redemption
Right under Section 7(a)(vi) hereof or a Put Right under
Section 8(a)(v) hereof;
(ii) the date of the occurrence of an event giving
rise to any Redemption Right other than under Section 7(a)(vi)
hereof or a Put Right other than under Section 8(a)(v) hereof;
(iii) the date of consummation of a sale of all or
substantially all of the assets of the Corporation on a
consolidated basis with its direct and indirect subsidiaries;
or
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(iv) immediately following the end of the fiscal year
ending December 31, 2002.
In the case of a Measurement Date arising under clauses (i), (ii) or
(iii) above, if more than 85% of each Annual EBITDA Target (as
hereinafter defined) for each fiscal year ending prior to the
Measurement Date has been achieved or in the case of a Measurement Date
arising under clause (iv) above, if more than 85% of the Annual EBITDA
Targets for four of the five fiscal years ending prior to the
Measurement Date have been achieved and the Cumulative EBITDA Target
(as hereinafter defined) for the fiscal year ending prior to the
Measurement Date has been achieved, the percentage of Incentive SARs
and SAR Credits corresponding to the achievement of such Cumulative
EBITDA Target held by such Management Member shall become vested (the
"Measurement Test"); provided, however, that, in the case of any
Measurement Date occurring pursuant to clause (iv) above, even if the
Cumulative EBITDA Target was not achieved, if more than 85% of the
Annual EBITDA Targets for four of the five fiscal years were achieved
and if more than 90% of the Cumulative EBITDA Target was achieved, then
50% of the Incentive SARs and SAR Credits which would have become
vested in such Management Member if the Cumulative EBITDA Target had
been met shall become vested.
All Incentive SARs and SAR Credits not vested as of December 31, 2002
shall immediately terminate. In the event of a sale of all or
substantially all of the assets of the Corporation on a consolidated
basis with its direct and indirect subsidiaries, Incentive SARs and SAR
Credits not vested as of the date of consummation thereof shall
immediately terminate.
As used herein, the applicable "Cumulative EBITDA Targets" and the
corresponding percentage of Incentive SARs and SAR Credits to become
vested if the Measurement Test is met as of the Measurement Date shall
be:
20% if EBITDA (as hereinafter defined) for the fiscal year
ended December 31, 1998 is greater than $6,652,000;
40% if EBITDA for the fiscal years ended December 31, 1998 and
December 31, 1999 is in the aggregate greater than
$14,150,000;
60% if EBITDA for the fiscal years ended December 31, 1998,
December 31, 1999 and December 31, 2000 is in the aggregate
greater than $22,578,000;
80% if EBITDA for the fiscal years ended December 31, 1998,
December 31, 1999, December 31, 2000 and December 31, 2001 is
in the aggregate greater than $32,030,000;
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100% if EBITDA for the fiscal years ended December 31, 1998,
December 31, 1999, December 31, 2000, December 31, 2001 and
December 31, 2002 is in the aggregate greater than
$42,321,000.
As used herein:
The 1998 Annual EBITDA Target is achieved if EBITDA for the
fiscal year ended December 31, 1998 is greater than
$6,652,000;
The 1999 Annual EBITDA Target is achieved if EBITDA for the
fiscal year ended December 31, 1999 is greater than
$7,498,000;
The 2000 Annual EBITDA Target is achieved if EBITDA for the
fiscal year ended December 31, 2000 is greater than
$8,428,000;
The 2001 Annual EBITDA Target is achieved if EBITDA for the
fiscal year ended December 31, 2001 is greater than
$9,452,000;
The 2002 Annual EBITDA Target is achieved if EBITDA for the
fiscal year ended December 31, 2002 is greater than
$10,291,000.
The Cumulative EBITDA Targets and the Annual EBITDA Targets set forth
above may be adjusted by the Board of Directors of the Corporation in
its sole discretion to take into account business acquisitions and
dispositions, accounting policy changes and other material changes in
circumstances.
As used throughout this Agreement, "EBITDA" shall mean, for any period,
determined for KII Acquisition and its direct and indirect subsidiaries
on a consolidated basis in conformity with generally accepted
accounting principles consistently applied (i) the sum of the amounts
for such period of (A) net income (i.e., the net earnings or loss after
taxes), (B) depreciation and amortization expense, (C) interest
expense, and (D) federal, state, local and foreign income taxes, minus
(ii) extraordinary gains, (iii) all as adjusted for (W) the management
fees (exclusive of expenses) paid to Mentmore Holdings Corporation
("Mentmore"), (X) the investment banking fee to be paid to Mentmore
upon the Closing, (Y) inventory adjustment pursuant to APB 16, and (Z)
any adjustment of inventory pursuant to Section 9.2 of the Purchase
Agreement but only to the extent that same results in an offset of the
amounts due under the note payable to Seller pursuant to Section 9.1 of
the Purchase Agreement, all such adjustments in clauses (W), (X), (Y)
and (Z) to be made if and only to the extent such items impact EBITDA.
The Board of Directors may, in its sole discretion, consider other
appropriate adjustments to EBITDA.
(c) Voting Rights. SARs granted hereunder have no voting
rights.
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<PAGE>
(d) Non-transferability and Termination. Management Members
shall not sell, assign, give, transfer, pledge, encumber, exchange or
in any manner dispose of, voluntarily or involuntarily, by operation of
law or otherwise (collectively, "Transfer") any legal or beneficial
interest in any SAR Credits or SARs granted hereunder and such SAR
Credits and SARs shall immediately terminate and divest on any Transfer
or attempted Transfer. In the event of a termination of a Management
Member's employment for any reason, whether voluntarily or
involuntarily, such Management Member's unvested SAR Credits and SARs
shall immediately terminate and, prior to the fifth anniversary of the
Closing, upon a voluntary resignation by a Management Member of his
employment prior to Scheduled Retirement (as defined in Section
8(a)(iv)), a termination of a Management Member's employment for Cause
(as defined in Section 8(a)(iii) of this Agreement), or the occurrence
of any event described in Section 7(a)(iii) of this Agreement, such
Management Member shall, in addition, be divested of his vested SAR
Credits and SARs and such vested SAR Credits and SARs shall immediately
terminate; provided, however that a transfer of employment between or
among the Corporation and its direct and indirect subsidiaries shall be
considered as continuing employment and shall not be considered
termination of employment for purposes hereof. In the event that the
stock of the Corporation's direct or indirect subsidiaries by which a
Management Member is employed is sold or transferred to a third party,
such Management Member's unvested SAR Credits and SARs shall
immediately terminate. Furthermore, in the event that outstanding
shares of Common Stock are hereafter changed into or exchanged for a
different number or kind of shares of stock or securities of the
Corporation or another corporation or corporations, whether as a result
of a reorganization, recapitalization, reclassification, merger,
consolidation or otherwise, the unvested SAR Credits and SARs granted
under this Agreement shall immediately terminate.
(e) Determination of Outstanding SARs. The number of
outstanding vested SARs from time to time shall be determined in
accordance with the following formula:
A = G
----------------------------------------
1 - [B/C + (D/.199 x E/F(.1))],
and
G - C = H,
where
A= number of outstanding shares of Common Stock held by persons
other than Management Members
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B= number of outstanding shares of Common Stock held by
Management Members
C= total number of outstanding shares of Common Stock
D= B divided by C
E= vested SAR Credits, which have not been divested pursuant to
Section 5(d) of this Agreement or liquidated pursuant to
Section 7 or 8 of this Agreement
F= SAR Credits granted under this Agreement (i.e., 1,420)
G= number of outstanding shares of Common Stock and vested SARs
H= number of outstanding vested SARs
(f) Nature of SARs. The parties hereto acknowledge that the
SAR Credits and SARs granted hereunder are contractual in nature and do
not constitute securities but rather constitute only contractual
obligations of the Corporation to pay Management Members certain
compensation measured by the value of a security equivalent and that
Management Members shall not be entitled to any rights of a stockholder
of the Corporation under Delaware law or otherwise with respect to the
SAR Credits and SARs.
6. Restrictions on Transfer. Buyers shall not Transfer or attempt to
Transfer any legal or beneficial interest in any Common Stock now owned or
hereafter acquired by them, except as otherwise provided in this Agreement.
7. Redemption. Each Management Member hereby grants to the Corporation
the right to cause such Management Member to sell all, but not less than all, of
any Common Stock held by him and to cause a liquidation and termination of any
vested SARs held by him (which have not been divested pursuant to Section 5(d)
of this Agreement) to the Corporation upon the terms and subject to the
conditions set forth herein (collectively, a "Redemption Right").
(a) Redemption Right. Redemption Rights may be exercised by
the Corporation at any time after the occurrence of any of the
following:
(i) Death. Such Management Member's death.
(ii) Disability. The disability of such Management
Member such that he is, in the opinion of the Corporation, as
determined by a resolution of the Board of Directors,
physically or mentally incapacitated and thereby rendered
incapable of adequately performing the duties of his position
with the Corporation or its direct or indirect subsidiary, as
applicable, for a period of 120 days ("Disability").
(iii) Insolvency, Etc.; Attempted Transfer An
involuntary case shall be commenced against such Management
Member or such Management Member shall commence a voluntary
case or a court shall
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enter a decree or order for relief in respect of such
Management Member under any applicable bankruptcy, insolvency
or other law now or hereafter in effect; a decree or order
shall be entered for the appointment of a receiver,
liquidator, sequestrator, trustee or custodian or other
officer having similar powers over such Management Member or
all or a substantial part of the assets of such Management
Member; a warrant of attachment, execution or similar process
against a substantial portion of the assets of such Management
Member shall be issued; such Management Member shall make an
assignment for the benefit of his creditors; such Management
Member has any shares of Common Stock or any right or interest
under this Agreement attached or levied upon for payment of
his debts; such Management Member is required to transfer any
shares of Common Stock or any right or interest under this
Agreement by order, judgment or decree of any court or other
adjudicatory body for any reason, whether or not related to
such Management Member's financial condition; or such
Management Member shall Transfer or attempt to Transfer or
there shall otherwise occur or purport to occur any Transfer
of any legal or beneficial interest in any shares of Common
Stock or SAR Credits or SARs, in contravention of Section 5(d)
or Section 6 of this Agreement.
(iv) Termination of Employment. Termination of such
Management Member's employment by such Management Member or by
the Corporation or its direct or indirect subsidiary, as
applicable, for any reason.
(v) Sale of Stock of Subsidiary. The stock of the
Corporation's direct or indirect subsidiary by which such
Management Member is employed is sold or transferred to a
third party.
(vi) Five Years. The fifth anniversary of the
Closing.
(b) Exercise. If the Corporation desires to exercise a
Redemption Right, it shall give notice to the applicable Management
Member to such effect and the closing of the purchase by the
Corporation of any Common Stock held by him and/or the liquidation and
termination of any vested SARs held by him shall occur within 90 days
from the date of such notice.
(c) Price. The price at which any Common Stock shall be
purchased hereunder and/or at which any vested SARs shall be liquidated
and terminated hereunder shall be the price set forth in Section 9(a)
of this Agreement.
(d) Payment. The terms upon which payment shall be made with
respect to the purchase of any Common Stock hereunder and/or
liquidation and
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<PAGE>
termination of any vested SARs hereunder is set forth in Section 9(b)
of this Agreement.
8. Put. The Corporation hereby grants to each Management Member (and,
in the event of his death or disability, such Management Member's duly appointed
personal representative) the right to cause the Corporation to purchase all, but
not less than all, of any Common Stock held by him and/or to cause the
Corporation to liquidate and terminate any vested SARs held by him (which have
not been divested pursuant to Section 5(d) of this Agreement) upon the terms and
subject to the conditions set forth herein (collectively, a "Put Right").
(a) Put Right. Put Rights may be exercised by a
Management Member upon the occurrence of the following within the
periods specified in Section 8(b):
(i) Death. Such Management Member's death.
(ii) Disability. Such Management Member's
Disability.
(iii) Termination of Employment Without Cause.
Termination of such Management Member's employment by the
Corporation or its direct or indirect subsidiary, as
applicable, Without Cause. As used in this Agreement, "Without
Cause" shall mean any termination of such Management Member's
employment by the Corporation or its direct or indirect
subsidiary, as applicable, other than for Cause (as
hereinafter defined) or by reason of such Management Member's
death or Disability and a termination shall be for "Cause" if
the Corporation or its direct or indirect subsidiary, as
applicable, terminates such Management Member's employment by
reason of (A) such Management Member materially breaching any
of his obligations under any employment agreement entered into
pursuant to Section 13 hereof, (B) such Management Member
failing or neglecting to perform the duties of his position
with the Corporation or its direct or indirect subsidiaries,
as applicable, (C) such Management Member developing or
pursuing interests adverse to the Corporation or any of its
direct and indirect subsidiaries or their affiliates, (D) such
Management Member engaging in any act of dishonesty or fraud
or committing a felony or any crime involving dishonesty or
moral turpitude, or (E) any other material reason which would
justify a reasonably prudent employer in terminating an
employee's employment in similar circumstances.
(iv) Scheduled Retirement. Upon termination of such
Management Member's employment as a result of the achievement
of a retirement date agreed to between such Management Member
and the Board of Directors of the direct or indirect
subsidiary of the Corporation employing such Management Member
(a "Scheduled Retirement").
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<PAGE>
(v) Five Years. The fifth anniversary of the
Closing.
(b) Exercise. If a Management Member desires to exercise his
Put Right, he shall give notice to the Corporation to such effect
within 90 days of (i) the appointment of an executor or administrator
to administer such Management Member's estate in the case of a Put
Right arising pursuant to subsection (a)(i); (ii) the determination of
such Management Member's Disability in the case of a Put Right arising
pursuant to subsection (a)(ii); (iii) the date of termination in the
case of a Put Right arising pursuant to subsections (a)(iii) and (iv);
or (iv) the fifth anniversary of the Closing or the end of each fiscal
year thereafter in the case of a Put Right arising pursuant to
subsection (a)(v). The closing of the purchase by the Corporation of
any Common Stock hereunder and/or the liquidation and termination of
any vested SARs hereunder shall occur within 90 days from the date of
such notice.
(c) Price. The price at which any Common Stock shall be
purchased hereunder and/or at which any vested SARs shall be liquidated
and terminated hereunder shall be the price set forth in Section 9(a)
of this Agreement.
(d) Payment. The terms upon which payment shall be made with
respect to the purchase of any Common Stock hereunder and/or
liquidation and termination of any vested SARs hereunder is set forth
in Section 9(b) of this Agreement.
9. Determination and Payment of Price.
(a) Price. The price for any shares of Common Stock purchased
by the Corporation and/or vested SARs liquidated and terminated under
Section 7 or 8 of this Agreement shall be equal to: (a) an amount equal
to (i) EBITDA, in the case of purchases and liquidations prior to
January 1, 1999, as of the twelve month period prior to the Closing
(the "Pre-Closing EBITDA") and in the case of purchases and/or
liquidations on or after January 1, 1999, as of the end of the fiscal
year prior to the date of the event giving rise to such purchase or
liquidation, multiplied by (ii) 5.0, minus (iii) the Funded Debt (as
hereinafter defined) of the Corporation and its direct and indirect
subsidiaries on a consolidated basis as set forth on the balance sheet
as of the end of the month preceding the closing of the purchase and
liquidation hereunder and the stated value of and accrued and unpaid
dividends on the Series A Preferred Stock and the Series B Preferred
Stock, minus (iv) $391.00 multiplied by the number of vested SARs to be
liquidated; multiplied by (b) the percentage which the Common Stock
and/or vested SARs to be purchased and/or liquidated bear to the total
number of outstanding shares of Common Stock and vested SARs of the
Corporation at the time of the purchase and liquidation (i.e., "G" as
calculated in the formula set forth in Section 5(e)).
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As used herein, "Funded Debt" shall mean Debt (as hereinafter defined)
which matures more than one year from the date of its creation or
matures within one year from such date but is renewable or extendible,
at the option of the debtor, to a date more than one year from such
date or arises under a revolving credit or similar agreement which
obligates the lender or lenders to extend credit during a period of
more than one year from such date, including, without limitation, all
amounts of Funded Debt required to be paid or prepaid from the date of
determination and including any notes issued under this Agreement and
any obligations under this Agreement arising upon the exercise of a
Redemption Right or a Put Right irrespective of the maturity thereof.
As used herein, "Debt" shall mean, as applied to any person or entity
at any time and without duplication, all indebtedness, obligations or
other liabilities of such person or entity (i) for borrowed money or
evidenced by debt securities, debentures, acceptances, notes or other
similar instruments, (ii) under profit payment agreements or in respect
of obligations to redeem, repurchase or exchange any securities of such
person or entity or to pay dividends in respect of any stock (including
any notes issued under this Agreement and any obligations under this
Agreement arising upon the exercise of a Redemption Right or a Put
Right), (iii) with respect to letters of credit issued for such
person's or entity's account (to the extent not accounted for in clause
(i) above), (iv) to pay the deferred purchase price of property or
services, except accounts payable and accrued expenses arising in the
ordinary course of business, or (v) in respect of capital leases.
(b) Payment. Subject to the provisions of Section 10 of this
Agreement, if the Corporation exercises its Redemption Right to
purchase any Common Stock and/or liquidate any vested SARs under this
Agreement prior to the fifth anniversary of the Closing, by reason of a
voluntary resignation by a Management Member of his employment prior to
Scheduled Retirement, a termination of a Management Member's employment
for Cause, or the occurrence of any event described in Section
7(a)(iii) of this Agreement, the Corporation shall, upon the closing of
the purchase and/or liquidation of a Management Member's Common Stock
and/or vested SARs, as applicable, issue to such Management Member a
note in the principal amount of the price determined under Section 9(a)
hereof, payable 90 days after the fifth anniversary of the Closing.
Such note shall not bear interest, shall be unsecured and shall be
subordinated to all other indebtedness of the Corporation. Subject to
the provisions of Section 10 of this Agreement, in the event of a
purchase of any Common Stock and/or liquidation of any vested SARs
under this Agreement under any circumstances and for any reason other
than as set forth above, the price determined under Section 9(a) hereof
shall be paid, in cash, on the closing of such purchase and/or
liquidation.
10. Restrictions on Payment. Notwithstanding any other provision
of this Agreement, if the Corporation shall determine in good faith that: (a) it
is prohibited by applicable law from making payment for any shares of Common
Stock or vested SARs
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purchased or liquidated pursuant to this Agreement; or (b) KII Acquisition or
Kleinert is prohibited from or restricted in paying a dividend to the
Corporation under its then existing indebtedness and the Corporation is
therefore not in a position to make full payment for any shares of Common Stock
or vested SARs purchased or liquidated pursuant to this Agreement; (c) the
Corporation is prohibited from or restricted in making full payment for any
shares of Common Stock or vested SARs purchased or liquidated pursuant to this
Agreement under its then existing indebtedness; or (d) the Corporation is
prohibited from or restricted in making full payment for any shares of Common
Stock or vested SARs purchased or liquidated pursuant to this Agreement under
the terms of the Series A Preferred Stock or Series B Preferred Stock, then the
Corporation will pay such portion of the price in cash as is not prohibited by
any of clauses (a) through (d) above and shall issue a note for the remainder of
the price to such Management Member to be payable when and to the extent the
Corporation is not prohibited from doing so from time to time by reason of any
of clauses (a) through (d) above. Such note shall bear simple interest at a rate
of 10% per annum, shall be unsecured and shall be subordinated to all other
indebtedness of the Corporation. If any note issued under Section 9(b) of this
Agreement cannot be paid when due by reason of any of clauses (a) through (d),
then such note shall remain outstanding after such date but shall bear interest
and become payable pursuant to the terms of this Section 10.
11. Sale of Corporation. If Parent approves a sale of its Common Stock
to an independent third party or an affiliated group of third parties (whether
by purchase, merger, consolidation or otherwise), Buyers will agree to sell
their Common Stock to such third parties, with the allocation of proceeds from
such sale as between Buyers and other holders of Common Stock to be determined
pursuant to Section 12 of this Agreement.
12. Liquidation. In the event of a sale of all or substantially all of
the assets of the Corporation and its direct and indirect subsidiaries, on a
consolidated basis, and the resulting liquidation of the Corporation or in the
event of a sale of the Common Stock of the Corporation pursuant to Section 11 of
this Agreement, Management Members holding Common Stock and/or vested SARs of
the Corporation which have not been purchased and liquidated pursuant to Section
7 or 8 of this Agreement or divested pursuant to Section 5(d) of this Agreement
shall receive in exchange for their Common Stock and/or SARs: (a) an amount
equal to: (i) the net proceeds received from such sale, minus (ii) the
liabilities of the Corporation and its direct and indirect subsidiaries on a
consolidated basis, including any reserves for contingent liabilities,
determined by the Board of Directors in good faith, and the stated value of and
accrued and unpaid dividends on the Series A Preferred Stock and the Series B
Preferred Stock, minus (iii) $391.00 multiplied by the number of vested SARs to
be liquidated; multiplied by (b) the percentage which the Common Stock and
vested SARs then held by Management Members bear to the total number of
outstanding shares of Common Stock and vested SARs of the Corporation at the
time of the liquidation or sale (i.e., "G" as calculated in the formula set
forth in Section 5(e)). Holders of Common Stock who are not Management Members
shall receive the balance of the net proceeds received from
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such sale; provided, however, that in no event shall the application of this
provision result in holders of Common Stock who are not Management Members
receiving in exchange for their Common Stock an amount less than: (y) an amount
equal to (i) the net proceeds received from such sale, minus (ii) the
liabilities of the Corporation and its direct and indirect subsidiaries on a
consolidated basis, including any reserves for contingent liabilities,
determined by the Board of Directors in good faith, and the stated value of and
accrued and unpaid dividends on the Series A Preferred Stock and the Series B
Preferred Stock, plus (iii) $391.00 multiplied by the number of vested SARs to
be liquidated; multiplied by (z) the percentage which the Common Stock then held
by holders of Common Stock who are not Management Members bear to the total
number of outstanding shares of Common Stock and vested SARs of the Corporation
at the time of the liquidation or sale (i.e., "G" as calculated in the formula
set forth in Section 5(e)).
13. Employment Agreements. Each of Bradley C. Call, Julius E. Hodge,
Lawrence R. Smith, John Barriatua, and Roland H. Marti hereby acknowledge that
their respective Employment Agreements, each dated as of December 1, 1991, have
expired by their terms and hereby agree that as of the Closing, each such
Employment Agreement shall be deemed terminated without any liability whatsoever
on the part of the Corporation or any of its direct or indirect subsidiaries.
Arun Kumar and Louis A. Brown represent and warrant that they do not have
written employment agreements with the Corporation or any of its direct or
indirect subsidiaries and that any agreement, oral or written, respecting the
terms of their employment shall be deemed terminated without any liability
whatsoever on the part of the Corporation or any of its direct or indirect
subsidiaries. Subsequent to but effective as of the Closing, each Management
Member will enter into a five year employment agreement with the Corporation
and/or the applicable direct or indirect subsidiary. Management Members'
respective current compensation packages (as in effect on December 31, 1996),
including salary, bonus and benefits, will be substantially retained in such
employment agreements, except that: (a) effective upon the Closing, each
Management Member will receive a five percent increase in his annual salary,
except for Arun Kumar and Louis A. Brown who will receive no increase in annual
salary, and except for Lawrence R. Smith who will receive a nine percent
increase in annual salary; (b) each Management Member will have the ability to
earn appropriate annual percentage increases in his base salary; (c) the
employment agreements will provide for annual bonuses according to criteria to
be determined, provided that such criteria will not result in substantially
lower bonus opportunities at the same level of performance of KII Acquisition
and/or the applicable subsidiaries than under the Management Incentive Plan as
applicable to each Management Member, it being expressly acknowledged and agreed
by Management Members that the Management Incentive Plan is hereby terminated;
and (d) the existing deferred compensation plan as applicable to each Management
Member, except for Louis A. Brown, will be continued under substantially the
same terms as in effect prior to the Closing, it being acknowledged by Louis A.
Brown that he has no current deferred compensation plan and that no rights with
respect to any deferred compensation arise under or by virtue of this Agreement.
Management Members hereby represent and
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<PAGE>
warrant that they have included in their projections and budget provided to the
Corporation and Mentmore the foregoing salary increases and bonuses as well as
insurance premiums and other payments under the deferred compensation plan.
Nothing contained in this Agreement shall give any Management Member any rights
to employment or with respect to his employment or termination thereof except as
shall be set forth in his respective employment agreement.
14. Tax Allocation and Indemnity Agreement. Upon the Closing,
Parent and the Corporation shall enter into a Tax Allocation and Indemnity
Agreement. The parties hereto acknowledge that any distributions to Parent by
the Corporation thereunder shall be permitted and shall not constitute dividends
for any purposes.
15. Board of Directors. Upon the Closing, the Board of Directors
of the Corporation and each of its direct and indirect subsidiaries shall
initially consist of Richard L. Kramer, William L. Remley and Bradley C. Call.
16. Legend. The following legends shall be placed on the Common
Stock to be issued under this Agreement:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER APPLICABLE
FEDERAL OR STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION UNLESS THE PROPOSED TRANSFER DOES NOT
REQUIRE ANY SUCH REGISTRATION AND THE CORPORATION HAS RECEIVED AN
OPINION OF COUNSEL TO SUCH EFFECT.
THE CORPORATION AND ITS SECURITYHOLDERS HAVE ENTERED INTO AN AGREEMENT
DATED JULY 1, 1997 WHICH IMPOSES CERTAIN RESTRICTIONS ON THE RIGHT TO
TRANSFER THE SECURITIES REPRESENTED BY THIS CERTIFICATE. NO TRANSFER
OF THE SECURITIES REPRESENTED HEREBY SHALL BE EFFECTIVE EXCEPT IN
ACCORDANCE WITH SUCH AGREEMENT AND ANY PURCHASER OR OTHER TRANSFEREE OF
SECURITIES OF THE CORPORATION IS BOUND BY THE AGREEMENT AND SHALL BE
CONSIDERED A PARTY THERETO. THE CORPORATION WILL MAIL TO THE SECURITY
HOLDER A COPY OF THE AGREEMENT WITHOUT CHARGE WITHIN TEN DAYS AFTER
RECEIPT OF WRITTEN REQUEST THEREFOR.
17. Miscellaneous.
(a) Action by Management Members. Whenever any consent,
waiver, agreement or other action of Management Members as a group is
required or
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<PAGE>
permitted hereunder, such action shall be effective if it is taken by
Management Members holding at least a majority of the aggregate of the
number of shares of Common Stock then owned by all Management Members
and the number of SAR Credits granted to all Management Members and not
terminated or divested pursuant to the terms of this Agreement.
(b) Expenses. Management Members, Parent and the Corporation
shall each bear their own legal, accounting and other out-of-pocket
expenses in connection with the transactions contemplated herein.
(c) Amendments. This Agreement may be amended or terminated
only by a writing signed by the Corporation, Parent and the requisite
number of Management Members set forth in Section 17(a) hereof, and any
such amendment or termination shall be effective only to the extent
specifically set forth in writing.
(d) Entire Agreement. This Agreement contains the entire
agreement of the parties with respect to the subject matter hereof and
supersedes all prior written and oral agreements, including the Letter
of Intent, and all contemporaneous oral agreements, relating to such
matters. The parties hereto specifically acknowledge the termination of
the Letter of Intent effective as of the date hereof.
(e) Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of
California.
(f) Notices. Any notice required or permitted to be delivered
under this Agreement shall be in writing and shall be deemed given when
hand delivered or when mailed by certified mail, return receipt
requested, or when sent by a commercially recognized overnight courier
service or when sent by confirmed facsimile (with a copy sent by
ordinary mail) to a party at his or its address set forth below or at
such other address as may be designated by a party in writing,
To the Corporation:
KII HOLDING CORP.
c/o Mentmore Holdings Corporation
1430 Broadway, 13th Floor
New York, New York 10018
Fax: (212) 391-1393
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<PAGE>
with copies to:
Michael D. Schenker, Vice President and General Counsel
c/o Mentmore Holdings Corporation
1430 Broadway, 13th Floor
New York, New York 10018
Fax: (212) 382-1559
and
Bruce L. Waterhouse, Jr., Esq.
Kelley, McCann & Livingstone
200 Public Square, 35th Floor
BP America Building
Cleveland, Ohio 44114-2302
Fax: (216) 241-3707
To Parent:
GREYSTOKE CAPITAL MANAGEMENT LIMITED LDC
c/o Mentmore Holdings Corporation
1430 Broadway, 13th Floor
New York, New York 10018
Fax: (212) 391-1393
with copies to:
Michael D. Schenker, Vice President and General Counsel
c/o Mentmore Holdings Corporation
1430 Broadway, 13th Floor
New York, New York 10018
Fax: (212) 382-1559
and
Bruce L. Waterhouse, Jr., Esq.
Kelley, McCann & Livingstone
200 Public Square, 35th Floor
BP America Building
Cleveland, Ohio 44114-2302
Fax: (216) 241-3141
To Management Members at their respective addresses as set forth on the
signature pages hereof.
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<PAGE>
(g) Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining portions of this
Agreement or affecting the validity or enforceability of such provision
in any other jurisdiction. In the event that a court of competent
jurisdiction determines that any provision or portion of this Agreement
is unreasonable, arbitrary, against public policy or otherwise
unenforceable, such court shall enforce such provision to the extent
the court determines reasonable or in accordance with public policy and
to the maximum extent enforceable by law.
(h) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their heirs,
executors, administrators, legal representatives and permitted
successors and assigns.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement among
KII Holding Corp., Greystoke Capital Management Limited LDC and the Buyers
listed herein or caused this Agreement to be executed as of the date first above
written.
KII HOLDING CORP.
By: /s/ William L. Remley
Its: Vice Chairman
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement among
KII Holding Corp., Greystoke Capital Management Limited LDC and the Buyers
listed herein or caused this Agreement to be executed as of the date first above
written.
GREYSTOKE CAPITAL MANAGEMENT
LIMITED LDC
By: /s/ Richard L. Kramer
Its: Director
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement among
KII Holding Corp., Greystoke Capital Management Limited LDC and the Buyers
listed herein or caused this Agreement to be executed as of the date first above
written.
/s/ Bradley C. Call
BRADLEY C. CALL
Address for notice:
4539 Valley Spring Drive
Westlake Village, CA 91362
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement among
KII Holding Corp., Greystoke Capital Management Limited LDC and the Buyers
listed herein or caused this Agreement to be executed as of the date first above
written.
/s/ Julius E. Hodge
JULIUS E. HODGE
Address for notice:
934 Jeannette Avenue
Thousand Oaks, CA 91362
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
Agreement among KII Holding Corp., Greystoke Capital Management Limited LDC and
the Buyers listed herein or caused this Agreement to be executed as of the date
first above written.
/s/ Lawrence R. Smith
LAWRENCE R. SMITH
Address for notice:
25919 Franklin Lane
Stevenson Ranch, CA 91381
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement among
KII Holding Corp., Greystoke Capital Management Limited LDC and the Buyers
listed herein or caused this Agreement to be executed as of the date first above
written.
/s/ John Barriatua
JOHN BARRIATUA
Address for notice:
34672 Camino Capistrano
Capistrano, CA 92624
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement among
KII Holding Corp., Greystoke Capital Management Limited LDC and the Buyers
listed herein or caused this Agreement to be executed as of the date first above
written.
/s/ Roland H. Marti
ROLAND H. MARTI
Address for notice:
1717 9th Street
Manhattan Beach, CA 90266
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement among
KII Holding Corp., Greystoke Capital Management Limited LDC and the Buyers
listed herein or caused this Agreement to be executed as of the date first above
written.
/s/ Arun Kumar
ARUN KUMAR
Address for notice:
2126 S. Beverly Drive
Los Angeles, CA 90034-1066
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement among
KII Holding Corp., Greystoke Capital Management Limited LDC and the Buyers
listed herein or caused this Agreement to be executed as of the date first above
written.
/s/ Louis Brown
LOUIS BROWN
Address for notice:
2931 San Juan Drive
Fullerton, CA 92835
<PAGE>
SCHEDULE 1(a)
COMMON STOCK
Name Shares of Common Stock Purchase Price
Bradley C. Call 995.0 shares $389,045.00
Julius E. Hodge 318.4 shares $124,494.40
Lawrence R. Smith 318.4 shares $124,494.40
Roland H. Marti 119.4 shares $ 46,685.40
Arun Kumar 79.6 shares $ 31,123.60
John Barriatua 159.2 shares $ 62,247.20
<PAGE>
SCHEDULE 2(g)
CAPITALIZATION
Class Authorized Issued
Common Stock 20,000 10,000
Series A Preferred Stock 400 84
Series B Preferred Stock 75 0
Undesignated Preferred Stock 25 0
<PAGE>
SCHEDULE 5(a)
PROMOTIONAL SAR CREDITS
Name SAR Credits
Bradley C. Call 142.00
Julius E. Hodge 53.25
Lawrence R. Smith 53.25
Roland H. Marti 17.75
Arun Kumar 17.75
John Barriatua 0.00
Louis Brown 28.40
Held in reserve to be granted to future
President of Bandy Machining
International to be hired 42.60
<PAGE>
SCHEDULE 5(b)
INCENTIVE SAR CREDITS
Name SAR Credits
Bradley C. Call 426.00
Julius E. Hodge 159.75
Lawrence R. Smith 159.75
Roland H. Marti 53.25
Arun Kumar 53.25
John Barriatua 0.00
Louis Brown 85.20
Held in reserve to be granted to
future President of Bandy
Machining International
to be hired 127.80
<PAGE>
US$1,750,000 Los Angeles, California
July 1, 1997
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, a Delaware corporation
(hereinafter called the "Maker"), hereby promises to pay to the order of
KLEINERT INDUSTRIE HOLDING AG, a corporation organized under the laws of
Switzerland ("Kleinert") at c/o Schweizersche Treuhandgesellschaft, Coopers &
Lybrand AG, Spitalgasse 2, Postfach-CH.3001, Bern, Switzerland, or at such other
address as shall be designated from time to time by Kleinert, the sum of ONE
MILLION SEVEN HUNDRED FIFTY THOUSAND and NO/100ths UNITED STATES DOLLARS
(US$1,750,000) on the second anniversary of the date hereof, in immediately
available funds, and to pay interest annually on the Adjusted Principal Balance
(as hereinafter defined) in like funds at said address at the rate of eight per
cent (8%) per annum. Unless otherwise defined herein, capitalized terms in this
Note shall have the same meaning given them in that certain Stock Purchase
Agreement (the "Agreement"), dated May 23, 1997 by and among Maker, Kleinert and
Kleinert Industries, Inc., a California corporation.
The principal balance of this Note shall be reduced by the amount of:
(a) all payments and losses for which Maker is entitled to indemnification under
Section 8 of the Agreement at the time the same are made or suffered, and (b)
effective as of the date hereof for purposes of interest payable hereunder, the
credit against the Purchase Price to which Buyer is entitled pursuant to Section
9.2 of the Agreement. The principal balance as same may be reduced from time to
time hereunder shall constitute the "Adjusted Principal Balance." If the
aggregate of all such payments, losses and credits exceeds the original
principal balance hereof, then the interest accrued hereunder shall be reduced
by the amount by which such payments, losses and credits exceed the original
principal balance, and any previously paid interest which should not have been
paid or accrued pursuant to this provision shall be refunded.
If Maker wishes to make a claim for an adjustment to the Purchase Price
pursuant to Section 9.2 of the Agreement, the procedures for such claim, and the
resolution of any disputes with respect thereto, shall be as specified in said
Section 9.2. If Maker wishes to make a claim that Kleinert is liable to Maker by
reason of Section 8.1 of the Agreement, Maker shall serve a notice of such claim
upon Kleinert. Such notice shall explain the claim and shall state the amount of
claimed damages and a reasonably detailed explanation thereof, including such
supporting materials as Maker may then have in its possession. Within a thirty
(30) day period following the delivery of said notice, Kleinert shall send a
notice to Maker as to its agreement or disagreement with Maker's claim. If
Kleinert agrees with such claim, then the outstanding principal amount of this
Note shall be reduced as contemplated by clause (a) of the immediately preceding
paragraph. If Kleinert objects to such claim, Maker's ultimate entitlement to
reduce the principal amount of this Note as contemplated by said clause (a)
shall only be determined by (a) an agreement in writing executed by Maker and
Kleinert, or (b) a final judgment of a court of competent jurisdiction, as to
which the time for appeal from such judgment shall have expired and no appeal
shall be pending.
<PAGE>
Any claim under Section 8.1 or Section 9.2 to which Kleinert objects or
with which Kleinert disagrees shall become a "Disputed Claim" hereunder. Any
Disputed Claim (including accrued but unpaid interest on the amount thereof)
which has not been resolved in accordance with the foregoing or the provisions
of Section 9.2 of the Agreement, as applicable, at the stated maturity of this
Note shall not then be due and payable, but rather shall continue to remain
outstanding hereunder in accordance herewith until such Disputed Claim shall
have been so resolved. Notwithstanding the foregoing, the excess, if any, of the
Adjusted Principal Balance over the amount of the Disputed Claim on the stated
maturity date (said excess, the "Undisputed Amount"), together with accrued but
unpaid interest on said Undisputed Amount, shall be due and payable upon such
stated maturity date in accordance with the provisions of this Note.
The Maker promises to pay interest, on demand, or any overdue principal
and, to the extent permitted by law, overdue interest from their due dates at
the same rate provided above.
The Maker hereby waives diligence, presentment, demand, protest and
notice of any kind whatsoever. The nonexercise by the holder of any of its
rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance. The unenforceability or invalidity
of any one or more provisions of this Note shall not render any other provision
herein contained unenforceable or invalid.
The interest on this Note shall be paid without deduction of any
income, withholding or other tax of any kind imposed by the United States or any
state or local jurisdiction therein, unless required by law.
Kleinert represents and warrants to Maker, its officers, directors,
stockholders, agents, employees, affiliates and associates (under United States
tax and securities laws) as follows: (a) that it is not (i) a citizen, resident
(under U.S. tax or immigration laws) or domestic entity of the United States of
America and is not a corporation, partnership or trust created, organized or
controlled by such persons, (ii) a controlled foreign corporation, foreign
personal holding company, passive foreign investment company with any U.S.
shareholders, foreign partnership with U.S. partners, U.S. grantor trust with
any U.S. beneficiaries, or foreign estate with U.S. distributees, as all of
those terms are understood under the United States Internal Revenue Code of
1986, as amended (the "Code"); and that it is acquiring this Note for
investment, for its own account and not for resale to any such person, and (b)
it is not a foreign individual or entity engaged in a U.S. trade or business to
which any income or gain from this Note is effectively connected. Holder agrees
to execute and deliver Forms W-8 and 1001 (and any updates thereto) in
connection herewith.
This Note shall only be transferable to a person who can properly make
the representations and comply with the restrictions set forth in the previous
paragraph. Any transfer of this Note (including any rights to any principal
and/or Interest represented by this Note) shall only be effective and binding as
to any person (including the Maker and/or payee hereof) upon (i) delivery of
written agreement by the transferee to comply with all the provisions of this
Note, (ii) consent of the Maker and/or payee hereof, and (iii) registration of
such transfer on the books and records of Maker at the office of the Maker,
21550 Oxnard Street, Suite 570, Woodland Hills, California 91367, accompanied by
a written instrument of transfer in form
<PAGE>
satisfactory to the Maker, duly executed by the payee hereof or its attorney
duly authorized in writing by the payee. This Note may not be transferred or
assigned in any other way and is specifically not transferable by negotiation.
This Note is only issuable in registered form and is intended to be in
registered form as defined in Treas. Reg. Section 5(f).103-1(c).
This Note shall be construed under the laws of the State of California
without regard to its conflicts of laws principles. This Note shall be entitled
to the benefits of the respective Guarantees of the Company and each of its
Subsidiaries (as such terms are defined in the Agreement).
KII ACQUSITION CORP.,
a Delaware corporation
By: /s/ Bradley C. Call
--------------------------
Bradley C. Call, President
<PAGE>
FIRST LOAN MODIFICATION AGREEMENT
THIS FIRST LOAN MODIFICATION AGREEMENT (this "Agreement") made as of
November 1, 1996, by and between FARM BUREAU LIFE INSURANCE COMPANY, an Iowa
corporation (hereinafter called "Lender"), and PARAGON PRECISION PRODUCTS, INC.,
a California corporation (hereinafter called "Borrower").
WITNESSETH
WHEREAS, Lender made a loan to Borrower in the original principal
amount of Two Million Eight Hundred Fifty Thousand and No/100 Dollars
($2,850,000.00) (the "Loan"), evidenced by that certain note secured by deed of
trust dated September 6, 1991 (the "Note"), and secured by (i) that certain deed
of trust with assignment of rents and fixture filing dated September 6, 1991,
executed by Borrower for the use and benefit of Lender, and recorded on October
16, 1991, as Instrument No. 91-1635037, of the Official Records of the County of
Los Angeles, California (the "Deed of Trust"), covering and relating to the real
property more fully described in the Deed of Trust together with all
improvements, rights and interests as more fully described therein
(collectively, the "Property"); (ii) that certain absolute assignment of leases
and rents dated September 6, 1991, executed by Borrower in favor of Lender, and
recorded on October 16, 1991, as Instrument No. 91-1635038, of the Official
Records of the County of Los Angeles, California (the "Assignment of Leases");
(iv) that certain UCC-1 financing statement executed by Borrower in favor of
Lender filed with the California Secretary of State on October 30, 1991 as File
No. 91233708 (the "UCC-1"); (v) that certain UCC-2 Continuation Statement
executed by Borrower in favor of Lender filed with the California Secretary of
State on July 19, 1996 as File No. 96205CO308 (the "UCC-2"); and (vi) that
certain Environmental Indemnity dated September 6, 1991, executed by Borrower in
favor of Lender (the "Environmental Indemnity") (the Note, Deed of Trust,
Assignment of Leases, Environmental Indemnity, UCC-1 and UCC-2 are collectively
referred to herein as the "Loan Documents");
WHEREAS, the Note matures as of November 1, 1996 (the "Initial Maturity
Date"), and the principal balance owing on the Note as of the Initial Maturity
Date is Two Million Six Hundred Eighty-Six Thousand Six Hundred Seven and 03/100
Dollars ($2,686,607.03), with interest paid to that date; and
WHEREAS, Lender and Borrower have agreed to modify certain terms of the
Loan in connection with the repayment of said principal balance.
NOW THEREFORE, the parties hereto do hereby agree to the following as
of November 1, 1996:
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<PAGE>
1. The foregoing recitals are true and correct and by this reference
are incorporated herein.
2. The maturity of the Loan shall be extended to December 1, 2001 (the
"Extended Maturity Date"), and the interest rate for the Loan shall be reduced
to seven and seven-eighths percent (7.875%) per annum for the period from the
Initial Maturity Date through the Extended Maturity Date (such period defined
herein as the "Extended Term"). The amount of the monthly payments of principal
and interest shall for the Extended Term be adjusted to Twenty-Two Thousand Two
Hundred Sixty-Four and No/100 Dollars ($22,264.00) based on the outstanding
principal balance, the reduced interest rate and a 20-year amortization
schedule. A final installment covering the entire then-unpaid principal balance
and interest accrued thereon shall be due and payable on the Extended Maturity
Date. Borrower acknowledges that the term of the Note as extended hereby does
not contain an amortization schedule sufficient to calculate the full payment of
the Note by the Extended Maturity Date, and, therefore, a balloon payment will
be due on the Extended Maturity Date.
3. The third (3rd) paragraph beginning on page 1 of the Note and the
second (2nd) paragraph on page 2 of the Note are hereby deleted in their
entirety and of no further force or effect, and Borrower shall have no further
right to extend the term of the Note except to the extent set forth above.
4. For purposes of exercising its right of prepayment of the Loan
contained on pages 6 and 7 of the Note, the term "Extended Term" as referenced
in the Note shall mean the Extended Term as defined in this Agreement.
5. For purposes of (i) California Code of Civil Procedure Section 726.5
regarding environmental impairment of the Property and (ii) California Code of
Civil Procedure Section 736 regarding Borrower's breach of any environmental
provisions in the Loan Documents, Borrower acknowledges that this Agreement
shall be deemed to constitute a modification to the Loan and Loan Documents
occurring after January 1, 1992.
6. Lender hereby consents to the revision of the terms of the Loan
Documents as specifically set forth above, effective upon the satisfaction and
performance of the following terms and conditions by Borrower. If the following
conditions shall not have been met by December 31, 1996 (the "Condition
Satisfaction Date"), Lender shall have the right to terminate its obligations
under this Agreement, in which event, all of Borrower's obligations under the
Loan Documents to Lender shall remain in full force and effect without
modification and Lender shall remain entitled to exercise all remedies provided
under the Loan Documents or, at Lender's sole option, Lender may extend the
Condition Satisfaction Date, which extension shall be in writing and subject to
such amended terms and conditions as Lender shall deem advisable, in Lender's
sole and absolute discretion:
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<PAGE>
(a) Execution and delivery by Borrower of this Agreement, an
ACH Payment Information and Authorization Form in such form as Lender may
request, and such other instruments and agreements as Lender may reasonably
request;
(b) Borrower shall pay to Lender all costs and fees incurred
by Lender relating to this Agreement, including but not limited to Lender's
attorneys' fees and costs incurred in the preparation and negotiation of this
Agreement and title insurance fees;
(c) Receipt by Lender of all monthly payments and other
amounts due and owing under the Note, as modified, through December 1, 1996;
(d) Lender's receipt of a modified CLTA 110.5 Endorsement to
its original policy of title insurance ensuring that the lien evidenced by the
Deed of Trust as modified by this Agreement constitutes a valid mortgage lien on
the real property constituting a portion of the Property, senior in priority to
all other claims, liens, encumbrances, easements, reservations and restrictions
except such exceptions as Lender shall approve in writing. Borrower shall comply
with all of the title company's requirements for the issuance of such
endorsement and shall pay all premiums, costs and expenses incurred in
connection therewith;
(e) All representations and warranties of Borrower contained
in this Agreement, the Loan Documents and in any documents or instruments
executed in connection with the transaction contemplated hereby, shall be true
and correct in all material respects and shall not omit to state a fact material
to the truth and completeness of any statement made; and
(f) Borrower's delivery of a reaffirmation of guaranty duly
executed by Kleinert Industries, Inc. and in the form attached hereto as Exhibit
A.
7. This Agreement shall be given in modification (and not in
extinguishment) of the unpaid principal balance of the Note, and all liens and
security interests securing payment of the Note, including but not limited to
those contained in the Deed of Trust, shall be hereby ratified, confirmed,
renewed, extended and brought forward as security for the payment of the Note.
8. The Deed of Trust, Assignment of Leases, Environmental Indemnity,
UCC-1, UCC-2 and all other documents executed in connection with the Loan shall
continue and remain in full force and effect.
-3-
<PAGE>
9. This Agreement may be executed in counterparts, each of which shall
be an original and all of which, taken together, shall constitute but one and
the same instrument.
BORROWER: LENDER:
PARAGON PRECISION PRODUCTS, INC., FARM BUREAU LIFE INSURANCE
a California corporation COMPANY, an Iowa corporation
By: /s/ Julius E. Hodge By: /s/ Roger PJ Soener
Name: Julius E. Hodge Name: Roger PJ Soener
Title: CFO and Secretary Title: Real Estate Vice President
-4-
<PAGE>
EXHIBIT A
REAFFIRMATION OF GUARANTY
The undersigned, as guarantor of that certain loan in the original
principal amount of Two Million Eight Hundred Fifty Thousand and No/100 Dollars
($2,850,000.00) (the "Loan"), from FARM BUREAU LIFE INSURANCE COMPANY, an Iowa
corporation ("Lender") to PARAGON PRECISION PRODUCTS, INC., a California
corporation ("Borrower") is informed that Borrower and Lender are entering into
that certain loan modification agreement of even date herewith ("Modification
Agreement") whereby the Loan shall be modified to, among other things, (i)
extend the maturity date of the note evidencing the Loan to December 1, 2001;
and (ii) provide for a reduction of the interest rate to 7.875%.
As an inducement to Lender to enter into such loan modifications, the
undersigned hereby reaffirms (i) that the undersigned has reviewed the
Modification Agreement; (ii) that the repayment of the Loan, as modified by
Modification Agreement, is guarantied by the undersigned pursuant to that
certain guaranty dated September 6, 1991, executed by the undersigned (the
"Guaranty"); and (iii) that the Guaranty remains in full force and effect with
respect to the Loan as modified and a binding obligation on the undersigned.
In addition to the waivers contained in the Guaranty, Guarantor , by
its execution below, also hereby waives the following with respect to the Loan,
as modified by the Modification Agreement:
(a) The benefits, if Guarantor is entitled to any benefits, of any
single-action legislation or of any or all anti-deficiency statutes or
regulations or judicial interpretations thereof, including, but not limited to,
any protection which may be afforded Guarantor by California Code of Civil
Procedure Sections 580a, 580b, 580d and 726, and any amendments or modifications
thereto, including the requirement for a fair value hearing;
(b) Any estoppel defense arising out of Section 580d of the California
Code of Civil Procedure;
(c) Any defense arising out of the absence, impairment or loss of any
right of reimbursement or subrogation or other right or remedy of Guarantor
against Borrower or against any security resulting from the exercise or election
of any remedies by Lender, including the exercise of the power of sale under the
Deed of Trust (as defined in the Modification Agreement), and any defense
arising by reason of any disability or other defense of Borrower or by reason of
the cessation, from any cause, of the liability of Borrower;
-5-
<PAGE>
(d) The benefit of or right to assert any statute of limitations
affecting Guarantor's liability hereunder or the enforcement thereof, including
but not limited to the provisions of California Code of Civil Procedure Sections
580a and 726 that require that any action for a deficiency be brought within
three months after a foreclosure under the Deed of Trust. Any part payment by
Borrower or other circumstances which operate to toll any statute of limitations
as to Borrower shall also operate to toll the statute of limitations as to
Guarantor;
(e) Any rights which Guarantor may have under California Civil Code
Sections 2899 and 3433; and
(f) Without limiting the foregoing, Guarantor further waives all rights
and defenses arising out of an election of remedies by Lender, even though that
election of remedies, such as a nonjudicial foreclosure with respect to the
security for the guaranteed obligations, has destroyed Guarantor's rights of
subrogation and reimbursement against Borrower by the operation of Section 580d
of the California Code of Civil Procedure or otherwise.
Guarantor understands and agrees that by waiving: (i) the anti-deficiency
protections referred to in paragraph (a) above; (ii) the subrogation rights and
defenses referred to in paragraph (e) above; and (iii) the estoppel defense
referred to in paragraph (b) above, which protections, rights and defenses might
otherwise afford Guarantor with protection from a deficiency judgment, Guarantor
can be held liable for a deficiency judgment following a non-judicial
foreclosure sale (including a non-judicial foreclosure sale of a purchase money
obligation) even if the price paid for the Property at the non-judicial
foreclosure sale is less than the fair value of the Property; and Guarantor
further understands and agrees that Guarantor is waiving its defense that the
price paid for the Property at a judicial foreclosure sale may not be equal to
the fair value of the Property; and Guarantor further understands and agrees
that by Guarantor waiving its right to a fair value hearing following the
foreclosure sale that Lender can seek a deficiency against Guarantor up to the
entire amount of the indebtedness secured by the Deed of Trust with interest and
costs of sale less the amount paid for the Property at the non-judicial or
judicial foreclosure sale.
Guarantor waives all rights and defenses that the Guarantor may have
because Borrower's debt is secured by real property. This means, among other
things:
(1) Lender may collect from Guarantor without first foreclosing on any
real or personal property collateral pledged by Borrower.
(2) If Guarantor forecloses on any real property collateral pledged by
Borrower:
(A) The amount of debt may be reduced only by the price for
which that collateral is sold at the foreclosure sale, even if the collateral is
worth more than the sale price.
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<PAGE>
(B) Lender may collect from Guarantor even if Lender, by
foreclosing on the real property collateral, has destroyed any right Guarantor
may have to collect from Borrower.
This is an unconditional and irrevocable waiver of any rights and defenses
Guarantor may have because Borrower's debt is secured by real property. These
rights and defenses include, but are not limited to, any rights or defenses
based upon Section 580a, 580b, 580d, or 726 of the California Code of Civil
Procedure.
The foregoing waivers shall be incorporated in the Guaranty by
reference and made a part hereof.
Dated: As of November 1, 1996 KLEINERT INDUSTRIES, INC.,
a California corporation
By: _____________________________
Name: __________________________
Title:____________________________
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<PAGE>
NOTE SECURED BY DEED OF TRUST
$2,850,000.00 Los Angeles, California
Dated: September 6, 1991
FOR VALUE RECEIVED, the undersigned PARAGON PRECISION PRODUCTS, INC., a
California corporation (herein designated as the "Maker"), agrees and promises
to pay to the order of FARM BUREAU LIFE INSURANCE COMPANY, a corporation
organized and existing under the laws of the State of Iowa, (herein designated
as the "COMPANY"), at such place or places as the Company or other holder hereof
may from time to time designate in writing, the principal sum of Two Million
Eight Hundred Fifty Thousand Dollars ($2,850,000.00) and to pay interest on the
balance thereof from time to time remaining unpaid from Oct. 16, 1991, until
maturity at the rate of ten and one eighth percent (10.125%) per annum, payable
monthly, both principal and interest being payable as follows: Accrued interest
from the date loan proceeds are funded by Company to and including October 31,
1991 shall be due and payable on the first day of November, 1991. Thereafter,
principal and interest in the amount of Twenty-Six Thousand One Hundred Fifty
Dollars ($26,150.00) shall be due and payable on the first day of December,
1991, and on the first day of each and every succeeding month thereafter up to
and including the first day of October, 1996, and a final installment covering
the entire principal balance and interest accrued thereon shall be due and
payable on the first day of November, 1996 (the "Initial Maturity Date").
Each of the said monthly installments shall be applied first, to the
payment of the interest then accrued and due on the unpaid principal balance and
the remainder of each installment shall be applied to the reduction of the
unpaid principal except that if any advance made by the Company or other holder
hereof under the terms of any instrument securing this Note has not been repaid,
any monies received, at the option of Company or other holder hereof, may first
be applied to repay such advances and interest thereon and the balance, if any,
applied on account of any installments then due.
Maker may request a five (5) year extension ("Extended Term") of the
term of this Note by delivering a written notice to such effect to Company no
less than sixty (60) days prior to the Initial Maturity Date. Company may deny
such request if Maker, at the time of such request or at the Initial Maturity
Date, is in default or subject to any delinquency in the performance of the
terms of this Note or the Deed of Trust or other instruments given as security
for this Note or if Maker's record of payment of its monetary obligations
hereunder and under the Deed of Trust is unsatisfactory in Company's sole and
absolute discretion or if the loan does not meet the same physical standards and
underwriting guidelines used in granting the initial loan. Absent any such
grounds for denying Maker's request for a five (5) year extension of this Note,
Company shall provide Maker with written notice of a per annum interest rate
(the "Quote Rate") for the extended term of the Note based on Company's then
current five (5) year U.S. commercial mortgage rate for loans of similar type
and size as the then outstanding principal balance of this Note. Company shall
provide Maker with written notice of the Quote Rate on or before the date which
is the later of thirty (30) days following receipt of Maker's written
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<PAGE>
request for such extension or thirty (30) days prior to the Initial Maturity
Date. Following receipt of Company's notification of the Quote Rate and prior to
the Initial Maturity Date, Maker shall deliver written notice to Company
confirming to the Company that Maker either accepts or rejects the Quote Rate.
If Maker rejects the Quote Rate or fails to indicate acceptance or rejection
prior to the Initial Maturity Date, a final installment of all principal and
accrued interest shall be due and payable within sixty (60) days after the
Initial Maturity Date. Interest from the Initial Maturity Date to and including
the date the loan is paid in full shall accrue and be payable at the Quote Rate.
If Maker accepts the Quote Rate, on the Initial Maturity Date, Maker shall pay a
regular monthly installment of principal and interest on the outstanding
principal amount of this Note as of such date. Thereafter, Maker shall pay on
the first day of November, 1996, and on the first day of each and every
succeeding month thereafter up to and including the first day of September,
2001, an amount which, as of the Initial Maturity Date, is necessary to pay the
then outstanding principal amount and all interest thereon at the Quote Rate in
equal monthly installments over a twenty (20)-year period. A final installment
covering the entire outstanding principal balance and interest accrued thereon
at the Quote Rate shall be due and payable on the first day of October, 2001
("Extended Maturity Date").
As conditions to granting the extension of the loan term set forth
above, Maker shall provide Company with the following on or before the Initial
Maturity Date: (i) an executed agreement in recordable form modifying this Note
and the Deed of Trust to incorporate the interest rate, monthly payment and
Extended Maturity Date, (ii) a title endorsement insuring that the lien of the
Deed of Trust remains unchanged after recordation of the modification agreement
and (iii) the reasonable cost of documenting the modification including title
charges and legal fees.
Unless otherwise noted in writing by Company, Maker shall make all
monthly payments by wire transfer of funds to the following account and
containing the following descriptive information:
Chase Manhattan Bank
New York, New York
ABA No. 021000021
For the account of: Farm Bureau Life Insurance Company
Account No. 910-1-029396
All sums due under this Note and the Deed of Trust With Assignment of
Rents and Fixture Filings ("Deed of Trust") securing same are payable at the
place or places as above stated in legal tender of the United States of America
current on the dates such sums or payments are respectively due. Any remittances
by check or draft shall be credited on the date of receipt subject to the
condition that such check or draft may be handled for collection in accordance
with the practice of the collecting bank or banks and any receipt issued
therefor shall be void unless the amount due is actually received by the Company
or other holder hereof. Interest shall be computed on a 360-day year.
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<PAGE>
If any installment payment herein provided for, or any part thereof, or
the principal balance at maturity, is not paid when due, each and every such
defaulted installment, or part thereof, shall bear simple interest at the rate
of five percent (5%) per annum in excess of the then current interest rate of
this Note ("Default Rate") from its due date until date of payment.
During the existence of any default or delinquency under the terms of
this Note or under the terms of the Deed of Trust or any other instruments given
as a security for and which secure this Note, the Company or other holder hereof
is hereby expressly authorized to apply all payments made on this Note to the
payment of such part of any delinquency as it may elect.
Time is of the essence hereof and it is expressly agreed that if Maker
shall fail to make any payment under this Note when due, or if an Event of
Default shall occur in the performance of any of the terms, agreements,
covenants or conditions contained in the Deed of Trust,'Absolute Assignment of
Leases and Rents, Security Agreement or any of the loan documents of even date
herewith and made in connection with this Note (the "Loan Documents"), then this
Note shall be in default and at any time thereafter during the continuance of
any such default, the entire unpaid principal balance of this Note together with
any interest accrued thereon, shall, at the election of the Company or other
holder hereof, and without notice of such election and without demand or
presentment, become immediately due and payable at the place of payment
aforesaid, anything contained herein or in the Loan Documents to the contrary
notwithstanding, and the principal balance together with any interest accrued
thereon, so accelerated and declared due as aforesaid, shall thereafter bear
simple interest at the Default Rate until paid.
If any default or Event of Default shall occur at hereinabove set
forth, the failure of the Company or other holder hereof promptly to exercise
its right to declare the indebtedness remaining unpaid hereunder to be
immediately due and payable or the acceptance of one or more installments from
any person thereafter, shall not constitute a waiver of such right while any
default continues nor a waiver of such right in connection with any future
default.
The Deed of Trust contains provisions which restrict the right to
transfer or further encumber the property described in said Deed of Trust and
which also restrict the rights of Maker to transfer partnership interests in
Maker (if Maker is a partnership) or shares of stock in Maker (if Maker is a
corporation).
Maker hereby waives diligence, demand, presentment for payment, and
notice of whatever kind or nature. Without discharging or in any way affecting
the liability of the undersigned, the undersigned hereby consents to any and all
extensions of this Note as Company may in its sole discretion grant from time to
time, to the release of all or any part of the security for the payment hereof
and to the release of any party liable for repayment of the obligations
hereunder. Maker further waives exhaustion of legal remedies and the right to
plead any and all statutes of limitations as a defense to any demand on this
Note, or to any agreement to pay the same, or to any demands secured by the Deed
of Trust, or any other security for this Note.
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<PAGE>
If more than one person or entity is executing this Note then all of the
obligations herein contained shall be considered the joint and several
obligations of each of the undersigned.
This Note shall be governed by the laws of the State of California,
except to the extent that Federal laws may preempt the laws of the State of
California.
In the event that this Note is placed in the hands of an attorney at
law for collection after maturity or upon default or in the event that
proceedings at law or in equity are instituted in connection herewith, or in the
event that this Note is placed in the hands of an attorney at law to enforce any
of the rights or the agreements contained herein or in the Loan Documents, Maker
shall pay all costs of collecting or attempting to collect this Note or
protecting or enforcing such rights, including, without limitation, reasonable
attorneys' fees, and all such amounts shall be deemed to be secured by the Loan
Documents.
This Note and each of the Loan Documents are subject to the limitation
that in no event shall interest or any other amount paid or agreed to be paid to
Company for the use, forbearance or detention of money to be advanced hereunder
or pursuant to the Loan Documents exceed the highest lawful rate permissible
under applicable usury laws. If fulfillment of any provision hereof or of the
Loan Documents shall be deemed by a court of competent and final jurisdiction to
violate any applicable usury restrictions then ipso facto, the obligation to be
fulfilled shall be reduced to the limit of such validity, and any amount
received in excess of such limit shall be applied to reduce the unpaid principal
balance hereof and not to the payment of interest. Notwithstanding the
foregoing, Maker acknowledges that the Loan has been made or arranged for by
Pathfinder Mortgage Corporation, a licensed real estate broker by the State of
California, and is intended to be exempt from the provisions of California usury
law.
If Maker shall fail to make any payment of interest or principal or
payment for impounds for insurance premiums and taxes if required pursuant to
Section 5.03 of the Deed of Trust on the date such is due and payable, a late
charge by way of damages shall be immediately due and payable and the same shall
be deemed to be evidenced by this Note and secured by the Deed of Trust. Maker
recognizes that default by Maker in making the payments herein agreed to be paid
when due will result in Company or other holder hereof incurring additional
expense in servicing the loan, in loss to Company or other holder hereof of the
use of the money due and in frustration to the Company or other holder hereof in
meeting its loan commitments. By placing its initials below this paragraph,
Maker agrees that, if for any reason Maker fails to pay the amounts due under
this Note when due, Company or other holder hereof shall be entitled to damages
for the detriment caused thereby, but that it is extremely difficult and
impractical to ascertain the extent of such damages. Maker therefore agrees that
a sum equal to five cents ($.05) for each one dollar ($1.00) of each payment in
arrears is a reasonable estimate of said damages to Company or other holder
hereof which sum Maker agrees to pay on demand. No failure of Company to insist
upon the strict performance of Maker to pay the late payment charges shall
constitute a waiver by Company of its right to enforce the provisions of this
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<PAGE>
paragraph in any instance thereafter occurring nor shall the acceptance of late
payment charges be deemed to extend the time of payment of any interest or
principal payable hereunder.
/s/ LRS /s/ JEH
----------------------
Initials
The loan shall be closed to prepayment for the first three (3) years
after the first day of November, 1991. Thereafter upon giving Company thirty
(30) days prior written notice, Maker may make on any installment payment date
full (but not partial) prepayment of the principal amount due by paying, in
addition to such principal amount and interest accrued thereon and all other
fees, costs, and charges, a prepayment premium ("Premium") of the greater of one
percent (1%) of the then outstanding principal balance or the sum of one-half
percent (.5%) of the outstanding loan balance plus:
(a) the product obtained by multiplying:
(i) the difference obtained by subtracting from the
interest rate on the Note the yield-to-maturity
percentage on a eight 8% U.S. Treasury Bill with a
maturity date of October, 1996 (or a similar issue if
this one is not traded) as such yield rate is
reported in "The Wall Street Journal" (or if The Wall
Street Journal is no longer published, some other
daily financial publication of national circulation)
on the fifth business day preceding the prepayment
date; times
(ii) the number of years and fraction thereof remaining
between the prepayment date and the scheduled
maturity date; times
(iii) the unpaid principal balance; divided by
(iv) one minus Company's anticipated tax rate for the year
in which the prepayment is made.
Maker shall, however, have the option of prepayment in full during the
final one hundred twenty (120) days before the Initial Maturity Date without
Premium.
The loan shall be closed to prepayment during the first three (3) years
of the Extended Term. However, during the last two (2) years of the Extended
Term, upon giving the Company thirty (30) days prior written notice, Maker may
make on any installment payment date full (but not partial) prepayment of the
principal amount due by paying, in addition to such principal amount and
interest accrued thereon and all other fees, costs, and charges, a prepayment
premium ("Extended Term Premium") of the greater of one percent (1%) of the then
outstanding principal balance or the sum of one-half percent (.5%) of the
outstanding loan balance plus:
(a) the product obtained by multiplying:
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<PAGE>
(i) yield-to-maturity percentage on a U.S. Treasury Bill
with a similar maturity date to this Note (or a
similar issue if this one is not traded) as such
yield rate is reported in "The Wall Street Journal"
(or if The Wall Street Journal is no longer
published, some other daily financial publication of
national circulation) on the fifth business day
preceding the prepayment date; times
(ii) the number of years and fraction thereof remaining
between the prepayment date and the scheduled
maturity date; times
(iii) the unpaid principal balance; divided by
(iv) one minus Company's anticipated tax rate for the year
in which the prepayment is made.
Maker shall, however, have the option of prepayment in full during the
final ninety (90) days of the Extended Term without paying the Extended Term
Premium.
By initialing immediately following this paragraph, Maker expressly
agrees that in the event of an acceleration of the maturity of this Note as a
result of any event of default, including without limitation, any acceleration
upon the transfer of any interest in the "Subject Property" (as defined in the
Deed of Trust), a tender by Maker or by anyone on behalf of Maker of payment of
the amount necessary to satisfy the indebtedness evidenced hereby made at any
time prior to or at a foreclosure sale or a sale under the power of sale
contained in the Deed of Trust shall constitute an evasion of the prepayment
terms hereof and shall be deemed to be a voluntary prepayment hereunder.
Therefore, with any such payment, Maker shall pay a prepayment premium in an
amount equal to the Premium which would be due by applying the formula set forth
in the preceding paragraphs for voluntary prepayments. Maker expressly waives
the provisions of any present or future statute or law which prohibits or may
prohibit the collection of the foregoing prepayment premium in connection with
any such acceleration, including without limitation, California Civil Code
Section 2954.10.
/s/ LRS /s/ JEH
---------------------
Initials
Company shall apply any such prepayment against the applicable
prepayment premium, if any, and then against the unpaid principal amounts due
hereunder.
This Note is given for a loan of Two Million Eight Hundred Fifty
Thousand Dollars ($2,850,000.00) secured by a Deed of Trust to Continental
Lawyers Title Company, as Trustee, bearing even date herewith, and encumbering
property located at 26150 West Technology Drive, Santa Clarita, California.
This Note is to be construed in accordance with the laws of the State
of California. In case any one or more of the provisions of this Note shall, for
any reason, be held to be invalid,
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<PAGE>
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provisions of this Note, and this
Note shall be construed as if such invalid, illegal or unenforceable provision
had never been contained herein. If any one or more of the provisions contained
in this Note shall for any reason be held to be excessive as to amount, time,
duration, scope, activity, or subject, such provision shall be construed by
limiting and reducing it so as to make such provision unenforceable to the
extent compatible with the then existing applicable law.
"MAKER"
PARAGON PRECISION
PRODUCTS, INC., a
California corporate
By: /s/ Lawrence R. Smith
----------------------------------------
Its: President
------------------------------
By: /s/ J E Hodge
----------------------------------------
Its: Secretary/Treasurer
------------------------------
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<PAGE>
AMENDED AND RESTATED MANAGEMENT ADVISORY SERVICES
AGREEMENT
THIS AMENDED AND RESTATED MANAGEMENT ADVISORY SERVICES AGREEMENT
("Agreement"), effective as of the 1st day of November, 1997 (the "Effective
Date"), by and between MENTMORE HOLDINGS CORPORATION, a Delaware corporation
("Mentmore") and STELLEX INDUSTRIES, INC., a Delaware corporation, TSMD
ACQUISITION CORP., a Delaware corporation, STELLEX MICROWAVE SYSTEMS, INC.
(formerly W-J TSMD Inc.), a California corporation, KII HOLDING CORP., a
Delaware corporation, KII ACQUISITION CORP., a Delaware corporation, STELLEX
AEROSPACE (formerly KLEINERT INDUSTRIES, INC.), a California corporation,
PARAGON PRECISION PRODUCTS, a California corporation, BANDY MACHINING
INTERNATIONAL, a California corporation, SCANNING ELECTRON ANALYSIS
LABORATORIES, INC., a California corporation, and GENERAL INSPECTION
LABORATORIES, INC., a California corporation (hereinafter, collectively, the
"Companies") amends and restates that certain Management Advisory Services
Agreement between Mentmore and certain of the Companies dated July 1, 1997.
WHEREAS, the Companies are engaged in the aerospace, defense, and space
industries; and
WHEREAS, the Companies desire to engage Mentmore for the purpose of
providing certain staff and services, including management advisory, consulting
and other services and facilities to the Companies and Mentmore desires to
provide such staff, services and facilities upon the terms and conditions stated
herein.
NOW THEREFORE, in consideration of the mutual promises and covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, do hereby agree as follows:
1. MANAGEMENT ADVISORY SERVICES.
A. The Companies hereby engage Mentmore to provide to the
Companies executive management advisory, consulting and other services
including, but not limited to:
1) strategic planning, financial planning, accounting and
financial reporting services oversight and review, including expertise
and assistance in financial presentation and planning and such services
as are reasonably necessary for the Companies to comply with its
financial reporting obligations to third parties, including report
preparation, compliance with generally accepted accounting principles
("GAAP"), footnote disclosure, compilation and review;
2) consulting, expertise and assistance with respect to
traditional treasury functions (including cash management and managing
the Companies' relationships with its lenders, monitoring the
Companies' compliance with current
<PAGE>
lender requirements, monitoring of debt covenants, negotiation of
waivers and exceptions, monitoring of cash flow and negotiations of
lines of credit and other credit facilities);
3) general business development services; and
4) oversight and review required for all federal, state and
local tax preparation, planning and audits.
B. Mentmore agrees to provide such services to the Companies through
the use of Mentmore employees or agents who Mentmore reasonably deems to be
qualified to provide such services. Mentmore shall have the right to determine
the manner in which it shall perform its responsibilities and provide the
services required hereunder.
2. COMPENSATION.
A. In consideration of the performance of such services as are
contemplated hereunder, the Companies agree to pay to Mentmore during the term
of this Agreement annual base compensation (hereinafter the "Base Compensation")
in the aggregate amount of (a) SEVEN HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS
($750,000.00) per annum, plus (b) from and after November 1, 1998, an amount
equal to one per cent (1%) of the Companies' total consolidated sales in any
fiscal year less the amounts paid pursuant to (a), above.
B. The Base Compensation shall be payable by the Companies to Mentmore
in equal monthly installments payable on the 1st day of each calendar month
during the term hereof, the first monthly installment to be due and payable on
November 1, 1997. That portion of the Base Compensation payable under 2, A(b),
above shall be estimated by the parties for purposes of calculating the monthly
installments hereunder and adjustments paid to the appropriate party(ies) within
ten (10) days after the Companies' audited financial statements for each fiscal
year are prepared. All unpaid monthly installments of Base Compensation shall
bear interest compounded annually at the lesser of: (a) a per annum rate equal
to the Prime Rate adjusted on the first business day of each calendar quarter
for so long as any amounts remain unpaid hereunder, or (b) the maximum rate
allowed by law until such time as such installment(s) are paid. The "Prime Rate"
shall mean the rate of interest reported as the prime rate from time to time in
The Wall Street Journal newspaper (or its successor in interest) in its "Money
Rates" column; provided, however, if more than one rate or a range of rates are
reported as the prime rate, then the higher or highest of such rates shall be
considered the Prime Rate.
C. The parties hereto agree to re-negotiate such annual rate of Base
Compensation in the event that, as a result of the acquisition by the Companies
of other companies or businesses, or otherwise, there is a material increase in
the level of services and responsibilities of Mentmore hereunder.
3. BUSINESS EXPENSES; WORKING FACILITIES.
2
<PAGE>
A. During the term hereof, the Companies agree to pay or promptly
reimburse Mentmore for the aggregate of all direct and indirect costs which are
incurred or accrued by Mentmore or its employees or agents and which are, in the
reasonable business judgment of Mentmore, necessary for the performance of its
responsibilities and the rendering of the services required hereunder,
including, but not limited to:
1) all operating expenses (such as office costs, travel and
entertainment);
2) overhead costs (such as costs for office space and assets);
3) fees and other amounts paid to third parties;
4) any and all costs incurred or accrued in connection with
the termination or maintenance of any services or expenses incurred
under this Agreement that Mentmore in its business judgment no longer
considers appropriate or useful to the long term benefit of the
Companies; and
5) an appropriate allocation for all costs incurred to acquire
or place in service and to thereafter utilize and maintain capital
assets (hereinafter, "Common Fixed Assets") that Mentmore uses in
connection with the performance of its responsibilities and the
rendering of the services required hereunder which capital assets are
used for the common benefit of the Companies as well as other companies
or entities which are also managed by Mentmore (individually an
"Affiliated Corporation" and, collectively, the "Affiliated
Companies").
B. Examples of Common Fixed Assets contemplated by subparagraph (e)
above would include, but not be limited to, the purchase, use and maintenance of
a corporate airplane, corporate apartment(s) or corporate automobiles. The costs
and expenses for Common Fixed Assets would be allocated among the Affiliated
Companies, as follows:
1) The cost to acquire or place in service a particular Common
Fixed Asset, together with the cost of all leasehold or other
improvements thereto, would be allocated among and paid by each of the
Affiliated Companies, including the Companies, based upon a fraction,
the numerator of which is the five-year moving average of revenues for
each Affiliated Corporation and the denominator is the aggregate of the
five-year moving averages of revenues for all of the Affiliated
Companies.
2) In general, Common Fixed Asset related costs which are
associated with clearly identifiable usage by a particular Affiliated
Corporation would be billed to that Affiliated Corporation at a
pre-determined fixed rate. The fixed rate would be based upon
incremental out-of-pocket costs. The remaining costs for Common Fixed
Assets (which arise both out of use that is common (or
indistinguishable as to a particular Affiliated Corporation) as well as
insufficient use to fully absorb all Common Fixed Asset costs) would be
allocated among all
3
<PAGE>
Affiliated Companies based upon the formula described in subparagraph
(1) above.
4. TERM AND TERMINATION.
A. The term of this Agreement (the "Term") shall commence as of the
Effective Date hereof and shall continue for an initial term expiring on
December 31, 2007, which Term shall be automatically extended for an additional
year as of December 31st of each year, commencing December 31, 1997, unless
either party shall have previously notified the other in writing, on or before
September 30th of any applicable year, that the Term of this Agreement shall not
be further extended, it being the intent of the parties that this Agreement
shall have a rolling "evergreen" term of ten (10) years. To illustrate, if
neither party has notified the other in writing before September 30, 1998 that
the Term of this Agreement shall not be further extended, as of such date the
Term of this Agreement shall continue until December 31, 2008. As used herein,
"term of this Agreement" shall include all extensions. Upon the expiration of
the final Term of this Agreement, all amounts owed or due and owing to Mentmore
shall be paid in full by the Companies.
B. Notwithstanding the terms of Section 4.A. above, Mentmore may
terminate this Agreement upon ninety (90) days' prior written notice to the
Companies.
C. Notwithstanding the terms of Section 4.A. above, the Companies may
terminate this Agreement "for cause" upon the occurrence of: (I) the commission
of a felony, embezzlement, or any act of material dishonesty by any individual
providing services to the Companies hereunder on behalf of Mentmore which causes
material harm to the Companies, or (ii) a material failure of Mentmore to
provide the services contemplated hereunder and the failure of Mentmore to cure
the same within ninety (90) days following the date of receipt of written notice
thereof setting forth in detail the nature of such failure.
D. In the event of the termination of this Agreement by the Companies
"for cause," Mentmore shall receive payment in full of all amounts due and
payable hereunder through the effective date of such termination and during the
period of any judicial appeal of such termination, and in no event shall the
effective date of termination be earlier than the date of expiration of the
ninety (90) day cure period specified in Section 4.C. above. In the event of any
termination of this Agreement, amounts payable pursuant to Article 2 above shall
be prorated based upon the ratio of the number of days during the fiscal year
during which Mentmore shall be deemed hereunder to have provided such services
to two hundred fifty (250). All such amounts shall be paid by the Companies to
Mentmore in cash or its equivalent within a reasonable period of time, not to
exceed thirty (30) days, following such termination.
E. In the event of the termination of this Agreement, Mentmore will
cooperate and assist the Companies in order to effectuate a smooth and orderly
transition.
5. INDEPENDENT CONTRACTOR; INDEMNIFICATION.
A. Mentmore shall provide management advisory services to the Companies
4
<PAGE>
hereunder only in the capacity as an independent contractor. Mentmore shall have
sole responsibility for the payment of all income, social security, employment
and related taxes with respect to amounts payable to Mentmore hereunder, and for
the provision of all welfare, pension and other employee benefits to the
employees of Mentmore.
B. With regard to the services to be provided and performed by Mentmore
pursuant to this Agreement, neither Mentmore nor its shareholders, directors,
officers, employees, agents or representatives shall be liable to the Companies
or any of its subsidiaries for any acts or omissions of Mentmore in the
provision or performance of such services, other than acts or omissions
resulting from the fraud, bad faith or gross negligence of Mentmore, its
shareholders, directors, officers, employees, agents or representatives. The
Companies shall hold harmless, defend and indemnify Mentmore, its shareholders,
directors, officers, employees, agents, representatives, successors and assigns
(the "Indemnified Parties") from and against any and all liabilities, costs,
damages, expenses and attorneys' fees resulting from or attributable to any and
all acts and omissions of the Indemnified Parties in providing or performing the
services required under this Agreement, other than acts or omissions resulting
from fraud, bad faith or gross negligence by any of the Indemnified Parties. To
the extent that any such liabilities, costs, damages, expenses and attorneys'
fees are compensated for by insurance purchased or arranged for by the
Companies, neither Mentmore nor any of the other Indemnified Parties shall be
required to reimburse the Companies on account thereof.
6. GENERAL PROVISIONS.
A. The construction and interpretation of this Agreement shall at all
times and in all respects be governed by the laws of the State of New York
without regard to its rules of conflicts of laws. The parties hereby consent to
the jurisdiction of the State of New York courts over disputes involving this
Agreement.
B. All notices, requests, demands and other communications to be given
by the parties hereunder shall be in writing and shall be sent: (I) by United
States registered or certified mail, return receipt requested, postage prepaid,
(ii) by a recognized overnight commercial courier service, (iii) transmitted by
fax (confirmed by telephone), or (iv) delivered in person with a receipt
requested therefor to the following addresses or such other addresses of which
the other party hereto shall have been given notice pursuant to this Section
6.B.:
(1) If to the Companies:
5
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President
Stellex Industries, Inc.
Sanford Research Park
3333 Hillview Avenue
Palo Alto, CA 94304-1223
with a copy to:
President
Stellex Aerospace
21550 Oxnard Street,
Suite 570
Woodland Hills, CA 91367
Facsimile: (818) 710-7807
(2) If to Mentmore:
President
Mentmore Holdings
Corporation
1430 Broadway, 13th Floor
New York, New York 10018
Facsimile: (212) 391-1393
All notices, requests, demands and other communications to be given by the
parties hereunder shall be effective (a) upon receipt or refusal if delivered
personally or by facsimile; (b) one (1) business day after depositing with such
an overnight courier service or (c) two (2) business days after deposit in the
mails, if mailed.
C. This Agreement shall be binding upon, and shall inure to the benefit
of, the Companies and Mentmore and their respective successors. Neither Mentmore
nor the Companies shall assign this Agreement or any rights, duties or
obligations hereunder.
D. This Agreement contains the entire agreement and understandings by
and between the Companies and Mentmore with respect to the provision of
management advisory, consulting and other services, and no representations,
promises, agreements or understandings, written or oral, not contained herein
shall be of any force and effect. No change, modification or waiver of the
effect of (or of any breach or failure of) any term, condition or provision
hereof shall be valid or binding unless the same is in writing and signed by the
party against whom such change, modification or waiver is sought to be enforced;
moreover, no valid waiver of the effect of (or of any breach or failure of) any
term, condition or provision of this Agreement at any time shall be deemed to be
a waiver of the effect of (or of any breach or failure of) any other term,
condition or provision of this Agreement at such time or will be deemed a valid
waiver of such term, condition or provision at any other time. No failure to
exercise, and no delay in exercising, any right or power hereunder shall operate
as a waiver thereof.
E. Headings of the Articles of this Agreement are for the convenience
of the parties only, and shall be given no substantive or interpretive effect
whatsoever.
6
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F. This Agreement may be executed in one (1) or more counterparts, all
of which together shall constitute one and the same instrument.
G. In case any one or more of the provisions contained in this
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision hereof, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement effective for all purposes and in all respects as of the day and year
first above written.
STELLEX INDUSTRIES, INC.
By: /s/ William L. Remley
Its: President
TSMD ACQUISITION CORP.
By: /s/ William L. Remley
Its: President
STELLEX MICROWAVE SYSTEMS, INC.
By: /s/ William L. Remley
Its: Treasurer
KII HOLDING CORP.
By: /s/ William L. Remley
Its: Assistant Treasurer
KII ACQUISITION CORP.
By: /s/ William L. Remley
Its: Assistant Treasurer
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<PAGE>
STELLEX AEROSPACE
By: /s/ William L. Remley
Its: Assistant Treasurer
PARAGON PRECISION PRODUCTS
By: /s/ William L. Remley
Its: Assistant Treasurer
BANDY MACHINING INTERNATIONAL
By: /s/ William L. Remley
Its: Assistant Treasurer
SCANNING ELECTRON ANALYSIS
LABORATORIES, INC.
By: /s/ William L. Remley
Its: Assistant Treasurer
GENERAL INSPECTION LABORATORIES,
INC.
By: /s/ William L. Remley
Its: Assistant Treasurer
MENTMORE HOLDINGS CORPORATION
By: /s/ William L. Remley
Its: President
8
<PAGE>
TAX ALLOCATION AND INDEMNITY AGREEMENT
Agreement, dated as of October 31, 1997 and retroactively applied to
include the calendar year ended December 31, 1997, by and among Stellex
Industries, Inc., (formerly Stellex Holdings Corp.), a Delaware corporation
("Parent"), TSMD Acquisition Corp., a Delaware corporation, Stellex Microwave
Systems, Inc. (formerly W-J TSMD Inc.), a California corporation, (together
"Stellex Microwave") KII Holding Corp., a Delaware corporation, and KII
Acquisition Corp., Stellex Aerospace (formerly Kleinert Industries, Inc.), a
California corporation, and its direct subsidiaries (together " Stellex
Aerospace").
WITNESSETH
WHEREAS, the parties hereto are members of an affiliated group (the
"Affiliated Group") as defined in section 1504(a) of the Internal Revenue Code
of 1986, as amended (the "Code"); and
WHEREAS, it is the intent of the parties hereto that an agreement be
entered into (i) to allocate the consolidated Federal income tax liability of
the Affiliated Group between the Parent, Stellex Microwave and Stellex Aerospace
pursuant to a method specified in regulations of the Treasury Department that
would impose on Parent, Stellex Microwave and Stellex Aerospace, for the period
beginning January 1, 1997 through December 31, 1997 and for subsequent periods,
liability for an amount that approximates the liability that Parent, Stellex
Microwave and Stellex Aerospace each would incur if they filed Federal income
tax returns as separate affiliated groups; and (ii) to provide that Parent, and
Stellex Microwave and Stellex Aerospace each shall bear its appropriate portion
of the liability of the Affiliated Group for consolidated Federal income tax in
respect of prior periods.
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto agree as follows:
1. Filing of Consolidated Returns. A consolidated Federal income tax
return shall be filed by Parent for the taxable year ending December 31, 1997,
and for each subsequent taxable period in respect of which this Agreement is in
effect and for which the Affiliated Group is required or permitted to file a
consolidated Federal income tax return.
2. Current and Future Taxable Periods. For the taxable year of the
Affiliated Group ending December 31, 1997 and for each taxable period
thereafter, the Affiliated Group shall be divided into three separate groups,
Parent, Stellex Microwave and Stellex Aerospace. The consolidated Federal income
tax liability of the Affiliated Group shall be allocated among the three groups
in accordance with the method set forth in Treasury regulation sections
1.1552-1(a)(2) and 1.1502-33(d)(3) (using a fixed percentage of 100%) by
considering each group as a separate affiliated group except that (i)
modifications to the separate taxable income will be made in accordance with
Treasury regulation section 1.1552-1(a)(2)(ii)(a) through (i) in the same manner
as if all
<PAGE>
corporations were members of a single affiliated group, and (ii) carryforwards
and carrybacks of losses and credits shall be taken into account, and to the
extent of any reduction of tax liability of any separate group member to which
the losses or credits did not arise, the amount of tax credit utilized will be
remitted to the separate group member to which the losses or credits were
generated. The corporate surtax exemption shall be allocated to Parent. Any
liability of the Affiliated Group for alternative minimum tax, environmental tax
or any other Federal income tax imposed on the Affiliated Group on a
consolidated basis by any section of the Code other than Code section 11 shall
be allocated in accordance with any reasonable method that is consistent with
the principles of this Agreement and the provisions of any governing Treasury
regulations or other administrative pronouncements of the Internal Revenue
Service. In any event, no individual party to this tax allocation agreement
shall pay more income tax in any period of one or more taxable years than it
would have paid for the same period if it had filed a separate Federal income
tax return. However, any taxes not paid by reason of this limitation shall be
allocated to Stellex Microwave and Stellex Aerospace based on a proration using
taxable income.
3. Payments. Stellex Microwave and Stellex Aerospace shall pay to
Parent installments of estimated tax computed pursuant to the principles set
forth in section 2 above, on or before the due dates for payments of estimated
tax by the Affiliated Group. Any payments of estimated tax by Stellex Microwave
and Stellex Aerospace to Parent shall be taken into account in determining the
payment due from Stellex Microwave and Stellex Aerospace pursuant to section 2,
and any overpayment of estimated tax shall be refunded to Stellex Microwave and
Stellex Aerospace. A refund or payment of tax, calculated on the basis of the
amount of tax payable for the taxable year as calculated by Parent as of the due
date (without regard to extensions) for the Federal income tax return of the
Affiliated Group, shall be paid on or before that due date, and any adjustment
to the amount of refund or payment of tax, calculated on the basis of the amount
of tax payable for that taxable year as shown on the Federal income tax return
of the Affiliated Group as of the due date (with regard to extensions), shall be
paid on or before that due date. Stellex Microwave and Stellex Aerospace shall
pay to Parent all allocated costs associated with the preparation of tax returns
covered under this tax sharing agreement within ten days of receiving a bill.
4. Adjustments to Tax Liability. If the consolidated Federal income tax
liability of the Affiliated Group is adjusted for any taxable period, whether by
means of an amended return or claim for refund or after an audit by the Internal
Revenue Service, the Federal income tax liability of Stellex Microwave and
Stellex Aerospace pursuant to section 2 or section 4 of this Agreement shall be
recomputed, if necessary, to give effect to those adjustments as if they had
been part of the original computation pursuant to section 2 or section 4. The
obligation to make any payment of additional Federal income tax, interest and/or
penalties or the right to receive any refund of Federal income tax shall be
allocated between Parent, Stellex Microwave and Stellex Aerospace accordingly.
Any additional tax that Stellex Microwave and Stellex Aerospace is obligated to
pay shall be paid to Parent, and any refund of tax to which Stellex Microwave
and Stellex Aerospace is entitled to receive shall be paid by Parent, within ten
days of, respectively, the date
2
<PAGE>
Stellex Microwave and Stellex Aerospace receives notice from Parent or the date
Parent receives the refund from the Treasury Department.
5. Appointment of Parent as Agent. Parent shall prepare, or arrange for
outside consultants to prepare, and file the consolidated Federal and State
income tax returns of the Affiliated Group required to be filed with the
Internal Revenue Service or State Departments of Revenue. In its sole
discretion, Parent shall have the right in connection with any of those returns
to determine (i) the manner in which the return(s) shall be prepared and filed,
including, without limitation, the manner in which any item of income, gain,
loss, deduction, credit or any other item shall be reported, (ii) whether any
extension shall be requested and (iii) the elections that will be made by the
Affiliated Group or any members thereof. Each member of the Affiliated Group
shall execute and file those consents, elections, appointments, powers of
attorney and other documents that Parent determines may be necessary or
appropriate for the proper filing of those returns. Each member of the
Affiliated Group shall provide Parent or any other member of the Affiliated
Group, in a timely manner, any data necessary for the proper and timely filing
of returns, and otherwise shall cooperate as necessary to carry out the purposes
of this Agreement.
6. New Members. If during any taxable period Parent or any other
member of the Affiliated Group acquires or organizes another corporation that is
required to be included in the consolidated Federal income tax return of the
Affiliated Group, that corporation shall join in and be bound by this Agreement.
7. Indemnification.
a. General Principles. It is the intent of this Agreement that
Parent, Stellex Microwave and Stellex Aerospace each be liable for an amount in
respect of Federal income tax of the Affiliated Group as that amount is
determined pursuant to this Agreement and that Parent, Stellex Microwave and
Stellex Aerospace each receive its respective share, as so allocated, of any
reduction in Federal income tax liability of the Affiliated Group.
b. Indemnification. The Parent shall be responsible for, and
shall protect, defend, indemnify and hold harmless Stellex Microwave and Stellex
Aerospace from, any amount in respect of Federal income tax allocable to Parent
pursuant to this Agreement. Stellex Microwave and Stellex Aerospace shall be
responsible for, and shall protect, defend, indemnify and hold harmless the
Parent from, any amount in respect of Federal income tax allocable to Stellex
Microwave and Stellex Aerospace pursuant to this Agreement.
8. Retention of Books and Records. No member of the Affiliated Group
shall destroy or permit the destruction of any books, records or files
pertaining to any other member of the Affiliated Group without first having
offered in writing to deliver those books, records and files to the other
member, and the other member shall have the right upon prior notice to inspect
and to copy the same at any time during business hours for any proper purpose.
3
<PAGE>
9. Other Income and Franchise Taxes. The liability of Parent, Stellex
Microwave and Stellex Aerospace in respect of state, local and foreign income
and franchise taxes that are computed pursuant to provisions applicable to
affiliated, combined, unitary or other groups shall be determined and paid in a
manner consistent with the local taxing jurisdiction and the intent and
provisions of this Agreement. Calculation of the separate liability of Parent,
Stellex Microwave and Stellex Aerospace for these other taxes shall conform to
the appropriate state, local and foreign income and franchise tax provisions
governing affiliated, combined, unitary or other groups.
10. Entire Understanding. This Agreement constitutes the entire
agreement of the parties concerning the subject matter hereof and, effective as
of the date hereof and for the taxable periods to which this Agreement applies,
supersedes all other agreements. This Agreement shall allocate the tax
liabilities of the Affiliated Group for the period January 1, 1997 through
December 31, 1997, and all subsequent taxable years unless Parent, Stellex
Microwave and Stellex Aerospace mutually agree to terminate this Agreement.
Notwithstanding its termination, this Agreement shall continue in effect with
respect to any payment or refunds due for all taxable periods prior to
termination.
11. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of any successor, whether by statutory merger, acquisition
of assets or otherwise, to any of the parties hereto, to the same extent as if
the successor had been an original party to the Agreement.
12. Expenses. Parent, Stellex Microwave and Stellex Aerospace each
shall bear any and all expenses that arise from its obligations under this
Agreement.
13. Notices. All notices and other communications hereunder shall be
in writing and shall be delivered by hand or mailed by registered or certified
mail (return receipt requested) to the parties at the following addresses (or at
such other addresses for a party as shall be specified by like notice) and shall
be deemed given on the date on which the notice is received.
If to Parent:
1430 Broadway, 13th Floor
New York, New York 10018
4
<PAGE>
If to Stellex Microwave
Stellex Microwave Systems, Inc.
Sanford Research Park
3333 Hillview Avenue
Palo Alto, CA 94304-1223
If to Stellex Aerospace:
21550 Oxnard Street, Suite 570
Woodland Hills, CA 91367
14. Resolution of Dispute. Any dispute between the parties with
respect to this Agreement shall be resolved by a public accounting firm or a law
firm reasonably satisfactory to Parent, Stellex Microwave and Stellex Aerospace
or pursuant to an alternative dispute arrangement agreed to by the parties.
15. Legal Enforceability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall be ineffective as to that
jurisdiction to the extent of that prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable that provision in any other jurisdiction. Without prejudice to any
rights or remedies otherwise available to any party hereto, each party hereto
acknowledges that damages would be an inadequate remedy for any breach of the
provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
16. Controlling Law. This Agreement shall be governed by the laws of
the State of New York.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the date first written
above.
Stellex Industries, Inc.
By: /s/ William L. Remley
Its: President
5
<PAGE>
TSMD Acquisition Corp.
By: /s/ William L. Remley
Its: President
Stellex Microwave Systems, Inc.
By: /s/ William L. Remley
Its: Treasurer
KII Holding Corp.
By: /s/ William L. Remley
Its: Treasurer
KII Acquisition Corp.
By: /s/ William L. Remley
Its: Treasurer
Stellex Aerospace
By: /s/ William L. Remley
Its: Assistant Treasurer
Paragon Precision Products
By: /s/ William L. Remley
Its: Assistant Treasurer
Bandy Machining International
By: /s/ William L. Remley
Its: Assistant Treasurer
6
<PAGE>
Scanning Electron Analysis
Laboratories, Inc.
By: /s/ William L. Remley
Its: Assistant Treasurer
General Inspection Laboratories, Inc.
By /s/ William L. Remley
Its: Assistant Treasurer
<PAGE>
GALLIUM ARSENIDE AND THIN FILM
SUPPLY AND SERVICES AGREEMENT
THIS GALLIUM ARSENIDE AND THIN FILM SUPPLY AND SERVICES
AGREEMENT ("Agreement"), dated as of October 31, 1997 ("Effective Date"), is
made by and among WATKINS-JOHNSON COMPANY, a California Corporation
("Watkins-Johnson"); STELLEX MICROWAVE SYSTEMS, INC., formerly known as W-J TSMD
Inc., a California corporation and a wholly-owned subsidiary of Watkins-Johnson
("W-J TSMD"); and TSMD ACQUISITION CORP., a Delaware corporation ("TSMD
Acquisition").
WHEREAS, the parties have entered into that certain Stock
Purchase Agreement, dated as of August 29, 1997 (the "Purchase Agreement"),
whereby TSMD Acquisition has agreed to purchase, and Watkins-Johnson has agreed
to sell, all of the outstanding stock of W-J TSMD; and
WHEREAS, Watkins-Johnson operates a gallium arsenide
and thin film fabrication facility (the "Facility"); and
WHEREAS, W-J TSMD's business relies on a steady supply
of parts processed by the Facility; and
WHEREAS, in partial consideration of the Purchase Agreement,
Watkins-Johnson has agreed to supply W-J TSMD with a steady supply of gallium
arsenide and thin film parts and services as provided herein; and
WHEREAS, the execution of this Agreement is a condition to the
closing of the purchase and sale of the outstanding stock of W-J TSMD under the
Purchase Agreement;
NOW, THEREFORE, for and in consideration of the foregoing and
of the covenants, conditions, undertakings and mutual promises hereinafter set
forth, it is agreed by and among the parties as follows:
1. DEFINITIONS
For all purposes of this Agreement, except as otherwise
expressly provided:
(a) the terms defined in this Section 1 have the meanings
assigned to them in this Section 1 and include the plural as well as the
singular;
(b) all references in this Agreement to designated
"Sections," "Paragraphs," and other subdivisions are to the designated
Sections, Paragraphs, and other subdivisions of the body of this Agreement;
- ----------
* Indicates that certain material has been omitted pursuant to a request for
confidential treatment. Such material is contained in a copy of this document
provided to the Securities and Exchange Commission.
1
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(c) pronouns of either gender or neuter shall include, as
appropriate, the other pronoun forms; and
(d) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Section, Paragraph, or other subdivision.
As used in this Agreement and the Exhibits delivered pursuant
to this Agreement, the following definitions shall apply:
"Affiliate" means a Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, a specified Person.
"Closing" means the consummation of the purchase and
sale of stock under the Purchase Agreement.
"Conditions of Purchase" means the Conditions of Purchase Form
(Form PAR-1012EG-PA (01/95)), modified as shown on Exhibit H.
"Effective Date" means the date of Closing.
"Gallium Arsenide Part" means a wafer, die or dice comprising
one or more layers of gallium arsenide, on which is implemented one or more
transistors or diodes.
"Intellectual Property Rights" means all industrial and
intellectual property rights, including, without limitation, patents, patent
applications (pending or otherwise), patent rights, copyrights, computer
firmware and software (existing in any form), Know-How, Trade Secrets,
proprietary processes, inventions and formulae.
"Know-How" means any information, including, but not limited
to, invention records, research and development findings, records and reports,
experimental and engineering reports, pilot designs, production designs,
production specifications, raw material specifications, quality control reports
and specifications, drawings, photographs, models, tools, parts, algorithms,
processes, methods, market and competitive analysis, or other information,
whether or not considered proprietary or a Trade Secret.
"Lead Time" means the time between Watkins-Johnson's receipt
of a specific authorization to fulfill a Requirement for a Part and the delivery
of the Part. Lead time includes queue time and factory cycle time.
"Operations Council" means the Operations Council
described in Section 12.1.
2
<PAGE>
"Part" means a Gallium Arsenide Part or a Thin Film Part.
"Process Costs" means the process costs associated with
maintaining the Facility as described on Exhibit B. Actual expenditures of
Process Costs for the first six months of 1997 are also shown on Exhibit B.
"Requirements" means W-J TSMD's requirements for Parts as
specified on the forecast form attached as Exhibit A and as modified from time
to time in accordance with the terms and conditions of this Agreement.
"Services" means services related to the manufacture of the
Parts, including, but not limited to research and development efforts.
"Thin Film Part" means any component, interconnect, wafer,
substrate, die or dice comprising one or more layers of thin film material such
as tantalum nitride or gold deposited on a ceramic.
"Trade Secrets" means any formula, pattern, device or
compilation of information which gives an opportunity to obtain an advantage
over competitors who do not know or use it, including, but not limited to,
formulas for chemical compounds, a process of manufacturing, treating or
preserving materials, a pattern for a machine or any forms, plans, drawings,
specifications, customer lists, marketing and competition analysis and project
management, inventory and cost control systems and techniques.
"TSMD Forecast Form" means a form that reasonably identifies a
projected delivery schedule and contains the information described on Exhibit A.
"TSMD's Share of Process Costs" means the amount paid by W-J
TSMD to reimburse Watkins-Johnson for the Process Costs associated with the
manufacture of Parts for W-J TSMD as calculated in accordance with section 6.2
of this Agreement and as illustrated on Exhibit D.
"TSMD Share Ratio" means W-J TSMD's usage of the Facility as
calculated in accordance with Exhibit C.
"Unit Prices" means the prices charged for Parts set
forth on Exhibit E.
3
<PAGE>
2. SUPPLY, TERM
2.1 Supply and Purchase.
For the term of this Agreement, W-J TSMD shall purchase, and
Watkins-Johnson shall supply, Parts and Services according to the terms and
conditions set forth herein. If any Requirements under this Agreement may be
considered subcontracted requirements that are subject to the Federal
Acquisition Regulations (FAR), Watkins-Johnson agrees to provide cost and
pricing information regularly maintained in its business to W-J TSMD to
establish cost and pricing reasonableness.
2.2 Term.
This Agreement shall commence on the Effective Date and shall
continue until December 31, 2000.
2.3 Termination by W-J TSMD Without Cause.
This Agreement may be terminated by W-J TSMD without cause at
any time by notice to Watkins-Johnson given one year prior to such termination
date. In the event that W-J TSMD gives such a notice, the termination shall be
effective on the date specified in such notice. Payment of Process Costs and
research and development costs shall be prorated to the effective date of such a
termination.
2.4 Termination With Cause.
If any party commits a material breach of this Agreement and
does not correct such breach within thirty (30) days after written notice from
the non-breaching party, the non-breaching party may terminate this Agreement by
written notice to that effect. Such termination will not prejudice or limit any
other rights or remedies available to the non-breaching party.
2.5 Termination Because of Government Action.
If W-J TSMD cannot obtain all or any part of a reimbursement
from the government, or W-J TSMD must refund or credit the government, for a
Service or Part provided by Watkins-Johnson, W-J TSMD may terminate this
Agreement with respect to all Requirements relating to government acquisition
upon thirty (30) days written notice to Watkins-Johnson, provided that W-J TSMD
has first (a) made a good faith effort to defend the disputed pricing of the
Service or Part in question, and (b) offered Watkins-Johnson a reasonable
opportunity to cure the deficiency. Upon such termination, the parties will
equitably adjust any payments due Watkins-Johnson under this Agreement. Any
termination under this Section 2.5 shall not constitute a default by W-J TSMD or
a termination by reason of W-J TSMD's election or default for purposes of
Section 11.2.
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<PAGE>
2.6 Maintenance of Facility and Processes.
For the term of this Agreement, Watkins-Johnson shall maintain
the Facility and the processes as necessary to manufacture the Parts listed on
Exhibit E.
3. RESEARCH AND DEVELOPMENT SERVICES.
3.1 Time and Materials.
*
3.2 Research and Development Authorization.
W-J TSMD shall authorize research and development projects in
the form of specific purchase orders for such projects as follows:
(i) At least 60 days prior to the start of each calendar
quarter beginning after January 1, 1998, W-J TSMD will give direction to
Watkins-Johnson for the research and development projects to be performed during
that quarter. This direction will provide technical objectives, schedule
constraints, and spending limitations for each project.
(ii) Within 2 weeks after providing the research and
development direction to Watkins-Johnson, W-J TSMD and Watkins-Johnson will
review the objectives and agree upon any modifications as necessary. The result
of this review will be a written Statement of Work ("SOW") for each research and
development project. This SOW shall be completed at least 30 days before the
start of each quarter.
(iii) From November 1 until December 31, 1997, Watkins-
Johnson shall perform those research and development services specified in a
SOW which W-J TSMD will prepare and deliver by November 8, 1997.
(iv) W-J TSMD may cancel at any time an authorization to
perform research and development services by reasonable notice to
Watkins-Johnson.
3.3 Monthly Review.
Watkins-Johnson shall provide a monthly review of research and
development technical progress and projections to W-
- ----------
* Indicates that certain material has been omitted pursuant to a request for
confidential treatment. Such material is contained in a copy of this document
provided to the Securities and Exchange Commission.
5
<PAGE>
J TSMD for each month in which such a review has not been presented at a
meeting of the Operations Council.
3.4 Diligence.
In performing the research and development projects authorized
by W-J TSMD, Watkins-Johnson shall act with at least that degree of care and
diligence that it devotes to its own research and development projects.
3.5 Minimum Payment.
W-J TSMD shall pay Watkins-Johnson, for research and
development, a minimum of $80,000 for the period between November 1, 1997 and
December 31, 1997. For the period between January 1, 1998 and December 31, 1998,
W-J TSMD shall pay Watkins-Johnson a minimum payment of $150,000 per quarter and
a total of $800,000 for the year. Thereafter, for each calendar quarter during
which the Agreement continues in effect, W-J TSMD shall pay for research and
development services a minimum of $100,000 for each calendar quarter during
1999, and $75,000 for each calendar quarter during 2000. Payment shall be made
net 30 days from the date of invoice. All material and service costs related to
authorized research and development projects, including the costs of mask
fabrication and the processing of developmental wafers and substrates, may be
charged against these minimum payments. All costs may be subject to audit by W-J
TSMD. Watkins-Johnson will submit monthly invoices for research and development
services on a monthly basis.
3.6 W-J TSMD Employees.
W-J TSMD may assign, subject to Watkins-Johnson's reasonable
approval, one or two individuals to work with Watkins-Johnson employees in the
Thin Film facility on research and development projects described in a SOW.
Salary and benefits for these individuals will be paid by W-J TSMD, but they
shall work under the direction of Watkins-Johnson management. The parties shall
cooperate to establish any reasonably required agreements or procedures for such
W-J TSMD employees.
3.7 Additional Assistance.
Watkins-Johnson recognizes that W-J TSMD may ultimately
establish its own facility for Thin Film products. Accordingly, Watkins-Johnson
will provide reasonable assistance to W-J TSMD in establishing a separate
facility during the term of the Agreement. This assistance will include
recruiting employees for W-J TSMD and training employees at W-J TSMD's Thin Film
facility.
6
<PAGE>
4. FORECASTS, REQUIREMENTS, FULFILLMENT
4.1 Forecasts.
W-J TSMD shall provide Watkins-Johnson a rolling six (6) month
Requirements forecast for Parts on a TSMD Forecast Form, updated monthly. The
TSMD Forecast Form shall be substantially in the form attached hereto as Exhibit
A. The TSMD Forecast Form shall specify the quantity of devices by product type
for GaAs Parts and the quantity of blanks by process type, part number (when
available) and blank size for Thin Film Parts. Such forecast is for W-J TSMD's
convenience only and shall in no way create an obligation on W-J TSMD's part to
meet such forecast; provided, however, that Watkins-Johnson shall not be
obligated to meet lead times for the amount of Parts in a specific authorization
that exceeds by more than fifteen (15) percent the quantity of such devices
specified in a Forecast Form.
4.2 Specific Authorization.
W-J TSMD agrees to provide Watkins-Johnson specific W-J TSMD
authorization to fulfill Requirements in the form of a purchase order for Parts
substantially in the form attached hereto as Exhibit H. Such specific W-J TSMD
authorization shall become effective upon receipt by Watkins-Johnson. The terms
of Conditions of Purchase attached to the purchase order shall govern any
purchase of Parts under this Agreement unless inconsistent with this Agreement,
in which case this Agreement controls.
4.3 Minimum Quantities.
(i) For any Gallium Arsenide Part ordered by a specific W-J
TSMD authorization, W-J TSMD shall be obligated to purchase, whichever is
greater, (a) the number of units of such Part specified in the authorization, or
(b) twenty-five (25) units of such Part.
(ii) For any Thin Film Part ordered by a specific W-J TSMD
authorization, W-J TSMD shall be obligated to purchase, whichever is greater,
(a) the number of units of such Part specified in the authorization, or (b) the
number of units actually created from the processing of the minimum number of
substrate blanks necessary, at Watkins-Johnson's published process yields, to
produce the number of Parts specified in the authorization. Watkins-Johnson
shall publish each quarter a table showing expected yields for each Thin Film
process.
4.4 Cancellation of an Authorization.
In the event of a termination or a cancellation of a
specific W-J TSMD authorization to fulfill Requirements under
7
<PAGE>
this Agreement, Watkins-Johnson shall undertake reasonable efforts to cancel all
applicable subcontracted materials/services and reduce component inventory
through return for credit programs or allocate components for alternate programs
if applicable, at the lowest possible cost to W-J TSMD.
4.5 Compensation for Cancellation.
In the event of a termination or a cancellation of a specific
W-J TSMD authorization to fulfill Requirements under this Agreement, and/or
discontinuance of Requirement or excess material created by W-J TSMD initiated
engineering change, W-J TSMD shall compensate Watkins-Johnson for Requirements
and material inventory as follows:
(i) the contract price of all duly authorized and
completed Requirements already furnished to W-J TSMD or in
Watkins-Johnson's possession;
(ii) the cost of W-J TSMD unique material inventory, whether
in raw form or work in process, and not returnable to the vendor or usable for
other Requirements or other customers;
(iii) the cost of W-J TSMD unique material on order
which cannot be cancelled;
(iv) any vendor cancellation charges incurred with respect to
W-J TSMD unique material cancelled or returned to the vendor, or otherwise set
forth in addenda to this Agreement; and
(v) an administrative charge of 12.5% of the costs
described in (ii) and (iii) above.
5. DELIVERY
5.1 On-Time Delivery.
Watkins-Johnson shall target 100% on time delivery, defined as
delivery of Requirements by Watkins-Johnson within a window of ten (10) days
early and zero days late of the delivery date specified in a purchase order.
Watkins-Johnson shall not exceed the Lead Times specified on Exhibit F for the
Parts listed therein unless the quantity of devices ordered exceeds by more than
15% the quantity forecasted, in which case Watkins-Johnson will deliver such
additional quantity within a reasonable period. Watkins-Johnson will make
reasonable efforts to minimize lead times on engineering orders by reducing or
eliminating queue.
5.2 FOB Point.
The FOB point shall be Palo Alto, California in the absence of
a documented mutual agreement to some other FOB term
8
<PAGE>
with the issuance of any specific W-J TSMD authorization to fulfill
Requirements.
5.3 Schedule Changes.
Watkins-Johnson shall make reasonable efforts to comply with
any requested schedule improvements/changes, without cost impact.
Watkins-Johnson shall be expected to accept W-J TSMD requests for delays in
delivery schedule, with rescheduling of ship dates to within thirty (30) days of
the original delivery schedule, without cost impact, in the absence of a
documented mutual agreement to some other definition of flexibility in delivery
re-scheduling with the issuance of any specific W-J TSMD authorization to
fulfill Requirements.
5.4 Delays.
Upon learning of any potential delivery delays,
Watkins-Johnson shall notify W-J TSMD as to the cause and extent of such delay.
If Watkins-Johnson fails to make deliveries at the specified time and such
failure is caused by Watkins-Johnson, Watkins-Johnson shall, at no cost to W-J
TSMD, employ accelerated measures such as material expediting fees, premium
transportation costs, or labor overtime required to meet the specified delivery
schedule.
6. PAYMENT FOR PARTS.
6.1 Payment.
For the supply of Parts under this Agreement, W-J TSMD agrees
to pay W-J TSMD's Share of Process Costs and the Unit Prices determined in
accordance with this section. Payment for research and development costs is set
forth in Section 3.5
6.2 Process Costs.
W-J TSMD shall pay to Watkins-Johnson, TSMD's Share of Process
Costs calculated by multiplying the Process Costs by the TSMD Share Ratio as
illustrated on Exhibit D. For the period from November 1, 1997 through December
31, 1997, TSMD's Share of Process Costs will be $366,666.67. For 1998, TSMD's
Share of Process Costs will be $2.2 million. On January 1, 1999, TSMD's Share of
Process Costs shall be adjusted for each succeeding six month period as follows:
(i) For each six month period beginning on January 1 or July 1
(Adjustment Date), TSMD's Share of Process Costs shall be calculated by
multiplying the actual expenditure of Process Costs by the TSMD Share Ratio for
the six month period ending six months before the Adjustment Date, provided that
the resulting TSMD Share may not be ten percent more or less than TSMD's Share
of Process Costs for the six months preceding the Adjustment
9
<PAGE>
Date. For the six month period beginning on January 1, 1999, TSMD's Share of
Process Costs shall not be 10 percent more or less than $1.1 million.
(ii) Ninety days before each Adjustment Date, Watkins-Johnson
shall provide W-J TSMD with a report calculating the actual expenditure of
Process Costs and the actual W-J TSMD Share Ratio for the six month period
ending six months before the Adjustment date. This report may be subject to
audit by W-J TSMD.
6.3 Unit Prices.
For each Part on Exhibit E, W-J TSMD shall pay the Unit Price
set forth therein. The Unit Prices set forth on Exhibit E are guaranteed through
January 1, 1999. Thereafter, Unit Prices may be adjusted by no more than 10% for
each succeeding year if such adjustment is justified by cost data supplied by
Watkins-Johnson. Such cost data is subject to audit. For Parts not listed on
Exhibit E, the parties will negotiate Unit Prices. Watkins-Johnson shall propose
Unit Prices for such Parts and the basis for such proposal will be subject to
audit.
6.4 Minimum Payment Obligation.
For 1998, W-J TSMD's payments to Watkins-Johnson for research
and development costs, Process Costs and Unit Prices shall total at least $5.8
million.
6.5 Date.
W-J TSMD's Share of Process Costs shall be paid on a pro rata
basis monthly. Unit Prices shall be paid net 30 days from the date of invoice.
7. QUALITY
7.1 Standards.
Watkins-Johnson shall provide the Requirements in strict
accordance with the quality requirements, standards and expectations as set
forth in Exhibit G to this Agreement.
8. ENGINEERING CHANGES AND PROCEDURES
8.1 Engineering Changes submitted by W-J TSMD.
W-J TSMD may submit engineering changes for incorporation into
the Requirements. Such change orders will include reasonable documentation to
permit an investigation of the impact of the engineering change. Watkins-Johnson
will review the engineering change and report to W-J TSMD within ten (10)
working days. If any such change affects the price,
10
<PAGE>
delivery, or quality performance of the affected Requirements, an reasonable
adjustment will be negotiated between Watkins-Johnson and W-J TSMD prior to
implementation of the change.
8.2 Changes requested by Watkins-Johnson.
Watkins-Johnson agrees not to undertake process changes,
design changes, or process step discontinuance affecting electrical performance
and/or mechanical form and fit of Requirements without prior written
notification and concurrence of W-J TSMD, which concurrence will not be
unreasonably withheld. In the absence of some other documented mutual agreement
applying to this Agreement as a whole, or to the issuance of any specific W-J
TSMD authorization to fulfill Requirements, said advance written notification
shall be required ninety (90) days prior to the subject change.
8.3 Engineering Procedures.
Prior to the commencement of production of Parts for W-J TSMD,
Watkins-Johnson shall receive from W-J TSMD a complete data package including
correct masks, drawings and CAD files for laser programming, if applicable.
9. CONFIDENTIAL INFORMATION
9.1 Nondisclosure Agreement.
Watkins-Johnson and W-J TSMD agree to execute, as part of this
Agreement, a Nondisclosure Agreement for the reciprocal protection of
confidential information of both parties. Watkins-Johnson shall not disclose to
third parties confidential process and design rule information relating to the
manufacture of Parts for W-J TSMD except as necessary for such manufacture,
which disclosure shall only be made pursuant to a confidentiality agreement
approved by W-J TSMD.
10. ASSIGNMENT, FORCE MAJEURE
10.1 Assignment.
Neither party shall delegate, assign or transfer its rights or
obligations under this Agreement, whether in whole or part, without the written
consent of the other party. Not withstanding the foregoing, W-J TSMD shall have
the right to (i) assign its rights under this Agreement to any Affiliate of W-J
TSMD or TSMD Acquisition, upon the condition that such Affiliates are bound by
the terms and conditions of this Agreement; and (ii) transfer their rights under
this Agreement upon the sale of all or substantially all of the assets of W-J
TSMD or TSMD Acquisition.
10.2 Force Majeure.
11
<PAGE>
Neither party shall be liable for any failure or delay in its
performance under this Agreement due to acts of God, acts of civil or military
authority, fires, floods, earthquakes, riots, wars or any other cause beyond the
reasonable control of the delayed party provided that the delayed party: (i)
gives the other party written notice of such cause within fifteen (15) days of
the discovery of the event; and (ii) uses its reasonable efforts to remedy such
delay in its performance.
11. INTELLECTUAL PROPERTY RIGHTS.
11.1 Gallium Arsenide.
All Intellectual Property Rights relating to the design of
Gallium Arsenide Parts manufactured exclusively for W-J TSMD shall be the
exclusive property of W-J TSMD. All Intellectual Property Rights arising prior
to the termination date and relating to the processing or fabrication of Gallium
Arsenide Parts shall be the property of Watkins-Johnson but shall be licensed to
W-J TSMD on a royalty-free, non-exclusive, perpetual basis, without the right to
sublicense except to Affiliates, for the fabrication of Gallium Arsenide Parts
for W-J TSMD. Any patents or patent applications that claim any invention
relating to the processing or fabrication of Gallium Arsenide Parts shall be the
property of Watkins-Johnson but shall be licensed to W-J TSMD on the same terms
and conditions as set forth in the Cross License. The parties agree to cooperate
in the execution of such a patent license.
11.2 Thin Film.
All Intellectual Property Rights relating to the design of
Thin Film Parts manufactured exclusively for W-J TSMD shall be the exclusive
property of W-J TSMD. All Intellectual Property Rights arising prior to the
termination date and relating to the processing or fabrication of Thin Film
Parts shall be the property of W-J TSMD but shall be licensed to Watkins-Johnson
on a royalty-free basis, non-exclusive, perpetual basis, without the right to
sublicense except to Affiliates, for the fabrication of Thin Film Parts for W-J
TSMD or for use in products sold by Watkins-Johnson; provided, however, that if
this Agreement is terminated by W-J TSMD's election under Section 2.3 or by W-J
TSMD's default prior to December 31, 2000, Watkins-Johnson shall be licensed to
sell to third parties Thin Film Parts that do not duplicate in whole or with
minor modifications the proprietary designs of Thin Film parts manufactured for
W-J TSMD. Any patents or patent applications that claim any invention relating
to the processing or fabrication of Thin Film Parts shall be the property of W-J
TSMD but shall be licensed to Watkins-Johnson on the same terms and conditions
as set forth in the Cross License. The parties agree to cooperate in the
execution of such a patent license.
12
<PAGE>
11.3 Masks.
Masks for new Gallium Arsenide Parts (i.e., Parts manufactured
solely for W-J TSMD from designs paid for by T-J TSMD which designs do not exist
on the Closing Date ) shall be provided by Watkins-Johnson at W-J TSMD's
expense, which expense may be charged to research and development costs. Masks
for new Thin Film Parts shall be provided by W-J TSMD to Watkins-Johnson. Active
masks (i.e., masks that have been used within the previous twelve (12) months)
for Parts manufactured for W-J TSMD will remain the property of W-J TSMD and
will be stored by Watkins-Johnson at its expense. Inactive masks (i.e., masks
that have not been used within the previous twelve (12) months) shall be
returned to, and shall remain the property of, W-J TSMD. Watkins-Johnson shall
maintain an inventory list of active masks which will be made available to W-J
TSMD on reasonable notice. Watkins-Johnson shall replace, at its own expense,
any active masks that are lost or are damaged, other than damage that results
from normal wear and tear. On the termination of this Agreement, Watkins-Johnson
will promptly transfer to W-J TSMD all masks for W-J TSMD Parts.
11.4 Design Rules and Process Specifications.
Watkins-Johnson shall maintain and update no less frequently
than every six (6) months for W-J TSMD's use copies of design rules and process
specifications for W-J TSMD products. On the termination of this Agreement,
Watkins-Johnson will promptly transfer such copies to W-J TSMD, but
Watkins-Johnson may retain copies for its own use provided that such use does
not violate any prohibition on the use of Intellectual Property.
12. OPERATIONS COUNCIL AND AUDIT RIGHTS
12.1 Operations Council.
The parties shall appoint an Operations Council consisting of
an equal number of representatives, but no less than four, from each party. The
Operations Council shall meet regularly, but no less frequently than quarterly.
The Operations Council shall also convene at any time at the request of either
party so long as such party provides one week's notice to the other party. The
Operations Council will be responsible for the following:
(a) Reviewing Requirements Forecasts and production
capacities;
(b) Reviewing and approving actual and projected
expenditures for research and development and
capital acquisition;
13
<PAGE>
(c) Adjusting pricing and delivery targets at
specified intervals;
(d) Reviewing process costs, process cost multipliers,
process yields and yield drivers;
(e) Reviewing Lead Times including queue times and
factory cycle times; and
(f) Reviewing summaries of research and development
progress prepared by Watkins-Johnson, including
summaries of research and development funded by
Watkins-Johnson that adds to the value of the
Intellectual Property Rights of the parties.
12.1 Audit Rights.
As specified herein, W-J TSMD has the right to audit certain
costs and expenditures in connection with research and development projects and
the costs, data and methods used to adjust payments to Watkins-Johnson. Such
audits will occur no more frequently than reasonably necessary to ensure proper
adjustments of payments and expenditures of research and development funds. Such
audits will occur on reasonable notice to Watkins-Johnson and will be conducted
in accordance with Generally Accepted Accounting Principles. Watkins-Johnson
agrees to cooperate with such audits and provide such assistance and support, at
no cost to W-J TSMD, as W-J TSMD may reasonably request.
13. MISCELLANEOUS
13.1 Currency.
Currency will be in U.S. dollars.
13.2 Amendments; Waivers.
This Agreement and any exhibit attached hereto may be amended
only by agreement in writing of Watkins-Johnson and W-J TSMD. No waiver of any
provision nor consent to any exception to the terms of this Agreement shall be
effective unless in writing and signed by the party to be bound and then only to
the specific purpose, extent and instance so provided.
13.3 Exhibits; Integration.
This Agreement, together with the exhibits attached hereto,
constitutes the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior agreements and understandings of the
parties in connection therewith except for the Purchase Agreement; provided,
however, that this Agreement does supersede Exhibit A to the Purchase
14
<PAGE>
Agreement (the "GaAs/Thin Film Term Sheet"). Without limiting the foregoing, the
parties acknowledge and agree that the exercise of any rights under this
Agreement, including a party's rights following a termination of this Agreement,
is limited by the restrictions on competitive activities set forth in Section
5.1 of the Purchase Agreement.
13.4 Governing Law.
This Agreement, the legal relations between the parties, and
any Action, whether contractual or non-contractual, instituted by any party with
respect to matters arising under or growing out of or in connection with or in
respect of this Agreement, including, but not limited to, the negotiation,
execution, interpretation, coverage, scope, performance, breach, termination,
validity, or enforceability of this Agreement, shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts made and performed in such State and without regard to conflicts of
law doctrines.
13.5 Headings.
The descriptive headings of the Articles, Sections and
subsections of this Agreement are for convenience only and do not constitute a
part of this Agreement.
13.6 Counterparts.
This Agreement and any amendments hereto may be executed in
one or more counterparts. All of such counterparts shall constitute one and the
same agreement and shall become effective when one or more counterparts have
been signed by each party and delivered to the other party.
13.7 Notices.
Any notice or other communication hereunder must be given in
writing and (a) delivered in person, (b) transmitted by telex, telefax or
telecommunications mechanism (provided that any notice so given is also mailed
or delivered as provided in clause (c)) or (c) mailed by certified or registered
mail, postage prepaid, receipt requested or delivered by reputable overnight
courier service as follows:
15
<PAGE>
If to W-J TSMD, addressed to:
Stellex Microwave Systems, Inc.
c/o Mentmore Holdings, Inc.
1430 Broadway, 13th Floor
New York, NY 10018-3308
Facsimile: 212-382-1559
Attn: Michael D. Schenker, Esq.
With a copy to:
O'Melveny & Myers
Embarcadero Center West
275 Battery Street
San Francisco, CA 94111-3305
Facsimile: 415-984-8701
Attn: George A. Riley, Esq.
If to Watkins-Johnson, addressed to:
Watkins-Johnson Company
Stanford Research Park
3333 Hillview Avenue
Palo Alto, CA 94304-1223
Facsimile: 415-813-2578
Attn: Vice President and Chief Financial Officer
or to such other address or to such other person as any party shall have last
designated by such notice to the other parties. Each such notice or other
communication shall be effective (i) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
Section 12.6 and an appropriate answerback is received, (ii) if given by mail or
by overnight delivery, three days after such communication is deposited in the
mails with first class postage prepaid or delivered to the overnight courier,
addressed as aforesaid or (iii) if given by any other means, when actually
delivered at such address.
13.8 Expenses.
Watkins-Johnson and W-J TSMD shall each pay their own expenses
incident to the negotiation, preparation and performance of this Agreement
except as specifically set forth herein.
13.9 Remedies; Waiver.
To the extent permitted by Law, all rights and remedies
existing under this Agreement and any related agreements or documents are
cumulative to and not exclusive of, any rights or remedies otherwise available
under applicable Law. No failure on the part of any party to exercise or delay
in exercising any
16
<PAGE>
right hereunder shall be deemed a waiver thereof, nor shall any single or
partial exercise preclude any further or other exercise of such or any other
right.
13.10 Attorney's Fees.
In the event of any Action by any party arising under or out
of, in connection with or in respect of this Agreement, the prevailing party
shall be entitled to reasonable attorney's fees, costs and expenses incurred in
such Action. However, disputes related to purchase authorizations for specific
research and development projects and for specific Parts shall be subject to
clause 23 ("Disputes") of the Conditions of Purchase; other disputes shall not
be subject to such clause.
13.11 Representation By Counsel; Interpretation.
Watkins-Johnson and the W-J TSMD each acknowledge that each
party to this Agreement has been represented by counsel in connection with this
Agreement. Accordingly, any rule of Law or any legal decision that would require
interpretation of any claimed ambiguities in this Agreement against the party
that drafted it has no application and is expressly waived. The provisions of
this Agreement shall be interpreted in a reasonable manner to effect the intent
of the parties.
13.12 Specific Performance.
Watkins-Johnson and W-J TSMD each acknowledge that, in view of
the uniqueness of the transactions contemplated by this Agreement, each party
would not have an adequate remedy at law for money damages in the event that
this Agreement has not been performed in accordance with its terms, and
therefore agrees that the other party shall be entitled to specific enforcement
of the terms hereof in addition to any other remedy to which it may be entitled,
at law or in equity.
13.13 Severability.
If any provision of this Agreement is determined to be
invalid, illegal or unenforceable by any Governmental Entity, the remaining
provisions of this Agreement shall remain in full force and effect provided that
the essential terms and conditions of this Agreement for Watkins-Johnson and the
W-J TSMD remain valid, binding and enforceable.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written.
WATKINS-JOHNSON COMPANY
By: /s/ W. Keith Kennedy
--------------------------
Name: W. Keith Kennedy
------------------------
Title: President and CEO
------------------------
STELLEX MICROWAVE SYSTEMS, INC.
By: /s/ William L. Remley
--------------------------
Name: William L. Remley
------------------------
Title: Treasurer
------------------------
TSMD ACQUISITION CORP.
By: /s/ Bradley A. Jay
--------------------------
Name: Bradley A. Jay
------------------------
Title: Vice President
------------------------
S-1
<PAGE>
EXHIBIT A
FORECASTS
<TABLE>
<CAPTION>
A B C D E F G H
P/F Flow Yield Blank Qty Queue Time Cycle Time Lead Time Forecasted COMMENTS
Required (D+E) Delivery Date
<S> <C> <C> <C> <C> <C> <C> <C>
PSR 0.88 4 1 11 12 10/15/97
PSN 0.91 2 1 8 9 12/30/97
PNR 0.88 1 1 4 5 1/15/98
PNN 0.88 1 3 4
PSR+CO 0.86 1 12 13
PSN+CO 0.91 1 9 10
PNR+CO 0.88 3 1 5 6 10/15/97
PNN+CO 0.88 1 1 4 5 12/30/97
PSRI 0.86 2 1 13 14 1/15/98
PSNI 0.91 1 10 11
PNRI 0.88 1 6 7
PNNI 0.88 1 5 6
PSR23 0.88 1 16 17
PSN23 0.91 1 13 14
PNR23 0.88 1 11 12
PNN23 0.88 1 8 9
PSR+CO23 0.88 1 17 18
PSN+CO23 0.91 1 14 15
PNR+CO23 0.88 1 10 11
PNN+CO23 0.88 1 9 10
PSRI23 0.88 1 18 19
PSNI23 0.91 1 15 16
PNRI23 0.88 1 11 12
PNNI23 0.88 1 10 11
</TABLE>
Area to be filled out by TSMD Buyer
Queue and Cycle Times provided by WJ prior to Forecast
Queue, Cycle and Lead Times are in working days
Flow Yield provided by WJ prior to Forecast
Note: The numbers and dates listed above are for illustration purposes only.
A-1
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
PSR10 0.88 1 13 14
PSN10 0.91 1 10 11
PNR10 0.88 1 6 7
PNN10 0.88 1 5 6
PSR+CO10 0.88 1 14 15
PSN+CO10 0.91 1 11 12
PNR+CO10 0.88 1 7 8
PNN+CO10 0.88 1 6 7
PSRI10 0.88 1 15 16
PSNI10 0.91 1 12 13
PNRI10 0.88 1 8 9
PNNI10 0.88 1 7 8
PSRMI 1 13 14
PSNMI 1 10 11
PNRMI 1 6 7
PNNMI 1 5 6
</TABLE>
Area to be filled out by TSMD Buyer
Queue and Cycle Times provided by WJ prior to Forecast
Queue, Cycle and Lead Times are in working days
Flow Yield provided by WJ prior to Forecast
Note: The numbers and dates listed above are for illustration purposes only.
A-2
<PAGE>
<TABLE>
<CAPTION>
A B CDE F G H I J K
Sites/ Flow Min Qty/ Max Qty/ Sub Qty Blank
P/N P/F Blank Blank Yield Blank Blank Required Qty
(F*G) F MRP (J/H)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
XXXXXX PSN 2 X 2 198 0.91 181 198 100 1
PSN 2 X 2 198 0.91 181 198 200 2
PSN 2 X 2 198 0.91 181 198 400 3
PSN 2 X 2 198 0.91 181 198 300 2
YYYYYY PSN 3 X 3 36 0.91 33 36 100 4
PSN 3 X 3 36 0.91 33 36 300 10
PSN 3 X 3 36 0.91 33 36 500 16
PSN 3 X 3 36 0.91 33 36 100 4
ZZZZZZ PSN 2 x 2 36 0.91 33 36 2000 61
AAAAAA PNR 4 x 4 54 0.88 48 54 500 11
BBBBBB PNN 2 x 2 165 0.88 146 165 300 3
PNN 2 x 2 165 0.88 146 165 200 2
CCCCCC PSR 3 x 3 24 0.88 22 24 750 35
5750 154
<CAPTION>
A L M N O P Q R
Forecasted
Square Queue Cycle Lead Forecasted Delivery
P/N Inches Time Time Time Sub Qty Date Comments
(K*C*E) (M+N) (K*H) MRP
<S> <C> <C> <C> <C> <C> <C> <C>
XXXXXX 4 5 8 13 181 10/15/97
8 5 8 13 362 11/10/97
12 5 8 13 181 12/30/97
8 5 8 13 181 1/15/98
YYYYYY 36 5 8 13 132 10/15/97
90 5 8 13 330 11/10/97
144 5 8 13 528 12/30/97
36 5 8 13 438 1/15/98
ZZZZZZ 244 5 8 13 2013 10/30/97
AAAAAA 176 5 4 9 528 10/15/97
BBBBBB 12 5 3 8 438 11/1/97
8 5 3 8 292 12/3097
CCCCCC 315 5 11 16 770 1/5/98
1093
</TABLE>
Area to be filled out by TSMD Buyer
Queue and Cycle Times provided by WJ prior to Forecast
Queue, Cycle and Lead Times are in working days
Flow Yield provided by WJ prior to Forecast
Note: The numbers and dates listed above are for illustration purposes only.
A-3
<PAGE>
<TABLE>
<CAPTION>
A B C D E
Device Type Device Qty Required Lead Time Forcasted Delivery Date COMMENTS
<S> <C> <C> <C> <C>
LI02 50 10/15/97
LI03 100 12/30/97
LI05A 3 1/15/98
SM01
DM04
DM07A
DM07B
AS05A
AS05B
BA02A
FA03B
FA03C
FA04A
BA04
BA08
FA13
LA02
LA03A
LA01
FP02
F2400HP
FP01
F1200HM
F1200HP
SW01
</TABLE>
Area to be filled out by TSMD Buyer
Lead Times provided by WJ prior to Forecast
Lead Times are in working days
Note: The numbers and dates listed above are for illustration purposes only.
A-4
<PAGE>
<TABLE>
<S> <C>
SW01A
F600H
F600HM
F600HP
F200H
F200HM
F200T
FM03
HD01
153
</TABLE>
Area to be filled out by TSMD Buyer
Lead Times provided by WJ prior to Forecast
Lead Times are in working days
Note: The numbers and dates listed above are for illustration purposes only.
A-5
<PAGE>
EXHIBIT B
PROCESS COSTS
<PAGE>
*
<PAGE>
EXHIBIT C
TSMD SHARE RATIO
*
C-1
<PAGE>
EXHIBIT D
ILLUSTRATION OF TSMD'S SHARE OF PROCESS COSTS CALCULATION
*
D-2
<PAGE>
EXHIBIT E
UNIT PRICES
GaAs and Thin Film Unit Price Schedule
Prepared on 22 September 1997
GaAs Devices:
Item Description Unit Price
1 AS05A *
2 AS05B
3 BA02A
4 BA04
5 BA08*
6 DM04
7 DM07A
8 DM07B
9 F200H
10 F200T
11 F600H
12 F600HM*
13 F600HP
14 FA03B*
15 FA03C*
16 FA04A
17 FA08
18 FA13
19 FM03
20 FP01
21 FP02
22 HD01
23 LA01
24 LA02
25 LA03A
26 L102
27 L103
28 SM01*
29 SW01
30 SW01A*
31 L105A*
- --------
*Available for lifetime buys until June 30, 1998.
E-1
<PAGE>
GaAs and Thin Film Unit Price Schedule
Prepared on 22 September 1997
Thin Film:
Item Description Unit Price*
2 Inch Standard, No Cutouts, No Irregulars
32 PSR Plated, Solid, Resistors *
33 PSN Plated, Solid, No Resistors
34 PNR Plated, No Holes, Resistors
35 PNN Plated, No Holes, No Resistors
3 Inch Standard, No Cutouts, No Irregulars
36 PSR Plated, Solid, Resistors
37 PSN Plated, Solid, No Resistors
38 PNR Plated, No Holes,Resistors
39 PNN Plated, No Holes, No Resistors
4 Inch Standard, No Cutouts, No Irregulars
40 PSR Plated, Solid, Resistors
41 PSN Plated, Solid, No Resistors
42 PNR Plated, No Holes, Resistors
43 PNN Plated, No Holes, No Resistors
2 Inch Standard, With Cutouts
44 PSR Plated, Solid, Resistors
45 PSN Plated, Solid, No Resistors
46 PNR Plated, No Holes, Resistors
47 PNN Plated, No Holes, No Resistors
3 Inch Standard, With Cutouts
48 PSR Plated, Solid, Resistors
49 PSN Plated, Solid, No Resistors
50 PNR Plated, No Holes, Resistors
51 PNN Plated, No Holes, No Resistors
4 Inch Standard, With Cutouts
52 PSR Plated, Solid, Resistors
53 PSN Plated, Solid, No Resistors
54 PNR Plated, No Holes, Resistors
55 PNN Plated, No Holes, No Resistors
2 Inch Standard, With Irregulars
56 PSR Plated, Solid, Resistors
57 PSN Plated, Solid, No Resistors
58 PNR Plated, No Holes, Resistors
59 PNN Plated, No Holes, No Resistors
*
E-2
<PAGE>
*
GaAs and Thin Film Unit Price Schedule
Prepared on 22 September 1997
Thin Film:
Item Description Unit Price*
3 Inch Standard, With Irregulars
60 PSR Plated, Solid, Resistors *
61 PSN Plated, Solid, No Resistors
62 PNR Plated, No Holes, Resistors
63 PNN Plated, No Holes, No Resistors
4 Inch Standard, With Irregulars
64 PSR Plated, Solid, Resistors
65 PSN Plated, Solid, No Resistors
66 PNR Plated, No Holes, Resistors
67 PNN Plated, No Holes, No Resistors
3 Inch Production Mosaic, No Cutouts, No Irregulars
68 PSR Plated, Solid, Resistors
69 PSN Plated, Solid, No Resistors
70 PNR Plated, No Holes, Resistors
71 PNN Plated, No Holes, No Resistors
4 Inch Production Mosaic, No Cutouts, No Irregulars
72 PSR Plated, Solid, Resistors
73 PSN Plated, Solid, No Resistors
74 PNR Plated, No Holes, Resistors
75 PNN Plated, No Holes, No Resistors
3 Inch Production Mosaic, With Cutouts
76 PSR Plated, Solid, Resistors
77 PSN Plated, Solid, No Resistors
78 PNR Plated, No Holes, Resistors
79 PNN Plated, No Holes, No Resistors
4 Inch Production Mosaic, With Cutouts
80 PSR Plated, Solid, Resistors
81 PSN Plated, Solid, No Resistors
82 PNR Plated, No Holes, Resistors
83 PNN Plated, No Holes, No Resistors
3 Inch Production Mosaic, With Irregulars
84 PSR Plated, Solid, Resistors
85 PSN Plated, Solid, No Resistors
86 PNR Plated, No Holes, Resistors
87 PNN Plated, No Holes, No Resistors
E-3
<PAGE>
Thin Film:
Item Description Unit Price*
4 Inch Production Mosaic, With Irregulars
88 PSR Plated, Solid, Resistors *
89 PSN Plated, Solid, No Resistors
90 PNR Plated, No Holes, Resistors
91 PNN Plated, No Holes, No Resistors
Substrate Test and Bonding Coupons
92 Test Coupons, "Tweaks", Per Blank
93 Bonding Coupons, Per Blank
Thin Film Services
94 Gold Germanium Laser Cutting, Fixed
Labor Fee Per Month
95 Duroid Laser Cutting
Packaging: GaAs and Thin Film packages are not include in pricing and W-J
TSMD must return packages for recycling.
Cutting: The parties will endeavor to schedule demand so that gold germanium
laser cutting services will not exceed 20% of laser capacity during any one week
period. Watkins-Johnson will make reasonable efforts to accommodate capacity
surges beyond 20%. W-J TSMD is responsible for providing raw materials, preform
layout per the design guidelines, and the AutoCad file with order submission.
Special cuts with the laser or saw are included in the fixed preform cutting
price and such cuts are subject to the limitations set forth herein.
Watkins-Johnson is not responsible for coining AuGe preforms.
Substrate test and bonding coupon: Substrate test and bonding coupon pricing
will be on a per blank basis. All yielded parts will be delivered to W-J TSMD.
Inspection and individual item counting for substrate test and bonding coupon
are not required by Watkins-Johnson. Packaging will be in accordance with
current procedures.
*
E-4
<PAGE>
EXHIBIT F
LEAD TIMES
GaAs Devices Parts in Stock Parts Not in Stock
AS05A 10 Working Days ARO 50 Working Days ARO
AS05B 10 Working Days ARO 50 Working Days ARO
BA02A 10 Working Days ARO 50 Working Days ARO
BA04 10 Working Days ARO 50 Working Days ARO
BA08 10 Working Days ARO 50 Working Days ARO
DM04 10 Working Days ARO 50 Working Days ARO
DM07A 10 Working Days ARO 50 Working Days ARO
DM07B 10 Working Days ARO 50 Working Days ARO
F1200HM 10 Working Days ARO 50 Working Days ARO
F1200Hp 10 Working Days ARO 50 Working Days ARO
F200H 10 Working Days ARO 50 Working Days ARO
F200HM 10 Working Days ARO 50 Working Days ARO
F200T 10 Working Days ARO 50 Working Days ARO
F200TCV 10 Working Days ARO 50 Working Days ARO
F2400HP 10 Working Days ARO 50 Working Days ARO
F600H 10 Working Days ARO 50 Working Days ARO
F600HM 10 Working Days ARO 50 Working Days ARO
F600HP 10 Working Days ARO 50 Working Days ARO
FA03B 10 Working Days ARO 50 Working Days ARO
FA03C 10 Working Days ARO 50 Working Days ARO
FA04A 10 Working Days ARO 50 Working Days ARO
FA08 10 Working Days ARO 50 Working Days ARO
FA13 10 Working Days ARO 60 Working Days ARO
FM03 10 Working Days ARO 50 Working Days ARO
FP01 10 Working Days ARO 50 Working Days ARO
FP02 10 Working Days ARO 50 Working Days ARO
HD01 10 Working Days ARO 50 Working Days ARO
LA01 10 Working Days ARO 60 Working Days ARO
LA02 10 Working Days ARO 60 Working Days ARO
LA03A 10 Working Days ARO 50 Working Days ARO
LI02 10 Working Days ARO 50 Working Days ARO
LI03 10 Working Days ARO 50 Working Days ARO
LI05A 10 Working Days ARO 50 Working Days ARO
SM01 10 Working Days ARO 50 Working Days ARO
SW01 10 Working Days ARO 50 Working Days ARO
SW01A 10 Working Days ARO 50 Working Days ARO
R&D Services
To be quoted individually
F-1
<PAGE>
Thin-Film Production Days ARO
PSR Plated, Solid, Resistors 16
PSN Plated, Solid, No Resistors 13
PNR Plated, No Holes, Resistors 9
PNN Plated, No Holes, No Resistors 8
PSR with Cutouts 17
PSN with Cutouts 14
PNR with Cutouts 10
PNN with Cutouts 9
PSR Irregulars 18
PSN Irregulars 15
PNR Irregulars 11
PNN Irregulars 10
PSR Mosaics 19
PSN Mosaics 16
PNR Mosaics 12
PNN Mosaics 11
PSR Mosaics with Cutouts 20
PSN Mosaics with Cutouts 17
PNR Mosaics with Cutouts 13
PNN Mosaics with Cutouts 12
PSR Mosaics Irregulars 21
PSN Mosaics Irregulars 18
PNR Mosaics Irregulars 14
PNN Mosaics Irregulars 13
Wafer Surcharges:
Double-sided Add 5 Days
6 micron gold Add 2 Days
10 Mil Aluminum Add 2 Days
Substrate Test and Bonding Coupons 5
Note that the above delivery schedule is based on working days.
F-2
<PAGE>
EXHIBIT G
QUALITY
Watkins-Johnson Company quality performance is targeted at zero defects.
TSMD group reserves the right to return finished product to Watkins-Johnson
Company at no cost to TSMD Group when the product lot quality drops below the
acceptable levels defined in ANSI/ASQCZ1.4, Tables I & II with sampling plans
defined by General Inspection Level II and AQL level 2.5. Returned product shall
be reinspected and a completed failure analysis shall be delivered to TSMD Group
within three (3) working days of receipt of returned units. A resolution shall
be implemented within ten (10) working days of receipt of returned units.
Acceptable Level and Sampling Plan Samples: (see attached table)
Sample 1:
For Quantity of Product received 50, Table I General
Inspection Level II specifies Level D.
Table II, AQL level 2.5 specifies that if 1 or more rejects
are found, the lot may be returned.
Sample 2:
For Quantity of Product received 150, Table I General
Inspection Level II specifies level F.
Table II, AQL level 2.5 specifies that if 1 reject is found,
the lot must be accepted but if 2 or more are found, the lot
may be returned.
Any change to the methods, levels or sampling plan for inspection of product
will be subject to negotiation.
Watkins-Johnson to reference and apply the following Quality Standards for the
purpose of this agreement.
Mil-Standards:
Mil-STD-883, Methods 2010 & 2032, as applicable
ISO9001 Certification Required
Other:
ANSI/ASQCZ1.4
WJ14062-000 (Substrate Visual Criteria)
WJ103277-000 (GaAs Device Visual Criteria)
TBD (Preform Visual Criteria)
W-J TSMD reserves the right to terminate any specific authorization in the event
continuing quality problems and/or delivery slippages occur, at no cost to W-J
TSMD.
G-1
<PAGE>
EXHIBIT H
PURCHASE ORDER
<PAGE>
CONDITIONS OF PURCHASE
Where "WJ" appears in the "Conditions of Purchase" this shall mean
Watkins-Johnson Company, or any subsidiary.
1. ACCEPTANCE AND MODIFICATION OF AGREEMENT.
This order becomes a binding contract, subject to the terms and
conditions hereof, when accepted by acknowledgment or commencement of
performance. Any modification of this order, to be valid, must be in
writing and signed by WJ's authorized purchasing representative. Any
acknowledgment form or other form of Seller containing terms and
conditions of sale submitted by Seller to WJ shall not have the effect
of modifying the terms and conditions hereof. WJ will consider Seller's
request for changes only if such request is made in writing and
directed to specific clauses in this order. No change shall be binding
upon WJ unless specifically accepted in writing.
2. PACKING, SHIPPING, DELIVERY AND RISK OF LOSS.
a) Packing and Shipping
All shipments will be packed to prevent damage in transit,
assure lowest transportation cost and meet carrier's tariff
requirements. No charge will be made for boxing, crating or
storage without prior written authorization of WJ.
Shipping costs shall be paid according to F.O.B. designation.
Where WJ is designated as paying freight, Seller bears cost of
delivery of goods to Shipper and WJ pays shipping costs in
transit. Where Seller is designated as paying freight, Seller
bears all shipping costs prior to receipt by WJ.
In the absence of specific instructions from WJ, shipment
shall be forwarded by that means of shipment necessary to
comply with the delivery date specified on the purchase order.
Seller shall not insure shipments in excess of carrier's
maximum liability. Materials shipped on this order must not be
in excess of quantity ordered. Over shipments may be returned
at Seller's expense.
b) Delivery
Time is of the essence in this order. Production schedules at
WJ are dependent upon the delivery dates specified herein, and
delays will substantially impair the value of the contract.
Seller shall bear any premium shipping costs necessary to meet
contractual delivery schedule. Seller shall report any
anticipated delay immediately for whatever cause, including
labor disputes, material shortages or other events affecting
delivery. WJ reserves the right to terminate this order for
anticipated delay and for any untimely delivery. Advanced
shipments may not be made without WJ's prior authorization.
c) Risk of Loss
Irrespective of the "F.O.B." designation on the face of this
order, title shall pass
<PAGE>
to WJ upon receipt and acceptance by WJ at is facility and
Seller shall bear the risk of loss until such receipt by WJ.
3. WARRANTIES
Acceptance of this order by Seller constitutes affirmation of fact by
Seller that goods delivered and services furnished under this order,
and the preservation, packaging, marking and preparation for shipment
of any such goods, will be of good quality and workmanship and will
conform with the specifications, model description of goods or other
requirements of this order, and shall be of merchantable quality and
fit for the purpose intended. Such warranties, together with Seller's
service warranties and guarantees, if any, shall survive inspection,
test acceptance of any payment for the items and shall run to WJ, its
successors, assigns and customers.
Except for latent defects, notice of any defect or nonconformity must
be given by WJ to the Seller within one (1) year after acceptance. WJ
may at its option, return the defective or nonconforming item at
Seller's expense for credit, or require prompt correction or
replacement or have the defective item corrected or replaced at
Seller's expense. Defective or nonconforming items shall not be
corrected or replaced unless specified on WJ's written order. Items
required to be corrected or replaced shall be subject to the provisions
of this clause and the clause hereof entitled "Inspection" in the same
manner and to the same extent as items originally delivered under this
order. However, all warranties for corrected or replaced goods shall
run for a period of one (1) year from the date of acceptance of such
corrected or replaced goods.
The rights of WJ provided in this clause are in addition to any order
rights provided by law, equity or by this order, including but not
limited to Seller indemnification of WJ for any loss or damage
resulting from the breach of any warranty expressed above. Express or
specially negotiated warranties shall not extinguish the warranties set
forth above. The goods and services furnished hereunder shall be deemed
unique under U.C.C. Section 2716.
4. [Deleted].
5. [Deleted].
6. RESPONSIBILITY FOR PROPERTY
Seller shall bear the risk and be responsible for any loss or damage to
materials, tools, equipment, data or other property furnished by WJ to
Seller.
7. CHANGES
a) WJ may at any time, by written notice to Seller, signed by
WJ's authorized purchasing representative, make changes,
within the general scope of this order, in any one or more of
the following: (i) drawings, designs or specifications, where
the goods to be furnished are to be specially manufactured for
WJ in accordance therewith; (ii) method of shipment or
packing; (iii) place of delivery; and (iv) quantities and
delivery schedules provided herein. If any such change
<PAGE>
causes an increase or decrease in the cost of or the time
required for the performance of any part of the work under
this order, an equitable adjustment shall be made in the order
price or delivery schedule, or both, and this order shall be
modified in writing accordingly. Any claim by the Seller for
adjustment under this clause must be asserted within twenty
(20) days from the date of receipt by the Seller of the
notification of change; provided, however, that WJ if it
decides that the facts justify such action, may receive and
act upon any such claim asserted at any time prior to final
payment under this order. However, nothing in this clause
shall excuse the Seller from proceeding with the contract as
changed.
b) WJ technical personnel may exchange technical information with
Seller's technical personnel concerning goods to be furnished.
Any such exchange of information shall be only by way of
assistance and shall in no way relieve Seller of obligations
to perform this order. WJ shall not be bound by any change
effective by Seller unless change is authorized by WJ in
accordance with paragraph (a) of this clause.
8. SUSPENSION OF WORK
WJ may, by written order, suspend all or part of the work to be
performed under this order for any period not to exceed ninety (90)
days. Within such period, or any extension thereof to which the parties
may agree, WJ shall either cancel such suspensions or terminate the
work covered by suspension in accordance with paragraphs 9 or 10
hereof. Seller shall resume work whenever a suspension is canceled or
expires. An equitable adjustment shall be made in the delivery
schedule, or order price, or both, if the suspension results in a
change in Seller's costs of performance or ability to meet the order
delivery schedule, provided Seller asserts a claim for adjustment
within twenty (20) days after the end of the period of suspension, and
provided the suspended work is not terminated in accordance with
paragraph 11 hereof.
9. [Deleted].
10. [Deleted].
11. [Deleted].
12. PATENTS, TRADEMARKS, TRADE NAMES AND COPYRIGHTS
Seller agrees to indemnify and save harmless WJ, its officers, agents,
successors, assigns and customers against all damages, claims, demands,
attorneys' fees and costs of any kind for actual or alleged
infringement of any trade name, trademark, copyrights or patent (unless
the goods ordered are of WJ's design) arising in connection with the
possession, sale or use of any goods or services furnished by Seller
hereunder.
13. COMPLIANCE WITH LAWS
Seller warrants that (i) in the performance of this order it will
comply with all applicable laws including but not limited to local,
state and federal laws and regulations including
<PAGE>
but not limited to the Departments of Commerce Department of
Transportation and the U.S. and California Environmental Protection
Agencies. (ii) no law, rule or ordinance of the United States, a state
or any other governmental agency has been violated in the manufacture
or sale of the items or in the performance of services covered by this
order, and will defend and hold WJ harmless from loss, cost or damage
as result of any such actual or alleged violation, or breach of the
warranties herein.
14. HAZARDOUS MATERIALS
a) If goods or services provided hereunder include hazardous
materials as defined by relevant local, state or national law,
Seller represents and warrants that Seller and its employees
providing Services to Buyer understand the nature of and
hazards associated with the handling, transportation, and use
of such hazardous materials, as applicable to Seller.
Seller will be fully responsible for indemnification of any
liability resulting from Seller's actions in connections with
(i) providing such hazardous materials to Buyer, or (ii) the
use of such hazardous materials in providing Services to
Buyer.
b) Seller will promptly provide Buyer with safety data sheets and
any other documentation reasonable necessary to enable Buyer
to comply with applicable laws and regulations.
c) Seller hereby certifies that Items supplied to Buyer do not
"contain" and are not "manufactured with" any ozone depleting
substances, as those terms are defined by law.
15. ASSIGNMENT OF RIGHTS
The term "subcontract" includes but is not limited to purchase orders,
changes and/or modifications thereto. Neither this order nor any right
or obligation hereunder (including claims for moneys due) shall be
assigned by Seller without prior written consent of WJ. All claims for
moneys due or to become due from WJ shall be subject to set-off or
counterclaim arising out of this or any other WJ contract with Seller,
whether before or after date of this order.
16. [Deleted].
17. [Deleted].
18. TAXES
Except as may be otherwise provided in the order, no sales tax shall be
payable, and the price is inclusive of all other applicable taxes.
19. INSOLVENCY
In the event of any proceeding, voluntary or involuntary, in bankruptcy
or insolvency by or against Seller, or in the event of the appointment,
with or without the Seller's consent,
<PAGE>
of an assignee for the benefit of creditors, or of a receiver, WJ may
elect to cancel any unfulfilled part of this order without further cost
or liability.
20. INDEMNIFICATION AND INSURANCE
a) Seller agrees to protect, defend, indemnify and hold Buyer
harmless from and against any and all claims, liabilities,
demands, penalties, forfeitures, suits, judgments and the
associated costs and expenses (including attorney's fees),
which Buyer may hereafter incur, as a result of death or
personal injury (including bodily injury) to any person,
destruction or damage to any property, or any violation of
governmental law, regulation, or orders, caused, in whole or
by (a) Seller's breach of any term or provision of this
Agreement, (b) errors, omissions, or willful acts by Seller,
its employees, agents, or subcontractors in the performance of
this Agreement, (c) the presence of Seller's agents,
employees, or subcontractors ("personnel") or equipment on WJ
property, or (d) the use by Seller's personnel of WJ provided
property and equipment, whether or not claims are based on the
condition of such property and equipment or any alleged
negligence of WJ in permitting its use.
b) Seller represents that it carries insurance in at least the
following amounts:
i) Worker's Compensation--statutory limits
ii) Employer's Liability--$500,000 per employee
iii) Blanket General Liability--$1,000,000
iv) Automobile Liability--$1,000,000
Such policies or certificates of insurance shall be furnished
to WJ upon request.
21. INDEPENDENT CONTRACTOR
In performing Services under this Agreement, Seller shall be deemed an
independent contractor and its personnel and other representatives
shall not act as nor be agents or employees of Buyer. As an independent
contractor, Seller will be solely responsible for determining the means
and methods for performing the required Services. Seller shall have
complete charge and responsibility for personnel employed by Seller;
however, Buyer reserves the right to instruct Seller to remove Buyer's
premises immediately any of Seller's personnel who is in breach of
Section 22 of this Agreement. Such removal shall not affect Seller's
obligation to provide Services under this Agreement.
22. SECURITY
Seller confirms, to the best of its knowledge, that employees of Seller
performing work at Buyer's facilities have no record of criminal
convictions involving drugs, assaultive or combative behavior or theft
within the last five years. Seller understands that such employees may
be subject to criminal history investigations by Buyer at Buyer's
expense and will be denied access to Buyer's facilities if any such
criminal convictions are discovered.
23. DISPUTES
<PAGE>
a) Any dispute arising under this purchase order which is not
settled by agreement of the parties shall be settled by
arbitration, under the commercial rules of the American
Arbitration Association, applying California law, with venue
at Palo Alto, California. Pending decision or settlement of
any dispute, Seller shall proceed diligently with the
performance of this purchase order. Failure of Seller to so
proceed shall be cause for default termination.
b) [Deleted].
24. [Deleted].
25. NONWAIVER
WJ's failure to insist on strict performance of any provision of this
order, or acceptance of nonconforming goods or services shall not be
deemed to be a waiver of WJ's rights or remedies, or a waiver of any
subsequent default in performance.
26. PRECEDENCE
In the event of any inconsistency among the referenced documents,
attachments, drawings, specifications or other provisions of this
order, the following order of precedence shall apply:
a) Special terms and conditions
b) General terms and conditions
c) Specifications
d) Drawings
e) All other attachments or documents incorporated herein by
reference
27. [Deleted].
<PAGE>
MIM/GLASS SEAL/HYBRID ASSEMBLY SUPPLY AGREEMENT
THIS MIM/GLASS SEAL/HYBRID ASSEMBLY SUPPLY AGREEMENT
("Agreement"), dated as of October 31, 1997 ("Effective Date"), is made by and
among WATKINS-JOHNSON COMPANY, a California Corporation ("Watkins-Johnson");
STELLEX MICROWAVE SYSTEMS, INC., formerly known as W-J TSMD INC., a California
corporation and a wholly-owned subsidiary of Watkins-Johnson ("W-J TSMD"); and
TSMD ACQUISITION CORP., a Delaware corporation ("TSMD Acquisition").
WHEREAS, the parties have entered into that certain Stock
Purchase Agreement, dated as of August 29, 1997 (the "Purchase Agreement"),
whereby TSMD Acquisition has agreed to purchase, and Watkins-Johnson has agreed
to sell, all of the outstanding stock of W-J TSMD; and
WHEREAS, W-J TSMD operates a MIM/glass sealing and
hybrid assembly facility (the "Facility"); and
WHEREAS, Watkins-Johnson uses parts processed by the
Facility; and
WHEREAS, the execution of this Agreement is a condition to the
closing of the purchase and sale of the outstanding stock of W-J TSMD under the
Purchase Agreement;
NOW, THEREFORE, for and in consideration of the foregoing and
of the covenants, conditions, undertakings and mutual promises hereinafter set
forth, it is agreed by and among the parties as follows:
1. DEFINITIONS
For all purposes of this Agreement, except as otherwise
expressly provided:
(a) the terms defined in this Section 1 have the
meanings assigned to them in this Section 1 and include the
plural as well as the singular;
(b) all references in this Agreement to designated
"Sections," "Paragraphs," and other subdivisions are to the
designated Sections, Paragraphs, and other subdivisions of the
body of this Agreement;
(c) pronouns of either gender or neuter shall include,
as appropriate, the other pronoun forms; and
(d) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Section, Paragraph, or other subdivision.
- ---------
* Indicates that certain material has been omitted pursuant to a request for
confidential treatment. Such material is contained in a copy of this document
provided to the Securities and Exchange Commission.
1
<PAGE>
As used in this Agreement and the Exhibits delivered pursuant
to this Agreement, the following definitions shall apply:
"Affiliate" means a Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, a specified Person.
"Closing" means the consummation of the purchase and
sale of stock under the Purchase Agreement.
"Conditions of Purchase" means the Conditions of Purchase Form
(Form PAR-1012EG-PA (01/95)) modified as shown on Exhibit B.
"Effective Date" means the date of Closing.
"Glass Seal Part" means a part that includes glass to metal
seals.
"Hybrid Assembly Part" means an assembled microelectronic part
which may have undergone electrical testing and environmental screening.
"Intellectual Property Rights" means all industrial and
intellectual property rights, including, without limitation, patents, patent
applications (pending or otherwise), patent rights, copyrights, computer
firmware and software (existing in any form), Know-How, Trade Secrets,
proprietary processes, inventions and formulae.
"Know-How" means any information, including, but not limited
to, invention records, research and development findings, records and reports,
experimental and engineering reports, pilot designs, production designs,
production specifications, raw material specifications, quality control reports
and specifications, drawings, photographs, models, tools, parts, algorithms,
processes, methods, market and competitive analysis, or other information,
whether or not considered proprietary or a Trade Secret.
"MIM Part" means a metal injection molded part.
"Part" means a MIM Part, a Glass Seal Part or a Hybrid
Assembly Part.
"Requirements" means Watkins-Johnson's requirements for Parts
as specified on a Watkins-Johnson Forecast Form as modified from time to time in
accordance with the terms and conditions of this Agreement.
2
<PAGE>
"Services" means services related to the manufacture of the
Parts, including, but not limited to research and development efforts.
"Trade Secrets" means any formula, pattern, device or
compilation of information which gives an opportunity to obtain an advantage
over competitors who do not know or use it, including, but not limited to,
formulas for chemical compounds, a process of manufacturing, treating or
preserving materials, a pattern for a machine or any forms, plans, drawings,
specifications, customer lists, marketing and competition analysis and project
management, inventory and cost control systems and techniques.
"Watkins-Johnson's Forecast Form" means a form that reasonably
identifies a projected delivery schedule and specifies the quantity of Parts by
part number and type.
"Unit Prices" means the prices for Parts set forth on
Exhibit A.
2. SUPPLY, TERM
2.1 Supply and Purchase.
For the term of this Agreement, Watkins-Johnson shall
purchase, and W-J TSMD shall supply, Parts and Services according to the terms
and conditions set forth herein.
2.2 Term.
This Agreement shall commence on the Effective Date and shall
continue until December 31, 2000.
2.3 Termination by Watkins-Johnson Without Cause.
This Agreement may be terminated by Watkins-Johnson without
cause at any time by notice to W-J TSMD given one year prior to such termination
date. In the event that Watkins-Johnson gives such a notice, the termination
shall be effective on the date specified in such notice. Payment of research and
development costs, if any research and development projects have been
authorized, shall be prorated to the effective date of such a termination.
2.4 Termination With Cause.
If any party commits a material breach of this Agreement and
does not correct such breach within thirty (30) days after written notice
complaining thereof is given to such party, this Agreement may be terminated
forthwith by written notice to that effect from the complaining party. Such
termination will not prejudice or limit any other rights or
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remedies available to the non-breaching party. Such termination will not
prejudice or limit any other rights or remedies available to the non-breaching
party.
2.5 Maintenance of Facility and Processes.
For the term of this Agreement, W-J TSMD shall maintain the
Facility and the processes as necessary to manufacture the Parts listed on
Exhibit A.
2.6 Right to Reject.
Watkins-Johnson and W-J TSMD recognize that MIM technology is
in the early stages of its development. W-J TSMD reserves the right to reject a
research and development request or a production request if, in its reasonable
judgment, the MIM process cannot meet product specifications or requested
delivery dates.
3. RESEARCH AND DEVELOPMENT SERVICES.
3.1 Time and Materials.
*
3.2 Research and Development Authorization.
Watkins-Johnson shall authorize research and development
projects in the form of specific purchase orders for such projects as follows:
(i) At least sixty (60) days prior to the start of each
calendar quarter beginning after January 1, 1998, Watkins-Johnson will give
direction to W-J TSMD for the research and development projects to be performed
during that quarter. This direction will provide technical objectives, schedule
constraints, and spending limitations for each project.
(ii) Within two (2) weeks after providing the research and
development direction to W-J TSMD, Watkins-Johnson and W-J TSMD will review the
objectives and agree upon any modifications as necessary. The result of this
review will be a written Statement of Work for each research and development
project. The SOW shall be completed at least 30 days before the start of each
quarter.
4
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(iii) Watkins-Johnson may cancel at any time an authorization
to perform research and development services by reasonable notice to W-J TSMD.
3.3 Monthly Review.
W-J TSMD shall provide a monthly review of research and
development technical progress and projections to Watkins-Johnson for each month
in which such a review has not been presented at a meeting of the Operations
Council.
3.4 Diligence.
In performing the research and development projects authorized
by Watkins-Johnson, W-J TSMD shall act with at least that degree of care and
diligence that it devotes to its own research and development projects.
3.5 Payment.
W-J TSMD will submit monthly invoices for research and
development services which Watkins-Johnson shall pay 30 days from the date of
invoice.
4. FORECASTS, REQUIREMENTS, FULFILLMENT
4.1 Forecasts.
Watkins-Johnson shall provide W-J TSMD a rolling six (6) month
Requirements forecast for Parts on a Watkins-Johnson Forecast Form, updated
monthly. Such forecast is for Watkins-Johnson's convenience only and shall in no
way create an obligation on Watkins-Johnson's part to meet such forecast;
provided, however, that W-J TSMD shall not be obligated to meet lead times for
the amount of Parts in a specific authorization that exceeds by more than 15%
the quantity of such Parts specified in a Forecast Form.
4.2 Specific Authorization.
Watkins-Johnson agrees to provide W-J TSMD specific
Watkins-Johnson authorization to fulfill Requirements in the form of a purchase
order for Parts substantially in the form attached hereto as Exhibit B. Such
specific Watkins-Johnson authorization shall become effective upon receipt by
W-J TSMD. The terms of Conditions of Purchase attached to the purchase order
shall govern any purchase of Parts under this Agreement unless inconsistent with
this Agreement, in which case this Agreement controls.
5
<PAGE>
4.3 Cancellation of an Authorization.
In the event of a termination or a cancellation of a specific
Watkins-Johnson authorization to fulfill Requirements under this Agreement, W-J
TSMD shall undertake reasonable efforts to cancel all applicable subcontracted
materials/services and reduce component inventory through return for credit
programs or allocate components for alternate programs if applicable, at the
lowest possible cost to Watkins-Johnson.
4.4 Compensation for Cancellation.
In the event of a termination or a cancellation of a specific
Watkins-Johnson authorization to fulfill Requirements under this Agreement,
and/or discontinuance of Requirement or excess material created by
Watkins-Johnson initiated engineering change, Watkins-Johnson shall compensate
W-J TSMD for Requirements and material inventory as follows:
(i) the contract price of all duly authorized and
completed Requirements already furnished to Watkins-Johnson or in
W-J TSMD's possession;
(ii) the cost of Watkins-Johnson unique material inventory,
whether in raw form or work in process, and not returnable to the vendor or
usable for other Requirements or other customers;
(iii) the cost of Watkins-Johnson unique material on
order which cannot be cancelled;
(iv) any vendor cancellation charges incurred with respect to
Watkins-Johnson unique material cancelled or returned to the vendor, or
otherwise set forth in addenda to this Agreement; and
(v) an administrative charge of 12.5% of the costs
described in (ii) and (iii) above.
5. DELIVERY
5.1 On-Time Delivery.
W-J TSMD shall target 100% on time delivery, defined as a
delivery of Requirements by W-J TSMD within a window of ten (10) days early and
zero days late of the delivery date specified in a purchase order unless the
quantity of Parts ordered exceeds by more than 15% the quantity forecasted, in
which case W-J TSMD will deliver such additional quantity within a reasonable
period.
6
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5.2 FOB Point.
The FOB point shall be Palo Alto, California in the absence of
a documented mutual agreement to some other FOB term with the issuance of any
specific Watkins-Johnson authorization to fulfill Requirements.
5.3 Schedule Changes.
W-J TSMD shall make reasonable efforts to comply with any
requested schedule improvements/changes, without cost impact. W-J TSMD shall be
expected to accept Watkins-Johnson requests for delays in delivery schedule,
with rescheduling of ship dates to within thirty (30) days of the original
delivery schedule, without cost impact, in the absence of a documented mutual
agreement to some other definition of flexibility in delivery re-scheduling with
the issuance of any specific Watkins-Johnson authorization to fulfill
Requirements.
5.4 Delays.
Upon learning of any potential delivery delays, W-J TSMD shall
notify Watkins-Johnson as to the cause and extent of such delay. If W-J TSMD
fails to make deliveries at the specified time and such failure is caused by W-J
TSMD, W-J TSMD shall, at no cost to Watkins-Johnson, employ accelerated measures
such as material expediting fees, premium transportation costs, or labor
overtime required to meet the specified delivery schedule.
6. PAYMENT FOR PARTS
6.1 Payment.
For the supply of Parts under this Agreement, Watkins-Johnson
agrees to pay Watkins-Johnson's Unit Prices determined in accordance with this
section. Payment for research and development costs is set forth in Section 3.5.
6.2 Unit Prices.
(i) For each Part on Exhibit A, Watkins-Johnson shall pay the
Unit Price set forth therein. The Unit Prices set forth on Exhibit A are
guaranteed through January 1, 1999. Thereafter, Unit Prices may be adjusted by
no more than 10% for each succeeding year if such adjustment is justified by
cost data supplied by W-J TSMD. Such cost data is subject to audit. For Parts
not listed on Exhibit A, the parties will negotiate Unit Prices. W-J TSMD shall
propose Unit Prices for such Parts and the basis for such proposal will be
subject to audit.
(ii) Price is guaranteed only to the extent that Watkins-
Johnson's Requirements do not exceed, in any quarter, 25% of MIM capacity or
10% of hybrid assembly capacity. W-J TSMD is
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<PAGE>
not obligated to meet Requirements in excess of these capacities but will
negotiate with Watkins-Johnson in good faith to modify the price and delivery
schedule to accommodate those Requirements.
6.3 Date.
Unit Prices shall be paid net 30 days from the date of
invoice.
6.4 Minimum Purchase Obligation.
For 1998, Watkins-Johnson will purchase all of its
requirements from W-J TSMD of the WJ-2940-002A Part listed on Exhibit A until
the later to occur of (a) the shipment of five thousand (5,000) units of such
Part, or (b) October 31, 1998.
7. ENGINEERING CHANGES
7.1 Engineering Changes submitted by Watkins-Johnson.
Watkins-Johnson may submit engineering changes for
incorporation into the Requirements. Such change orders will include reasonable
documentation to permit an investigation of the impact of the engineering
change. W-J TSMD will review the engineering change and report to
Watkins-Johnson within ten (10) working days. If any such change affects the
price, delivery, or quality performance of the affected Requirements, a
reasonable adjustment will be negotiated between Watkins-Johnson and W-J TSMD
prior to implementation of the change.
7.2 Changes requested by W-J TSMD.
W-J TSMD agrees not to undertake process changes, design
changes, or process step discontinuance affecting electrical performance and/or
mechanical form and fit of Requirements without prior written notification and
concurrence of Watkins-Johnson, which concurrence will not be unreasonably
withheld. In the absence of some other documented mutual agreement applying to
this Agreement as a whole, or to the issuance of any specific Watkins-Johnson
authorization to fulfill Requirements, said advance written notification shall
be required ninety (90) days prior to the subject change.
8. CONFIDENTIAL INFORMATION
8.1 Nondisclosure Agreement.
Watkins-Johnson and W-J TSMD agree to execute, as part of this
Agreement, a Nondisclosure Agreement for the reciprocal protection of
confidential information of both parties. W-J TSMD shall not disclose to third
parties confidential process and design rule information relating to the
manufacture of Parts for
8
<PAGE>
Watkins-Johnson except as necessary for such manufacture, which disclosure shall
only be made pursuant to a confidentiality agreement approved by
Watkins-Johnson.
9. ASSIGNMENT, FORCE MAJEURE
9.1 Assignment.
Neither party shall delegate, assign or transfer its rights or
obligations under this Agreement, whether in whole or part, without the written
consent of the other party. Not withstanding the foregoing, W-J TSMD shall have
the right to (i) assign its rights under this Agreement to any Affiliate of W-J
TSMD or TSMD Acquisition, upon the condition that such Affiliates are bound by
the terms and conditions of this Agreement; and (ii) transfer their rights under
this Agreement upon the sale of all or substantially all of the assets of W-J
TSMD or TSMD Acquisition. Watkins-Johnson shall have the right to (i) assign its
rights under this Agreement to any of its Affiliates upon the condition that
such Affiliates are bound by the terms and conditions of this Agreement; and
(ii) transfer their rights under this Agreement upon the sale of all or
substantially all of the assets of Watkins-Johnson.
9.2 Force Majeure.
Neither party shall be liable for any failure or delay in its
performance under this Agreement due to acts of God, acts of civil or military
authority, fires, floods, earthquakes, riots, wars or any other cause beyond the
reasonable control of the delayed party provided that the delayed party: (i)
gives the other party written notice of such cause within fifteen (15) days of
the discovery of the event; and (ii) uses its reasonable efforts to remedy such
delay in its performance.
10. INTELLECTUAL PROPERTY RIGHTS AND DESIGN RULES.
10.1 Intellectual Property Rights.
All Intellectual Property Rights relating to the design of
Parts manufactured exclusively for Watkins-Johnson shall be the exclusive
property of Watkins-Johnson. All Intellectual Property Rights arising prior to
the termination date and relating to the processing or fabrication of Parts
shall be the property of W-J TSMD but shall be licensed to Watkins-Johnson on a
royalty-free, non-exclusive, perpetual basis, without the right to sublicense
except to Affiliates. Any patents or patent applications that claim any
invention relating to the processing or fabrication of Parts shall be the
property of W-J TSMD but shall be licensed to Watkins-Johnson on the same terms
and conditions as set forth in the Cross License. The parties agree to cooperate
in the execution of such a patent license.
9
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10.2 Design Rules and Process Specifications.
W-J TSMD shall maintain and update no less frequently than
every six (6) months for Watkins-Johnson's use copies of design rules and
process specifications for Watkins-Johnson products. On the termination of this
Agreement, W-J TSMD will promptly transfer such copies to Watkins-Johnson, but
W-J TSMD may retain copies for its own use provided that such use does not
violate any prohibition on the use of Intellectual Property.
11. OPERATIONS COUNCIL AND AUDIT RIGHTS.
11.1 Operations Council.
The parties shall appoint an Operations Council consisting of
an equal number of representatives, but no less than four, from each party. The
Operations Council shall meet regularly, but no less frequently than quarterly.
The Operations Council shall also convene at any time at the request of either
party so long as such party provides one week's notice to the other party. The
Operations Council will be responsible for the folllowing:
(a) Reviewing Requirements Forecasts and production
capacities;
(b) Reviewing and approving actual and projected
expenditures for research and development and
capital acquisition;
(c) Adjusting pricing and delivery targets at
specified intervals;
(d) Reviewing process costs, process costs
multipliers, process yields and yield drivers;
(e) Reviewing lead times including queue times and
factory cycle times;
(f) Reviewing summaries of research and development
progress prepared by W-J TSMD, including summaries of
research and development funded by W-J TSMD that adds
to the value of the Intellectual Property Rights of
the parties.
11.2 Audit Rights.
As specified herein, Watkins-Johnson has the right
to audit certain costs and expenditures in connection with research and
development projects and the costs, data and methods used to adjust payments to
W-J TSMD. Such audits will occur on reasonable notice to W-J TSMD and will be
conducted in accordance with Generally Accepted Accounting Principles.
W-J TSMD agrees
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to cooperate with such audits and provide such assistance and support, at no
costs to Watkins-Johnson, as Watkins-Johnson may reasonably request.
12. MISCELLANEOUS
12.1 Currency.
Currency will be in U.S. dollars.
12.2 Amendments; Waivers.
This Agreement and any exhibit attached hereto may be amended
only by agreement in writing of Watkins-Johnson and W-J TSMD. No waiver of any
provision nor consent to any exception to the terms of this Agreement shall be
effective unless in writing and signed by the party to be bound and then only to
the specific purpose, extent and instance so provided.
12.3 Exhibits; Integration.
This Agreement, together with the exhibits attached hereto,
constitutes the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior agreements and understandings of the
parties in connection therewith except for the Purchase Agreement; provided,
however, this Agreement does supersede Exhibit D to the Purchase Agreement (the
"MIM/Glass Seal/Hybrid Assembly Term Sheet"). Without limiting the foregoing,
the parties acknowledge and agree that the exercise of any rights under this
Agreement, including a party's rights following a termination of this Agreement,
is limited by the restrictions on competitive activities set forth in Section
5.1 of the Purchase Agreement.
12.4 Governing Law.
This Agreement, the legal relations between the parties, and
any Action, whether contractual or non-contractual, instituted by any party with
respect to matters arising under or growing out of or in connection with or in
respect of this Agreement, including, but not limited to, the negotiation,
execution, interpretation, coverage, scope, performance, breach, termination,
validity, or enforceability of this Agreement, shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts made and performed in such State and without regard to conflicts of
law doctrines.
12.5 Headings.
The descriptive headings of the Articles, Sections and
subsections of this Agreement are for convenience only and do not constitute a
part of this Agreement.
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12.6 Counterparts.
This Agreement and any amendments hereto may be executed in
one or more counterparts. All of such counterparts shall constitute one and the
same agreement and shall become effective when one or more counterparts have
been signed by each party and delivered to the other party.
12.7 Notices.
Any notice or other communication hereunder must be given in
writing and (a) delivered in person, (b) transmitted by telex, telefax or
telecommunications mechanism (provided that any notice so given is also mailed
or delivered as provided in clause (c)) or (c) mailed by certified or registered
mail, postage prepaid, receipt requested or delivered by reputable overnight
courier service as follows:
If to W-J TSMD, addressed to:
Stellex Microwave Systems, Inc.
c/o Mentmore Holdings, Inc.
1430 Broadway, 13th Floor
New York, NY 10018-3308
Facsimile: 212-382-1559
Attn: Michael D. Schenker, Esq.
With a copy to:
O'Melveny & Myers
Embarcadero Center West
275 Battery Street
San Francisco, CA 94111-3305
Facsimile: 415-984-8701
Attn: George A. Riley, Esq.
If to Watkins-Johnson, addressed to:
Watkins-Johnson Company
Stanford Research Park
3333 Hillview Avenue
Palo Alto, CA 94304-1223
Facsimile: 415-813-2578
Attn: Vice President and Chief Financial Officer
or to such other address or to such other person as any party shall have last
designated by such notice to the other parties. Each such notice or other
communication shall be effective (i) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
Section 12.6 and an appropriate answerback is received, (ii) if given by mail or
by overnight delivery, three days after such communication is deposited in the
mails with first class postage prepaid or
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delivered to the overnight courier, addressed as aforesaid or (iii) if given by
any other means, when actually delivered at such address.
12.8 Expenses.
Watkins-Johnson and W-J TSMD shall each pay their own expenses
incident to the negotiation, preparation and performance of this Agreement
except as specifically set forth herein.
12.9 Remedies; Waiver.
To the extent permitted by Law, all rights and remedies
existing under this Agreement and any related agreements or documents are
cumulative to and not exclusive of, any rights or remedies otherwise available
under applicable Law. No failure on the part of any party to exercise or delay
in exercising any right hereunder shall be deemed a waiver thereof, nor shall
any single or partial exercise preclude any further or other exercise of such or
any other right.
12.10 Attorney's Fees.
In the event of any Action by any party arising under or out
of, in connection with or in respect of this Agreement, the prevailing party
shall be entitled to reasonable attorney's fees, costs and expenses incurred in
such Action.
12.11 Representation By Counsel; Interpretation.
Watkins-Johnson and W-J TSMD each acknowledge that each party
to this Agreement has been represented by counsel in connection with this
Agreement. Accordingly, any rule of Law or any legal decision that would require
interpretation of any claimed ambiguities in this Agreement against the party
that drafted it has no application and is expressly waived. The provisions of
this Agreement shall be interpreted in a reasonable manner to effect the intent
of the parties.
12.12 Specific Performance.
Watkins-Johnson and W-J TSMD each acknowledge that, in view of
the uniqueness of the transactions contemplated by this Agreement, each party
would not have an adequate remedy at law for money damages in the event that
this Agreement has not been performed in accordance with its terms, and
therefore agrees that the other party shall be entitled to specific enforcement
of the terms hereof in addition to any other remedy to which it may be entitled,
at law or in equity.
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12.13 Severability.
If any provision of this Agreement is determined to be
invalid, illegal or unenforceable by any Governmental Entity, the remaining
provisions of this Agreement shall remain in full force and effect provided that
the essential terms and conditions of this Agreement for Watkins-Johnson and W-J
TSMD remain valid, binding and enforceable.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written.
WATKINS-JOHNSON COMPANY
By: /s/ W. Keith Kennedy
--------------------------
Name: W. Keith Kennedy
------------------------
Title: President and CEO
------------------------
STELLEX MICROWAVE SYSTEMS, INC.
By: /s/ William L. Remley
--------------------------
Name: William L. Remley
------------------------
Title: Treasurer
------------------------
TSMD ACQUISITION CORP.
By: /s/ Bradley A. Jay
--------------------------
Name: Bradley A. Jay
------------------------
Title: Vice President
------------------------
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EXHIBIT A
Unit Prices
<PAGE>
Oct. 22, 1997
Pricing update for the DRO, WJ-2949-002A
Quantity Unit Price (Turnkey) Unit Price (Consigned GaAs & T/F)
1,300 * *
2,600
3,500
3,900
5,200
10,400
The redesigned piece estimate is for planning purpose only as follows:
Quantity Unit Price (Turnkey) Unit Price (consigned GaAs & T/F)
1,300 * *
2,600
3,500
3,900
5,200
10,400
*
Key conditions:
Stellex will build to print for Watkins-Johnson.
Stellex is responsible for resolution of any process related or workmanship
related problem.
Watkins-Johnson and Stellex will cooperate with one another to resolve technical
issues affecting design performance. An example would be, where a component used
in production is no longer available from the original manufacture, such as the
recent issue with the NE747 transistor.
<PAGE>
Products will be manufactured to Watkins-Johnson forecasts, based on a 10 week
lead time, and will be delivered and billed upon run closure.
Warranty of the product is for 1 year from the time Watkins-Johnson delivers to
their customer.
<PAGE>
SME PRICING SCHEDULE
ITEM PRICE (ea) Quantity
ALL ON SME LIST * Total SME orders between 1000 and 5000
per week for the total of all SME
products.
ALL ON SME LIST * Total SME orders between 100 and 1000
per week for the total of all SME
products.
SME LIST
WJ-SME1400B-10
WJ-SME1400B-13
WJ-SME1400B-17
WJ-SME1900-17
WJ-SME1901
WJ-SME1902
WJ-SME1902A
WJ-SME1904
WJ-SME1906
WJ-SME1907
WJ-SME900-17
WJ-SME902
<PAGE>
EXHIBIT B
Purchase Order
<PAGE>
CONDITIONS OF PURCHASE
Where "WJ" appears in the "Conditions of Purchase" this shall mean
Watkins-Johnson Company, or any subsidiary.
1. ACCEPTANCE AND MODIFICATION OF AGREEMENT.
This order becomes a binding contract, subject to the terms and
conditions hereof, when accepted by acknowledgment or commencement of
performance. Any modification of this order, to be valid, must be in
writing and signed by WJ's authorized purchasing representative. Any
acknowledgment form or other form of Seller containing terms and
conditions of sale submitted by Seller to WJ shall not have the effect
of modifying the terms and conditions hereof. WJ will consider Seller's
request for changes only if such request is made in writing and
directed to specific clauses in this order. No change shall be binding
upon WJ unless specifically accepted in writing.
2. PACKING, SHIPPING, DELIVERY AND RISK OF LOSS.
a) Packing and Shipping
All shipments will be packed to prevent damage in transit,
assure lowest transportation cost and meet carrier's tariff
requirements. No charge will be made for boxing, crating or
storage without prior written authorization of WJ.
Shipping costs shall be paid according to F.O.B. designation.
Where WJ is designated as paying freight, Seller bears cost of
delivery of goods to Shipper and WJ pays shipping costs in
transit. Where Seller is designated as paying freight, Seller
bears all shipping costs prior to receipt by WJ.
In the absence of specific instructions from WJ, shipment
shall be forwarded by that means of shipment necessary to
comply with the delivery date specified on the purchase order.
Seller shall not insure shipments in excess of carrier's
maximum liability. Materials shipped on this order must not be
in excess of quantity ordered. Over shipments may be returned
at Seller's expense.
b) Delivery
Time is of the essence in this order. Production schedules at
WJ are dependent upon the delivery dates specified herein, and
delays will substantially impair the value of the contract.
Seller shall bear any premium shipping costs necessary to meet
contractual delivery schedule. Seller shall report any
anticipated delay immediately for whatever cause, including
labor disputes, material shortages or other events affecting
delivery. WJ reserves the right to terminate this order for
anticipated delay and for any untimely delivery. Advanced
shipments may not be made without WJ's prior authorization.
c) Risk of Loss
Irrespective of the "F.O.B." designation on the face of this
order, title shall pass
<PAGE>
to WJ upon receipt and acceptance by WJ at is facility and
Seller shall bear the risk of loss until such receipt by WJ.
3. WARRANTIES
Acceptance of this order by Seller constitutes affirmation of fact by
Seller that goods delivered and services furnished under this order,
and the preservation, packaging, marking and preparation for shipment
of any such goods, will be of good quality and workmanship and will
conform with the specifications, model description of goods or other
requirements of this order, and shall be of merchantable quality and
fit for the purpose intended. Such warranties, together with Seller's
service warranties and guarantees, if any, shall survive inspection,
test acceptance of any payment for the items and shall run to WJ, its
successors, assigns and customers.
Except for latent defects, notice of any defect or nonconformity must
be given by WJ to the Seller within one (1) year after acceptance. WJ
may at its option, return the defective or nonconforming item at
Seller's expense for credit, or require prompt correction or
replacement or have the defective item corrected or replaced at
Seller's expense. Defective or nonconforming items shall not be
corrected or replaced unless specified on WJ's written order. Items
required to be corrected or replaced shall be subject to the provisions
of this clause and the clause hereof entitled "Inspection" in the same
manner and to the same extent as items originally delivered under this
order. However, all warranties for corrected or replaced goods shall
run for a period of one (1) year from the date of acceptance of such
corrected or replaced goods.
The rights of WJ provided in this clause are in addition to any order
rights provided by law, equity or by this order, including but not
limited to Seller indemnification of WJ for any loss or damage
resulting from the breach of any warranty expressed above. Express or
specially negotiated warranties shall not extinguish the warranties set
forth above. The goods and services furnished hereunder shall be deemed
unique under U.C.C. Section 2716.
4. [Deleted].
5. [Deleted].
6. RESPONSIBILITY FOR PROPERTY
Seller shall bear the risk and be responsible for any loss or damage to
materials, tools, equipment, data or other property furnished by WJ to
Seller.
7. CHANGES
a) WJ may at any time, by written notice to Seller, signed by
WJ's authorized purchasing representative, make changes,
within the general scope of this order, in any one or more of
the following: (i) drawings, designs or specifications, where
the goods to be furnished are to be specially manufactured for
WJ in accordance therewith; (ii) method of shipment or
packing; (iii) place of delivery; and (iv) quantities and
delivery schedules provided herein. If any such change
<PAGE>
causes an increase or decrease in the cost of or the time
required for the performance of any part of the work under
this order, an equitable adjustment shall be made in the order
price or delivery schedule, or both, and this order shall be
modified in writing accordingly. Any claim by the Seller for
adjustment under this clause must be asserted within twenty
(20) days from the date of receipt by the Seller of the
notification of change; provided, however, that WJ if it
decides that the facts justify such action, may receive and
act upon any such claim asserted at any time prior to final
payment under this order. However, nothing in this clause
shall excuse the Seller from proceeding with the contract as
changed.
b) WJ technical personnel may exchange technical information with
Seller's technical personnel concerning goods to be furnished.
Any such exchange of information shall be only by way of
assistance and shall in no way relieve Seller of obligations
to perform this order. WJ shall not be bound by any change
effective by Seller unless change is authorized by WJ in
accordance with paragraph (a) of this clause.
8. SUSPENSION OF WORK
WJ may, by written order, suspend all or part of the work to be
performed under this order for any period not to exceed ninety (90)
days. Within such period, or any extension thereof to which the parties
may agree, WJ shall either cancel such suspensions or terminate the
work covered by suspension in accordance with paragraphs 9 or 10
hereof. Seller shall resume work whenever a suspension is canceled or
expires. An equitable adjustment shall be made in the delivery
schedule, or order price, or both, if the suspension results in a
change in Seller's costs of performance or ability to meet the order
delivery schedule, provided Seller asserts a claim for adjustment
within twenty (20) days after the end of the period of suspension, and
provided the suspended work is not terminated in accordance with
paragraph 11 hereof.
9. [Deleted].
10. [Deleted].
11. [Deleted].
12. PATENTS, TRADEMARKS, TRADE NAMES AND COPYRIGHTS
Seller agrees to indemnify and save harmless WJ, its officers, agents,
successors, assigns and customers against all damages, claims, demands,
attorneys' fees and costs of any kind for actual or alleged
infringement of any trade name, trademark, copyrights or patent (unless
the goods ordered are of WJ's design) arising in connection with the
possession, sale or use of any goods or services furnished by Seller
hereunder.
13. COMPLIANCE WITH LAWS
Seller warrants that (i) in the performance of this order it will
comply with all applicable laws including but not limited to local,
state and federal laws and regulations including
<PAGE>
but not limited to the Departments of Commerce Department of
Transportation and the U.S. and California Environmental Protection
Agencies. (ii) no law, rule or ordinance of the United States, a state
or any other governmental agency has been violated in the manufacture
or sale of the items or in the performance of services covered by this
order, and will defend and hold WJ harmless from loss, cost or damage
as result of any such actual or alleged violation, or breach of the
warranties herein.
14. HAZARDOUS MATERIALS
a) If goods or services provided hereunder include hazardous
materials as defined by relevant local, state or national law,
Seller represents and warrants that Seller and its employees
providing Services to Buyer understand the nature of and
hazards associated with the handling, transportation, and use
of such hazardous materials, as applicable to Seller.
Seller will be fully responsible for indemnification of any
liability resulting from Seller's actions in connections with
(i) providing such hazardous materials to Buyer, or (ii) the
use of such hazardous materials in providing Services to
Buyer.
b) Seller will promptly provide Buyer with safety data sheets and
any other documentation reasonable necessary to enable Buyer
to comply with applicable laws and regulations.
c) Seller hereby certifies that Items supplied to Buyer do not
"contain" and are not "manufactured with" any ozone depleting
substances, as those terms are defined by law.
15. ASSIGNMENT OF RIGHTS
The term "subcontract" includes but is not limited to purchase orders,
changes and/or modifications thereto. Neither this order nor any right
or obligation hereunder (including claims for moneys due) shall be
assigned by Seller without prior written consent of WJ. All claims for
moneys due or to become due from WJ shall be subject to set-off or
counterclaim arising out of this or any other WJ contract with Seller,
whether before or after date of this order.
16. [Deleted].
17. [Deleted].
18. TAXES
Except as may be otherwise provided in the order, no sales tax shall be
payable, and the price is inclusive of all other applicable taxes.
19. INSOLVENCY
In the event of any proceeding, voluntary or involuntary, in bankruptcy
or insolvency by or against Seller, or in the event of the appointment,
with or without the Seller's consent,
<PAGE>
of an assignee for the benefit of creditors, or of a receiver, WJ may
elect to cancel any unfulfilled part of this order without further cost
or liability.
20. INDEMNIFICATION AND INSURANCE
a) Seller agrees to protect, defend, indemnify and hold Buyer
harmless from and against any and all claims, liabilities,
demands, penalties, forfeitures, suits, judgments and the
associated costs and expenses (including attorney's fees),
which Buyer may hereafter incur, as a result of death or
personal injury (including bodily injury) to any person,
destruction or damage to any property, or any violation of
governmental law, regulation, or orders, caused, in whole or
by (a) Seller's breach of any term or provision of this
Agreement, (b) errors, omissions, or willful acts by Seller,
its employees, agents, or subcontractors in the performance of
this Agreement, (c) the presence of Seller's agents,
employees, or subcontractors ("personnel") or equipment on WJ
property, or (d) the use by Seller's personnel of WJ provided
property and equipment, whether or not claims are based on the
condition of such property and equipment or any alleged
negligence of WJ in permitting its use.
b) Seller represents that it carries insurance in at least the
following amounts:
i) Worker's Compensation--statutory limits
ii) Employer's Liability--$500,000 per employee
iii) Blanket General Liability--$1,000,000
iv) Automobile Liability--$1,000,000
Such policies or certificates of insurance shall be furnished
to WJ upon request.
21. INDEPENDENT CONTRACTOR
In performing Services under this Agreement, Seller shall be deemed an
independent contractor and its personnel and other representatives
shall not act as nor be agents or employees of Buyer. As an independent
contractor, Seller will be solely responsible for determining the means
and methods for performing the required Services. Seller shall have
complete charge and responsibility for personnel employed by Seller;
however, Buyer reserves the right to instruct Seller to remove Buyer's
premises immediately any of Seller's personnel who is in breach of
Section 22 of this Agreement. Such removal shall not affect Seller's
obligation to provide Services under this Agreement.
22. SECURITY
Seller confirms, to the best of its knowledge, that employees of Seller
performing work at Buyer's facilities have no record of criminal
convictions involving drugs, assaultive or combative behavior or theft
within the last five years. Seller understands that such employees may
be subject to criminal history investigations by Buyer at Buyer's
expense and will be denied access to Buyer's facilities if any such
criminal convictions are discovered.
23. DISPUTES
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a) Any dispute arising under this purchase order which is not
settled by agreement of the parties shall be settled by
arbitration, under the commercial rules of the American
Arbitration Association, applying California law, with venue
at Palo Alto, California. Pending decision or settlement of
any dispute, Seller shall proceed diligently with the
performance of this purchase order. Failure of Seller to so
proceed shall be cause for default termination.
b) [Deleted].
24. [Deleted].
25. NONWAIVER
WJ's failure to insist on strict performance of any provision of this
order, or acceptance of nonconforming goods or services shall not be
deemed to be a waiver of WJ's rights or remedies, or a waiver of any
subsequent default in performance.
26. PRECEDENCE
In the event of any inconsistency among the referenced documents,
attachments, drawings, specifications or other provisions of this
order, the following order of precedence shall apply:
a) Special terms and conditions
b) General terms and conditions
c) Specifications
d) Drawings
e) All other attachments or documents incorporated herein by
reference
27. [Deleted].
<PAGE>
CROSS LICENSE AGREEMENT
THIS CROSS LICENSE AGREEMENT ("License Agreement"), dated as
of October 31, 1997, is made by and among WATKINS-JOHNSON COMPANY, a California
corporation ("Watkins-Johnson"); STELLEX MICROWAVE SYSTEMS, INC., formerly knows
as W-J TSMD INC., a California corporation and a wholly-owned subsidiary of
Watkins-Johnson ("W-J TSMD"); and TSMD ACQUISITION CORP., a Delaware corporation
("TSMD Acquisition").
RECITALS
WHEREAS, the parties have entered into a Stock Purchase
Agreement dated as of August 29, 1997 ("Purchase Agreement"), whereby TSMD
Acquisition has agreed to purchase, and Watkins-Johnson has agreed to sell, all
of the outstanding stock of W-J TSMD; and
WHEREAS, pursuant to the Purchase Agreement, Watkins-Johnson
has transferred and assigned to W-J TSMD certain patents and patent applications
used in or related to the business of W-J TSMD; and
WHEREAS, Watkins-Johnson desires to be licensed to the
patents and patent applications transferred to W-J TSMD; and
WHEREAS, W-J TSMD and TSMD Acquisition desire to be licensed
to certain patents and patent applications retained by Watkins-Johnson; and
WHEREAS, the execution of this License Agreement is a
condition to the closing of the purchase and sale of the outstanding stock of
W-J TSMD under the Purchase Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, the parties agree as follows:
1. DEFINITIONS
For all purposes of this License Agreement, except as
otherwise expressly provided:
(a) the terms defined in this Section 1 have the
meanings assigned to them in this Section 1 and include the
plural as well as the singular;
(b) all references in this License Agreement to designated
"Sections," "Paragraphs," and other subdivisions are to the designated Sections,
Paragraphs and other subdivisions of the body of this License Agreement;
- ----------
*Indicates that certain material has been omitted pursuant to a request for
confidential treatment. Such material is contained in a copy of this
document provided to the Securities and Exchange Commission.
1
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(c) pronouns of either gender or neuter shall include,
as appropriate, the other pronoun forms; and
(d) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this License Agreement as a whole and not to
any particular Article, Section or other subdivision.
As used in this License Agreement and the Exhibits and
Schedules delivered pursuant to this License Agreement, the following
definitions shall apply:
"Action" means any action, complaint, petition, investigation,
suit or other proceeding, whether civil or criminal, in law or in equity, or
before any arbitrator or Governmental Entity.
"Affiliate" means a Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, a specified Person.
"Circuit Assembly" means (a) a circuit or a circuit system,
including hardware and/or software, in which one or more Semiconductor Devices
and/or one or more Integrated Circuits are interconnected by a printed circuit
board, printed wiring board, multichip model or otherwise, in one or more paths
(including passive circuit elements, if any), for performing electrical
functions, and (b) a combination of such circuits or circuit systems and (c) if
provided therewith, I/O devices or housing and/or supporting means therefor.
"Closing" means the consummation of the purchase and sale of
all the stock of W-J TSMD under the Purchase Agreement.
"Effective Date" means the date of Closing.
"Excluded TSMD Products" means modular subsystems, microwave
devices and electronic equipment that are used in defense and space applications
including, but not limited to: (i) guided missile systems; (ii) intelligence and
surveillance applications; (iii) electronic warfare and radar; (iv) military and
commercial satellites; and (v) commercial test and measurement equipment.
Notwithstanding the foregoing, Excluded TSMD Products shall not include
intelligence systems manufactured by Watkins-Johnson's Telecommunications Group
in Gaithersburg, Maryland, and designed to intercept communications signals.
"Excluded Watkins-Johnson Patents" means the patents listed on
Schedule 1 and any patent applications filed after the Effective Date and before
the first anniversary of the Effective Date that are wholly unrelated to the
Business and that are excluded with the written consent of TSMD Group, which
consent shall not be unreasonably withheld.
2
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"Gallium Arsenide Part" means a wafer, die or dice comprising
one or more layers of gallium arsenide, on which is implemented one or more
transistors or diodes.
"GaAs/Thin Film Agreement" means the Gallium Arsenide
and Thin Film Supply and Services Agreement between the parties
of even date herewith.
"Governmental Entity" means any government or any agency,
bureau, board, commission, court, department, official, political subdivision,
tribunal or other instrumentality of any government, whether federal, state or
local, domestic or foreign.
"Integrated Circuit" means an integral unit comprising a
plurality of active and/or passive circuit elements associated on one or more
substrates, such unit forming, or contributing to the formation of, a circuit
for performing electrical functions including, but not limited to, microwave
integrated circuits, and, if provided therewith, housing and/or supporting means
therefor.
"Licensee" means Watkins-Johnson, W-J TSMD or TSMD, as
the case may be.
"Licensor" means Watkins-Johnson, W-J TSMD or TSMD, as the
case may be, and, in each case, shall include Affiliates of such party.
"Patents" means TSMD Patents or Watkins-Johnson
Patents, as the case may be.
"Person" means an association, a corporation, an individual, a
partnership, a trust or any other entity or organization, including a
Governmental Entity.
"Semiconductor Device" means a device and any material
therefor, comprising a body of one or more Semiconductor Materials and one or
more electrodes associated therewith, and, if provided therewith, housing and/or
supporting means therefor.
"Semiconductor Material" means any material whose conductivity
is intermediate to that of metals and insulators at room temperature and whose
conductivity, over some temperature range, increases with increases in
temperature. Such materials shall include, but not be limited to, refined
products, reaction products, reduced products, mixtures and compounds.
"Thin Film Part" means any component, interconnect, wafer,
substrate, die or dice comprising one or more layers of thin film material such
as tantalum nitride and/or gold.
"TSMD Group" means W-J TSMD and TSMD Acquisition,
collectively.
3
<PAGE>
"TSMD Licensed Products" means: (a) products, technology and
services related to the design, development, manufacture, testing and sale of
electronic devices and equipment; (b) Circuit Assemblies, Integrated Circuits,
Semiconductor Devices and Semiconductor Material; (c) materials used to
manufacture, house, mount, interconnect or package (a) and (b); all of the above
excluding Excluded Watkins-Johnson Products.
"TSMD Patents" means (a) all patent applications filed in any
country of the world and patents issued or issuing thereon, owned or controlled
by, or licensed to with the right to sublicense, W-J TSMD, TSMD Acquisition or
their Affiliates that have a first effective filing date prior to the first
anniversary of the Effective Date; (b) all continuations, continuations-in-part,
patents of addition, divisionals, reexamination certificates, reissues or
extensions, including supplemental protection certificates, of any of (a) above;
and (c) all foreign counterparts applied for, issued or issuing on any of (a) or
(b) above.
"Watkins-Johnson Licensed Products" means (a) products,
technology and services related to the design, development, manufacture, testing
and sale of electronic devices and equipment; (b) Circuit Assemblies, Integrated
Circuits, Semiconductor Devices and Semiconductor Material; (c) materials used
to manufacture, house, mount, interconnect or package (a) and (b); all of the
above excluding Excluded TSMD Products.
"Watkins-Johnson Patents" means (a) all patent applications
filed in any country of the world and patents issued or issuing thereon, owned
or controlled by, or licensed to with the right to sublicense, Watkins-Johnson
or its Affiliates that have a first effective filing date prior to the first
anniversary of the Effective Date; (b) all continuations, continuations-in-part,
patents of addition, divisionals, reexamination certificates, reissues or
extensions, including supplemental protection certificates, of any of (a) above;
and (c) all foreign counterparts applied for, issued or issuing on any of (a) or
(b) above. Watkins-Johnson Patents shall not include the Excluded
Watkins-Johnson Patents.
2. LICENSE GRANTS
2.1 Grant by Watkins-Johnson.
Subject to the terms and conditions of this License Agreement,
Watkins-Johnson hereby grants to TSMD Acquisition and to W-J TSMD non-exclusive,
non-transferable, worldwide royalty-free, fully paid up, perpetual licenses or
sublicenses, as the case may be, without the right to sublicense (except as
provided in Section 2.3), under Watkins-Johnson Patents, to make, to have made,
to use, to import, to export, to sell (either directly or
4
<PAGE>
indirectly) or to offer to sell (either directly or indirectly), to lease and to
otherwise dispose of TSMD Licensed Products, to do such other acts in regard to
TSMD Licensed Products as may, during the term of such licenses, be within the
scope of the patent grant and to have made and/or use any equipment, or practice
any method or process for the manufacture and sale thereof of TSMD Licensed
Products; provided, however, that with regard to the manufacture of Gallium
Arsenide Parts, such licenses shall be limited to the production of Gallium
Arsenide Parts for use in Integrated Circuits or Circuit Assemblies sold by TSMD
Acquisition or W-J TSMD.
2.2 Grant by TSMD Group.
Subject to the terms and conditions of this License Agreement,
TSMD Acquisition and W-J TSMD each hereby grants to Watkins-Johnson
non-exclusive, non-transferable, worldwide royalty-free, fully paid up,
perpetual licenses or sublicenses, as the case may be, without the right to
sublicense (except as provided in Section 2.3), under TSMD Patents, to make, to
have made, to use, to import, to export, to sell (either directly or indirectly)
or to offer to sell (either directly or indirectly), to lease and to otherwise
dispose of W-J Licensed Products, to do such other acts in regard to W-J
Licensed products as may, during the term of such licenses, be within the scope
of the patent grant and to have made and/or use any equipment, or practice any
method or process for the manufacture and sale thereof of W-J Licensed Products;
provided, however, that the licenses granted hereunder for the manufacture of
Thin Film Parts shall be limited to the manufacture of Thin Film Parts for use
in Integrated Circuits and Circuit Assemblies sold by Watkins-Johnson.
Notwithstanding the foregoing, Watkins-Johnson shall be licensed to sell Thin
Film Parts to third parties upon the effective date of the termination of the
GaAs\Thin Film Supply Agreement if such termination is caused by the election or
default of TSMD Acquisition or W-J TSMD.
2.3 Sublicense Rights.
Each party shall have the right to grant sublicenses of the
licenses granted hereunder to its Affiliates upon the condition that such
Affiliates are bound by the terms and conditions of this License Agreement and
that the patents of such Affiliates, covering both utility models and design
patents, and applications therefor having a filing date prior to the first
anniversary of the Effective Date, shall be included in that party's grant of
license rights hereunder. A sublicense to a party's Affiliate shall be effective
only during the time period when the business entity meets all requirements of
an Affiliate.
5
<PAGE>
3. THIRD PARTY-PARTY LICENSES
3.1 Rights under Third-Party Licenses.
Each Licensor shall have the following obligations to ensure
that a Licensee shall have all rights under third-party license agreements
contemplated by the license granted hereunder:
(a) In the event that a Licensor elects to terminate or not to
exercise an option to extend a third-party license agreement for any reason,
Licensor shall take all such actions as may be reasonably necessary to enable
Licensee to step-in and assume the rights and obligations of the Licensor under
such third-party license agreement.
(b) In the event that Licensor receives notice that it is in
breach of a third-party license agreement, Licensor shall give prompt notice to
Licensee and take all actions as are reasonably necessary to cure, or to assist
Licensee in curing, such breach.
(c) In the event that Licensor receives notice that a
third-party licensor proposes to terminate or has terminated a third-party
license agreement, Licensor shall give prompt notice to Licensee and, if
requested by Licensee, shall use commercially reasonable efforts to assist
Licensee in negotiating a license with the third-party licensor.
(d) Schedule 2 includes a complete list of each third-party
license agreement to which each Licensor is a party and for which such Licensor
has sublicensing rights. Each Licensor will provide, within 30 days after the
Effective Date a revised Schedule 2 setting forth all royalties, license fees,
milestone payments, and similar payments due to any third party for which
Licensee may become obligated under Section 3.2, which Schedule 2 shall be
updated on a semi-annual basis.
3.2 Obligations to Third Parties.
(a) Each Licensee receiving sublicense rights hereunder shall
be responsible for any payments or other obligations of a sublicensee arising
under third-party license agreements in connection with the commercialization of
a Licensed Product by such Licensee, its Affiliates and sublicensees. Such
Licensee shall provide to Licensor copies of all royalty reports required to be
delivered under a third-party license agreement.
(b) Each Licensee shall be responsible for any incremental
payments that may result from Licensor granting to or obtaining for Licensee
sublicense rights in any third-party license agreement to which such Licensee
has consented (last of consent to negate any such sublicense rights).
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<PAGE>
4. PATENT PROSECUTION AND LITIGATION
4.1 Patent Prosecution.
Each party shall have the responsibility, but not the
obligation, for preparing, filing, prosecuting and maintaining its own Patents
worldwide and conducting any interferences, oppositions, reexaminations, or
requesting reissues or patent term extensions with respect to such Patents.
4.2 Patent Enforcement.
Subject to the indemnification provisions of the Purchase
Agreement, each Party shall have the exclusive right, but not the obligation, at
its own expense, to enforce its own Patents in any proceeding or to defend its
own Patents against any declaratory judgment action. Such party shall have the
right to retain any recovery received as a result of any such claim, suit or
proceeding.
4.3 Infringement Claims.
If the development, production, sale or use of any Licensed
Product pursuant to this License Agreement results in any claim or Action
alleging patent infringement against a Licensee (or its Affiliates), the
Licensee shall have the exclusive right to defend and control the defense of any
such claim or Action, at its own expense subject to the indemnification
provisions of the Purchase Agreement. Licensor shall have the right, but not the
obligation, to participate in such defense, at its expense, and Licensee agrees
to reasonably consult and cooperate with Licensor in that regard. Licensee shall
not be entitled as part of the settlement of any such claim or Action, to admit
the invalidity of another party's Patents without that other party's written
consent.
4.4 Patent Marking.
Licensee agrees to mark and have its Affiliates and
sublicensees mark all products licensed pursuant to this License Agreement in
accordance with the applicable statutes or regulations in the country or
countries of manufacture and sale thereof.
5. REPRESENTATIONS and WARRANTIES
5.1 Representations of Each Party.
Each party represents and warrants that:
(i) it has the full right and authority to enter
into this License Agreement and grant each of the rights,
licenses and sublicenses that it has granted herein;
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<PAGE>
(ii) as of the Effective Date, it will not have in
effect any grant, and will not grant in the future, any rights inconsistent or
in conflict with the rights, licenses and sublicenses granted or to be granted
herein, nor does any of its Affiliates have any rights inconsistent, or in
conflict with the rights, licenses and sublicenses granted or to be granted
herein by a party;
(iii) as of the Effective Date there are no
existing or threatened actions, suits or claims pending against such party with
respect to its Patents or the right of such party to enter into and perform its
obligations under this License Agreement;
(iv) except with regard to Watkins-Johnson's
assignment to W-J TSMD of certain intellectual property, including patents and
patent applications, pursuant to the Purchase Agreement, it has made no grant,
assignment, transfer, license or sublicense, or taken any other action with
respect to any invention, patent or patent application (other than actions in
the normal course of patent prosecution) which would have been included in the
license to Patents hereunder but for such grant, assignment, transfer, license,
sublicense or action.
5.2 Disclaimer.
EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT OR
THE PURCHASE AGREEMENT, EACH PARTY MAKES NO REPRESENTATIONS AND EXTENDS NO
WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED
TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR VALIDITY
OR ENFORCEABILITY OF PATENTS OR CLAIMS THEREOF ISSUED OR PENDING.
6. EFFECTIVE DATE, TERM AND TERMINATION
6.1 Effectiveness.
This License Agreement shall become effective on the Effective
Date, and the licenses granted hereunder shall be in full force and effect as of
such date.
6.2 Term.
This License Agreement shall continue in full force and effect
until the expiration of the last to expire Patent.
6.3 Termination. If any party commits a material breach of
this License Agreement and does not correct such breach within forty-five (45)
days after written notice complaining thereof is given to such party, this
License Agreement may be terminated forthwith by written notice to that effect
from the complaining party. The licenses granted hereunder shall survive such
termination of this License Agreement for the life or lives
8
<PAGE>
of the Watkins-Johnson Patents or TSMD Patents, as the case
may be.
6.4 Bankruptcy.
This License Agreement is a license for "Intellectual
Property" as that term is defined under Section 365(n) of the Bankruptcy Code.
7. MISCELLANEOUS
7.1 Assignment.
This License Agreement and the licenses granted hereunder may
not be assigned, except by a party to (a) an Affiliate of such party or (b) an
entity that acquires all or substantially all of the assets of such party;
provided, however, than any acquiring entity shall agree in writing to be bound
by the terms of this License Agreement. The terms and conditions of this License
Agreement shall be binding on and inure to the benefit of the permitted
successors and assigns of the parties. Assignment by either party of any of its
Patents shall not affect the license rights acquired herein to such Patent(s),
and any such assignment shall be subject to the continuing license rights of the
other party.
7.2 Amendments; Waivers.
This License Agreement and any schedule or exhibit attached
hereto may be amended only by agreement in writing of all parties. No waiver of
any provision nor consent to any exception to the terms of this License
Agreement or any agreement contemplated hereby shall be effective unless in
writing and signed by the party to be bound and then only to the specific
purpose, extent and instance so provided.
7.3 Schedules; Exhibits; Integration.
Each schedule and exhibit delivered pursuant to the terms of
this License Agreement shall be in writing and shall constitute a part of this
License Agreement, although schedules need not be attached to each copy of this
License Agreement. This License Agreement, together with such schedules and
exhibits, constitutes the entire agreement among the parties pertaining to the
subject matter hereof and supersedes all prior agreements and understandings of
the parties in connection therewith, except for the Purchase Agreement.
7.4 Governing Law.
This License Agreement, the legal relations between the
parties and any Action, whether contractual or non-contractual, instituted by
any party with respect to matters arising under or
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growing out of or in connection with or in respect of this License Agreement,
including, but not limited to, the negotiation, execution, interpretation,
coverage, scope, performance, breach, termination, validity, or enforceability
of this License Agreement, shall be governed by and construed in accordance with
the patent laws of the United States, Title 35 U.S. Code, and the laws of the
State of California applicable to contracts made and performed in such State and
without regard to conflicts of law doctrines, except to the extent that certain
matters are preempted by federal law or are governed as a matter of controlling
law by the law of the jurisdiction of incorpora tion of the respective parties.
7.5 Headings.
The descriptive headings of the Articles, Sections and
subsections of this License Agreement are for convenience only and do not
constitute a part of this License Agreement.
7.6 Notices.
Any notice or other communication hereunder must be given in
writing and (a) delivered in person, (b) transmitted by telex, telefax or
telecommunications mechanism (provided that any notice so given is also mailed
or delivered as provided in clause (c)) or (c) mailed by certified or registered
mail, postage prepaid, receipt requested or delivered by reputable overnight
courier service as follows:
If to Watkins-Johnson, addressed to:
Watkins-Johnson Company
Stanford Research Park
3333 Hillview Avenue
Palo Alto, CA 94304-1233
Facsimile: 415-813-2578
Attn: Vice President and Chief Financial Officer
If to W-J TSMD or TSMD Acquisition, addressed to:
TSMD Acquisition Corp.
c/o Mentmore Holdings, Inc.
1430 Broadway, 13th Floor
New York, NY 10018-3308
Facsimile: 212-
Attn: Michael D. Schenker, Esq.
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With a copy to:
O'Melveny & Myers
Embarcadero Center West
275 Battery Street
San Francisco, CA 94111-3305
Facsimile: 415-984-8701
or to such other address or to such other person as either party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective (i) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
Section 9.11 and an appropriate answerback is received, (ii) if given by mail or
by overnight delivery, three days after such communication is deposited in the
mails with first class postage prepaid or delivered to the overnight courier,
addressed as aforesaid or (iii) if given by any other means, when actually
delivered at such address.
7.7 Remedies; Waiver.
To the extent permitted by Law, all rights and remedies
existing under this License Agreement and any related agreements or documents
are cumulative to and not exclusive of, any rights or remedies otherwise
available under applicable Law. No failure on the part of any party to exercise
or delay in exercising any right hereunder shall be deemed a waiver thereof, nor
shall any single or partial exercise preclude any further or other exercise of
such or any other right.
7.8 Attorney's Fees.
In the event of any Action by any party arising under or out
of, in connection with or in respect of, including any participation in
bankruptcy proceedings to enforce against a party a right or claim in such
proceedings, the prevailing party shall be entitled to reasonable attorney's
fees, costs and expenses incurred in such Action. Attorney's fees incurred in
enforcing any judgement in respect of this License Agreement are recoverable as
a separate item. The parties intend that the preceding sentence be severable
from the other provisions of this License Agreement, survive any judgment and,
to the maximum extent permitted by law, not be deemed merged into such judgment.
7.9 Representation By Counsel; Interpretation.
Watkins-Johnson and the TSMD Group each acknowledge that each
party to this License Agreement has been represented by counsel in connection
with this License Agreement and the transactions contemplated by this License
Agreement. Accordingly, any rule of Law, including but not limited to
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Section 1654 of the California Civil Code, or any legal decision that would
require interpretation of any claimed ambiguities in this License Agreement
against the party that drafted it has no application and is expressly waived.
The provisions of this License Agreement shall be interpreted in a reasonable
manner to effect the intent of the parties.
7.10 Specific Performance.
The parties to this License Agreement acknowledge that, in
view of the uniqueness of the transactions contemplated by this License
Agreement, each party would not have an adequate remedy at law for money damages
in the event that this License Agreement has not been performed in accordance
with its terms, and therefore agrees that the other party shall be entitled to
specific enforcement of the terms hereof in addition to any other remedy to
which it may be entitled, at law or in equity.
7.11 Severability.
If any provision of this License Agreement is determined to be
invalid, illegal or unenforceable by any Governmental Entity, the remaining
provisions of this License Agreement shall remain in full force and effect
provided that the essential terms and conditions of this License Agreement for
the parties remain valid, binding and enforceable.
12
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto have caused
this License Agreement to be executed by its duly authorized representative as
of the date first above written.
WATKINS-JOHNSON COMPANY
By: /s/ W. Keith Kennedy
--------------------------
Name: W. Keith Kennedy
------------------------
Title: President and CEO
------------------------
STELLEX MICROWAVE SYSTEMS, INC.
By: /s/ William L. Remley
--------------------------
Name: William L. Remley
------------------------
Title: Treasurer
------------------------
TSMD ACQUISITION CORP.
By: /s/ Bradley A. Jay
--------------------------
Name: Bradley A. Jay
-----------------------
Title: Vice President
-----------------------
13
<PAGE>
SCHEDULE 1 TO LICENSE AGREEMENT
EXCLUDED PATENTS/PATENT APPLICATIONS/INVENTION DISCLOSURES
The following are excluded from license or transfer to TSMD:
(a)
<TABLE>
<CAPTION>
Reference No. Title/First Named Inventor Serial No./ Patent No./
Filing Date Issue Date
<S> <C> <C> <C>
A-16178-6/AJT LOW TEMPERATURE CHEMICAL VAPOR DEPOSITION OF SILICON USSN 07/068,727 US 4,845,054
DIOXIDE Filed 06/29/87 Issued 07/04/89
A-16178-7/AJT CVD REACTOR AND GAS INJECTION SYSTEM USSN 07/044,326 US 4,834,022
Filed 10/27/87 Issued 05/30/89
*
A-44048/AJT ATMOSPHERIC PRESSURE CHEMICAL VAPOR DEPOSITION USSN 07/128,806 US 4,834,020
APPARATUS AND METHOD; Bartholomew Filed 12/04/87 Issued 05/03/89
A-44153/AJT CLEAN ROOM ROBOT; Stevens USSN 07/089,591 US 4,787,813
08/26/87 Issued 11/29/88
*
</TABLE>
SCHEDULE 1 TO PATENT CROSS LICENSE AGREEMENT
EXCLUDED PATENTS/PATENT APPLICATIONS/INVENTION DISCLOSURES October 30, 1997
1
<PAGE>
<TABLE>
<CAPTION>
Reference No. Title/First Named Inventor Serial No./ Patent No./
Filing Date Issue Date
<S> <C> <C> <C>
*
A-52244/AJT ELECTRICALLY INSULATED PIPE COUPLING APPARATUS; Gralenski USSN 07/570,122 US 5,088,773
Filed 08/17/90 Issued 02/18/92
A-52353/AJT/WSG INJECTOR AND METHOD FOR DELIVERING GASEOUS CHEMICALS TO A USSN 07/542,243 US 5,136,975
SURFACE; Bartholomew Filed 06/21/90 Issued 08/11/92
A-52354/AJT/WSG SELF CLEANING ORIFICE; Kamian USSN 07/513,807 US 5,113,789
Filed 04/24/90 Issued 05/19/92
*
A-53836/AJT LIQUID SOURCE BUBBLER; Richie USSN 07/601,270 US 5,078,922
Filed 10/22/90 Issued 01/07/92
*
A-53859/AJT LIQUID LEVEL SENSOR ASSEMBLY; Goodrich USSN 07/601,408 US 5,029,471
Filed 10/23/90 Issued 07/09/91
*
</TABLE>
SCHEDULE 1 TO PATENT CROSS LICENSE AGREEMENT
EXCLUDED PATENTS/PATENT APPLICATIONS/INVENTION DISCLOSURES October 30, 1997
2
<PAGE>
<TABLE>
<CAPTION>
Reference No. Title/First Named Inventor Serial No./ Patent No./
Filing Date Issue Date
<S> <C> <C> <C>
*
A-56598/AJT HEATER FOR PROCESSING GASES; Collins USSN 07/971,490 US 5,377,300
Filed 11/04/92 Issued 12/27/94
A-56818/AJT LOW PHASE NOISE REFERENCE OSCILLATOR; Nardi USSN 08/091,615 US 5,341,110
Filed 07/14/93 Issued 08/23/94
*
A-58019/AJT CHEMICAL VAPOR DEPOSITION OF SILICON DIOXIDE USING USSN 08/071,516 US 5,304,398
HEXAMETHYLDISILAZANE; Krusell Filed 06/03/93 Issued 04/19/94
*
</TABLE>
SCHEDULE 1 TO PATENT CROSS LICENSE AGREEMENT
EXCLUDED PATENTS/PATENT APPLICATIONS/INVENTION DISCLOSURES October 30, 1997
3
<PAGE>
<TABLE>
<CAPTION>
Reference No. Title/First Named Inventor Serial No./ Patent No./
Filing Date Issue Date
<S> <C> <C> <C>
*
A-60164 /AJT/MSS METHOD OF PLANARIZING A LAYER OF MATERIAL; Fry USSN 08/447,809 US 5,668,063
Filed 5/23/95 Issued 09/16/97
A-60785/AJT/MSS METHOD OF FORMING A FLUORINATED SILICON OXIDE LAYER USING USSN 08/386,647 US 5,571,576
PLASMA CHEMICAL VAPOR DEPOSITION; Qian Filed 02/10/95 Issued 11/05/96
</TABLE>
SCHEDULE 1 TO PATENT CROSS LICENSE AGREEMENT
EXCLUDED PATENTS/PATENT APPLICATIONS/INVENTION DISCLOSURES October 30, 1997
4
<PAGE>
<TABLE>
<CAPTION>
Reference No. Title/First Named Inventor Serial No./ Patent No./
Filing Date Issue Date
<S> <C> <C> <C>
*
</TABLE>
SCHEDULE 1 TO PATENT CROSS LICENSE AGREEMENT
EXCLUDED PATENTS/PATENT APPLICATIONS/INVENTION DISCLOSURES October 30, 1997
5
<PAGE>
<TABLE>
<CAPTION>
Reference No. Title/First Named Inventor Serial No./ Patent No./
Filing Date Issue Date
<S> <C> <C> <C>
*
</TABLE>
SCHEDULE 1 TO PATENT CROSS LICENSE AGREEMENT
EXCLUDED PATENTS/PATENT APPLICATIONS/INVENTION DISCLOSURES October 30, 1997
6
<PAGE>
<TABLE>
<CAPTION>
Reference No. Title/First Named Inventor Serial No./ Patent No./
Filing Date Issue Date
<S> <C> <C> <C>
*
</TABLE>
SCHEDULE 1 TO PATENT CROSS LICENSE AGREEMENT
EXCLUDED PATENTS/PATENT APPLICATIONS/INVENTION DISCLOSURES October 30, 1997
7
<PAGE>
<TABLE>
<CAPTION>
Reference No. Title/First Named Inventor Serial No./ Patent No./
Filing Date Issue Date
<S> <C> <C> <C>
*
</TABLE>
SCHEDULE 1 TO PATENT CROSS LICENSE AGREEMENT
EXCLUDED PATENTS/PATENT APPLICATIONS/INVENTION DISCLOSURES October 30, 1997
8
<PAGE>
<TABLE>
<CAPTION>
Reference No. Title/First Named Inventor Serial No./ Patent No./
Filing Date Issue Date
<S> <C> <C> <C>
*
</TABLE>
SCHEDULE 1 TO PATENT CROSS LICENSE AGREEMENT
EXCLUDED PATENTS/PATENT APPLICATIONS/INVENTION DISCLOSURES October 30, 1997
9
<PAGE>
<TABLE>
<CAPTION>
Reference No. Title/First Named Inventor Serial No./ Patent No./
Filing Date Issue Date
<S> <C> <C> <C>
*
SS-578-06 CHEMICAL VAPOR DEPOSITION REACTOR US 4,993,358
AND METHOD 02/19/91
*
SS-578-07 MULTI-ZONE PLANAR HEATER ASSEMBLY US 5,059,770
AND METHOD OF OPERATION 10/22/91
*
</TABLE>
SCHEDULE 1 TO PATENT CROSS LICENSE AGREEMENT
EXCLUDED PATENTS/PATENT APPLICATIONS/INVENTION DISCLOSURES October 30, 1997
10
<PAGE>
<TABLE>
<CAPTION>
Reference No. Title/First Named Inventor Serial No./ Patent No./
Filing Date Issue Date
<S> <C> <C> <C>
*
SS-578-08 CONTROLLED-CONVECTION SURFACE-MOUNT REFLOW FURNACE US 5,232,145
08/03/93
SS-578-11 METHOD AND APPARATUS FOR PRODUCING HIGHLY CONDUCTIVE AND US 5,122,391
TRANSPARENT FILMS OF TIN AND FLUORINE DOPED INDIUM OXIDE BY 06/16/92
APCVD
*
G-16178-8 FLUIDIZED BED HEATER FOR SEMICONDUCTOR PROCESSING USSN 707262 US 4,673,799
Filed 03/01/85 Issued 06/16/87
</TABLE>
SCHEDULE 1 TO PATENT CROSS LICENSE AGREEMENT
EXCLUDED PATENTS/PATENT APPLICATIONS/INVENTION DISCLOSURES October 30, 1997
11
<PAGE>
<TABLE>
<CAPTION>
Reference No. Title/First Named Inventor Serial No./ Patent No./
Filing Date Issue Date
<S> <C> <C> <C>
*
</TABLE>
plus, (b) all continuations, continuations-in-part, patents of addition,
divisions, re-examinations, certifications, reissues, or extensions, including
supplemental protection certificates of any of (a) above, and (c) all foreign
counterparts applied for, issued, or issuing on any of (a) or (b) above.
SCHEDULE 1 TO PATENT CROSS LICENSE AGREEMENT
EXCLUDED PATENTS/PATENT APPLICATIONS/INVENTION DISCLOSURES October 30, 1997
12
<PAGE>
SCHEDULE 2 TO LICENSE AGREEMENT
THIRD PARTY LICENSE AGREEMENTS
None.
<PAGE>
Exhibit 12.1
Stellex Industries, Inc. and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
Six Three Pro Forma Nine
Months Months Year Months
Years Ended December 31, Ended Ended Ended Ended
------------------------------------- June 30, September December September
1992 1993 1994 1995 1996 1997 30, 1997 31, 1996 30, 1997
---- ---- ---- ---- ---- ---- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings(a):
Earnings before $1,028 $100 $81 $1,312 $2,377 $1,884 $32 ($9,439) $1,535
taxes
Add: Fixed Charges 1,386 1,078 979 1,034 856 376 520 10,984 8,527
Less: Preferred
stock dividends -- -- -- -- -- -- -- 1,145 859
----- ----- ------ ----- --- --- --- ------ -----
$2,414 $1,178 $1,060 $2,346 $3,233 $2,260 $552 $ 400 $ 9,203
====== ====== ====== ====== ====== ====== ==== ====== =======
Fixed Charges(a):
Interest expense $1,386 $1,078 $979 $1,034 $856 $376 $508 $10,484 $8,277
Debt issuance costs -- -- -- -- -- -- 12 500 250
----- ----- --- ----- --- --- --- ------ -----
$1,386 $1,078 $979 $1,034 $856 $376 $520 $10,984 $8,527
====== ====== ==== ====== ==== ==== ==== ====== =====
Ratio of Earnings to 1.74 1.09 1.08 2.27 3.78 6.01 1.06 (b) 1.08
Fixed Charges ==== ==== ==== ==== ==== ==== ==== =====
</TABLE>
(a) The ratio of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, "earnings" consist of earnings before
taxes plus fixed charges less preferred stock dividends, and "fixed
charges" consist of interest expense and amortization of debt issuance
costs.
(b) Earnings were inadequate to cover fixed charges by $10,584,000 for the year
ended December 31, 1996.
<PAGE>
TSMD Acquisition Corp.
Stellex Microwave Systems, Inc.
KII Holding Corp.(80.1%)
KII Acquisition Corp.
Stellex Aerospace
Paragon Precision Products
Bandy Machining International
Scanning Electron Analysis Laboratories, Inc.
General Inspection Laboratories, Inc.
Subsidiaries are wholly-owned unless otherwise indicated.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of our
report dated April 11, 1997 (except for Note 10, as to which the date is July 1,
1997), on our audits of the consolidated financial statements and financial
statement schedule of Kleinert Industries, Inc. and Subsidiaries. We also
content to the reference to our firm under the caption "Experts".
Coopers & Lybrand L.L.P.
/s/ Coopers & Lybrand L.L.P.
Los Angeles, California
December 9, 1997
<PAGE>
Exhibit 23.2
We consent to the use in this Registration Statement of Stellex Industries,
Inc. on Form S-4 of our report dated December 5, 1997 relating to the balance
sheet of Stellex Industries Inc. as of September 5, 1997; our report dated
November 4, 1997 relating to the financial statements of the Tactical Subsystems
and Microwave Devices Sectors of the Watkins-Johnson Company; and to the
references to us under the heading "Experts."
Deloitte & Touche LLP
/s/ Deloitte & Touche LLP
December 9, 1997
<PAGE>
Conformed Copy
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
-----------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
-----------
Marine Midland Bank
(Exact name of trustee as specified in its charter)
New York 16-1057879
(Jurisdiction of incorporation (I.R.S. Employer
or organization if not a U.S. Identification No.)
national bank)
140 Broadway, New York, N.Y. 10005-1180
(212) 658-1000 (Zip Code)
(Address of principal executive offices)
Charles E. Bauer
Vice President
140 Broadway
New York, New York 10005-1180
Tel: (212) 658-1792
(Name, address and telephone number of agent for service)
STELLEX INDUSTRIES, INC.
(Exact Name of obligor as specified in its charter)
Delaware 13-3971931
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
<PAGE>
Subsidiary Guarantors
TSMD Acquisition Corp.
Stellex Microwave Systems, Inc.
KII Holding Corp.
KII Acquisition Corp.
Stellex Aerospace
Bandy Machining International
Paragon Precision Products
Scanning Electron Analysis Laboratories, Inc.
General Inspection Laboratories, Inc.
(Exact Name of Obligors as Specified in there Respective Charters)
Delaware 13 - 3964808
California 77 - 0465876
Delaware 13 - 3954446
Delaware 13 - 3954445
California 95 - 4172476
California 95 - 4294446
California 95 - 2882883
California 95 - 4172314
California 95 - 3972454
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
3333 Hillview Ave.
Palo Alto, California 94304-1223
(650) 493-4141 (Zip Code)
(Address of principal executive offices)
Series B 9 1/2% Senior Subordinated Notes due 2007
Guarantee of Series B 9 1/2% Senior Subordinated Notes due 2007
(Title of Indenture Securities)
<PAGE>
General
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory
authority to which it is subject.
State of New York Banking Department.
Federal Deposit Insurance Corporation, Washington, D.C.
Board of Governors of the Federal Reserve System,
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each
such affiliation.
None
<PAGE>
Item 16. List of Exhibits.
Exhibit
T1A(i) * - Copy of the Organization Certificate of
Marine Midland Bank.
T1A(ii) * - Certificate of the State of New York
Banking Department dated December 31,
1993 as to the authority of Marine Midland
Bank to commence business.
T1A(iii) - Not applicable.
T1A(iv) * - Copy of the existing By-Laws of Marine
Midland Bank as adopted on January 20,
1994.
T1A(v) - Not applicable.
T1A(vi) * - Consent of Marine Midland Bank required
by Section 321(b) of the Trust Indenture
Act of 1939.
T1A(vii) - Copy of the latest report of condition of
the trustee (September 30, 1997),
published pursuant to law or the
requirement of its supervisory or
examining authority.
T1A(viii) - Not applicable.
T1A(ix) - Not applicable.
* Exhibits previously filed with the Securities and Exchange Commission
with Registration No. 33-53693 and incorporated herein by reference
thereto.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
Marine Midland Bank, a banking corporation and trust company organized under the
laws of the State of New York, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York on the 4th day of December, 1997.
MARINE MIDLAND BANK
By: /s/ Robert A. Conrad
------------------------------
Robert A. Conrad
Vice President
<PAGE>
Exhibit T1A (vii)
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller of the Currency
OMB Number: 1557-0081
Federal Financial Institutions Examination Council Expires March 31, 1999
- --------------------------------------------------------------------------------
/1/
This financial information has not been reviewed, or confirmed
for accuracy or relevance, by the Federal Reserve System.
Please refer to page i,
Table of Contents, for
the required disclosure
of estimated burden.
- --------------------------------------------------------------------------------
Consolidated Reports of Condition and Income for
A Bank With Domestic and Foreign Offices--FFIEC 031
(950630)
Report at the close of business September 30, -----------
1997 (RCRI 9999)
This report is required by law; 12 U.S.C. ss.324 (State member
banks); 12 U.S.C. ss. 1817 (State nonmember banks); and 12
U.S.C. ss.161 (National banks).
This report form is to be filed by banks with branches and
consolidated subsidiaries in U.S. territories and possessions,
Edge or Agreement subsidiaries, foreign branches, consoli-
dated foreign subsidiaries, or International Banking Facilities.
- --------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed
by an authorized officer and the Report of Condition must be
attested to by not less than two directors (trustees) for State
nonmember banks and three directors for State member and
National Banks.
I, Gerald A. Ronning, Executive VP & Controller
--------------------------------------------
Name and Title of Officer Authorized to Sign Report
of the named bank do hereby declare that these Reports of Condition and Income
(including the supporting schedules) have been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and are true
to the best of my knowledge and believe.
/s/ Gerald A. Ronning
-----------------------------------------
Signature of Officer Authorized to Sign Report
10/27/97
- ----------------------------------------------
Date of Signature
The Reports of Condition and Income are to be prepared in accordance with
Federal regulatory authority instructions. NOTE: These instructions may in some
cases differ from generally accepted accounting principles.
We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it has
been examined by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the appropriate Federal
regulatory authority and is true and correct.
/s/ Malcolm Burnett
- ----------------------------------------------
Director (Trustee)
/s/ James H. Cleave
- ----------------------------------------------
Director (Trustee)
/s/ Bernard J. Kennedy
- ----------------------------------------------
Director (Trustee)
- --------------------------------------------------------------------------------
For Banks Submitting Hard Copy Report Forms:
State Member Bank: Return the original and one copy to the
appropriate Federal Reserve District Bank.
State Nonmember Banks: Return the original only in the special return address
envelope provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.
National Banks: Return the original only in the special return address envelope
provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.
- --------------------------------------------------------------------------------
FDIC Certificate Number /0/0/5/8/9/
(RCRI 9030)
<PAGE>
pd
NOTICE
This form is intended to assist institutions with state publication
requirements. It has not been approved by any state banking authorities. Refer
to your appropriate state banking authorities for your state publication
requirements.
REPORT OF CONDITION
Consolidating domestic and foreign subsidiaries of the
Marine Midland Bank of Buffalo
Name of Bank City
in the state of New York, at the close of business
September 30, 1997
ASSETS
Thousands
of dollars
Cash and balances due from depository institutions:
Noninterest-bearing balances
currency and coin.................................... $1,110,485
Interest-bearing balances ........................... 2,048,920
Held-to-maturity securities.......................... 0
Available-for-sale securities........................ 3,391,694
Federal funds sold and securities purchased
under agreements to resell............................ 1,342,831
Loans and lease financing receivables:
Loans and leases net of unearned
income............................... 21,487,570
LESS: Allowance for loan and lease
losses............................... 425,157
LESS: Allocated transfer risk reserve 0
Loans and lease, net of unearned
income, allowance, and reserve....................... 21,062,413
Trading assets....................................... 968,456
Premises and fixed assets (including
capitalized leases).................................. 221,523
Other real estate owned................................. 5,545
Investments in unconsolidated
subsidiaries and associated companies................... 0
Customers' liability to this bank on
acceptances outstanding................................. 23,847
Intangible assets....................................... 482,701
Other assets............................................ 537,780
Total assets............................................ 31,196,195
LIABILITIES
Deposits:
In domestic offices.................................. 19,952,350
Noninterest-bearing.................................. 3,982,634
<PAGE>
Interest-bearing..................................... 15,969,716
In foreign offices, Edge, and Agreement
subsidiaries, and IBFs.................................. 3,344,008
Noninterest-bearing.................................. 0
Interest-bearing..................................... 3,344,008
Federal funds purchased and securities sold
under agreements to repurchase....................... 2,540,798
Demand notes issued to the U.S. Treasury 279,418
Trading Liabilities..................................... 208,931
Other borrowed money:
With a remaining maturity of one year
or less.............................................. 1,359,650
With a remaining maturity of more than
one year through three years......................... 73,635
With a remaining maturity of more than
three years.......................................... 102,337
Bank's liability on acceptances
executed and outstanding................................ 23,847
Subordinated notes and debentures....................... 497,711
Other liabilities....................................... 596,321
Total liabilities....................................... 28,979,006
Limited-life preferred stock and
related surplus......................................... 0
EQUITY CAPITAL
Perpetual preferred stock and related
surplus................................................. 0
Common Stock............................................ 205,000
Surplus................................................. 1,983,923
Undivided profits and capital reserves.................. 10,090
Net unrealized holding gains (losses)
on available-for-sale securities........................ 18,176
Cumulative foreign currency translation
adjustments............................................. 0
Total equity capital.................................... 2,217,189
Total liabilities, limited-life
preferred stock, and equity capital..................... 31,196,195
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000094026
<NAME> Stellex Industries, Inc.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 729,800
<SECURITIES> 0
<RECEIVABLES> 5,920,915
<ALLOWANCES> 117,715
<INVENTORY> 13,210,800
<CURRENT-ASSETS> 21,044,600
<PP&E> 14,130,300
<DEPRECIATION> 363,400
<TOTAL-ASSETS> 36,027,400
<CURRENT-LIABILITIES> 9,215,500
<BONDS> 0
0
0
<COMMON> 50,000
<OTHER-SE> (255,900)
<TOTAL-LIABILITY-AND-EQUITY> 36,027,400
<SALES> 8,889,800
<TOTAL-REVENUES> 8,889,800
<CGS> 6,746,900
<TOTAL-COSTS> 6,746,900
<OTHER-EXPENSES> 1,603,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 508,000
<INCOME-PRETAX> 31,700
<INCOME-TAX> 287,600
<INCOME-CONTINUING> (255,900)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (255,900)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
<PAGE>
LETTER OF TRANSMITTAL
To Tender for Exchange
9 1/2% Senior Subordinated Notes due 2007
of
STELLEX INDUSTRIES, INC.
Pursuant to the Prospectus Dated , 1997
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998 UNLESS EXTENDED.
To: Marine Midland Bank, The Exchange Agent
By Registered or Certified Mail; By Facsimile:
By Overnight Courier; or By Hand: (212) 658-2292
Attention: Corporate Trust Services
140 Broadway -- Level A
New York, New York 10005-1180 Confirm by Telephone:
Attention: Corporate Trust Services (212) 658-5931
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF THIS INSTRUMENT VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
<PAGE>
The undersigned acknowledges receipt of the Prospectus, dated
, 1997 (the 'Prospectus') of Stellex Industries, Inc. (the
'Company') and this Letter of Transmittal (the 'Letter of Transmittal'), which
together describe the Company's offer (the 'Exchange Offer') to exchange $1,000
principal amount of its Series B 9 1/2% Senior Subordinated Notes due 2007 (the
'Exchange Notes'), which have been registered under the Securities Act of 1933,
as amended (the 'Securities Act'), pursuant to a Registration Statement, for
each $1,000 principal amount of its outstanding 9 1/2% Senior Subordinated Notes
due 2007 (the 'Notes'), of which $100,000,000 principal amount is outstanding.
The term 'Expiration Date' shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term shall mean the latest date and time to
which the Exchange Offer is extended. The term 'Holder' with respect to the
Exchange Offer means any person in whose name Notes are registered on the books
of the Company or any other person who has obtained a properly completed bond
power from the registered holder. Capitalized terms used but not defined herein
have the respective meanings set forth in the Prospectus.
This Letter of Transmittal is to be used by holders of Notes if (i)
certificates representing the Notes are to be physically delivered to the
Exchange Agent herewith, (ii) tender of the Notes is to be made by book entry
transfer to the Exchange Agent's account at The Depository Trust Company (the
'Book-Entry Transfer Facility') pursuant to the procedures set forth in the
Prospectus under the caption 'The Exchange Offer--Procedures for Tendering' by
any financial institution that is a participant in the Book-Entry Transfer
Facility and whose name appears on a security position listing as the owner of
Notes (such participants acting on behalf of holders, are referred to herein,
together with such holders, as 'Authorized Holders') or (iii) tender of the
Notes is to be made according to the guaranteed delivery procedures described in
the Prospectus under the caption 'The Exchange Offer -- Guaranteed Delivery
Procedures.' See Instruction 2. Delivery of documents to the Book-Entry Transfer
Facility does not constitute delivery to the Exchange Agent.
The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Notes must complete this
letter in its entirety.
2
<PAGE>
/ / CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: ____________________________________________
Account Number: ___________________________________________________________
Transaction Code Number: __________________________________________________
Principal Amount of Tendered Notes: _______________________________________
If Holders desire to tender Notes pursuant to the Exchange Offer and (i)
time will not permit this Letter of Transmittal, certificates representing Notes
or other required documents to reach the Exchange Agent prior to the Expiration
Date, or (ii) the procedures for book-entry transfer cannot be completed prior
to the Expiration Date, such Holders may effect a tender of such Notes in
accordance with the guaranteed delivery procedures set forth in the Prospectus
under the caption 'The Exchange Offer -- Guaranteed Delivery Procedures.' See
Instruction 2 below.
/ / CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING (See Instruction 2):
Name of Registered or Authorized Holder(s): _______________________________
Window Ticket No. (if any): _______________________________________________
Date of Execution of Notice of Guaranteed Delivery: _______________________
Name of Eligible Institution
that Guaranteed Delivery: _________________________________________________
If Delivered by Book-Entry
Transfer, the Account Number: _____________________________________________
Transaction Code Number: __________________________________________________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
PLEASE NOTE: THE COMPANY HAS AGREED THAT, FOR A PERIOD OF 90 DAYS AFTER THE
EXPIRATION DATE, IT WILL MAKE COPIES OF THE PROSPECTUS AVAILABLE TO ANY
PARTICIPATING BROKER-DEALER FOR USE IN CONNECTION WITH RESALES OF THE
EXCHANGE NOTES.
Name: _____________________________________________________________________
Address: __________________________________________________________________
Attention: ________________________________________________________________
List below the Notes to which this Letter of Transmittal relates. If the
space provided below is inadequate, the certificate numbers and principal amount
of Notes should be listed on a separate signed schedule affixed hereto.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE BOXES
3
<PAGE>
BOX 1 - DESCRIPTION OF 9 1/2% SENIOR SUBORDINATED NOTES DUE 2007*
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
TENDERED (MUST BE
NAME(S) AND ADDRESS(ES) OF AGGREGATE PRINCIPAL AN INTEGRAL
REGISTERED HOLDER(S) CERTIFICATE AMOUNT REPRESENTED MULTIPLE
(PLEASE FILL IN, IF BLANK) NUMBER(S) BY CERTIFICATE(S) OF $1,000**)
<S> <C> <C> <C>
TOTAL
</TABLE>
* Need not be completed by Holders tendering by book-entry transfer.
** Unless indicated in the column labeled 'Principal Amount Tendered,' any
tendering Holder of 9 1/2% Senior Subordinated Notes due 2007 will be deemed to
have tendered the entire aggregate principal amount represented by the column
labeled 'Aggregate Principal Amount Represented by Certificate(s).' If the space
provided above is inadequate, list the certificate numbers and principal amounts
on a separate signed schedule and affix the list to this Letter of Transmittal.
The minimum permitted tender is $1,000 in principal amount of 9 1/2% Senior
Subordinated Notes due 2007. All other tenders must be in integral multiples of
$1,000.
4
<PAGE>
BOX 2
SPECIAL REGISTRATION INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for Notes in a principal amount not
tendered, or Exchange Notes issued in exchange for Notes accepted for exchange,
are to be issued in the name of someone other than the undersigned.
Issue certificate(s) to:
Name ___________________________________________________________________________
(PLEASE PRINT)
Address ________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(INCLUDE ZIP CODE)
________________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
BOX 3
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for Notes in a principal amount not
tendered, or Exchange Notes issued in exchange for Notes accepted Notes accepted
for exchange, are to be sent to someone other than the undersigned, or to the
undersigned at an address other than that shown above.
Deliver certificate(s) to:
Name ___________________________________________________________________________
(PLEASE PRINT)
Address ________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(INCLUDE ZIP CODE)
________________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
BOX 4
BROKER-DEALER STATUS
/ / Check this box if the Beneficial Owner of the Notes is a Participating
Broker-Dealer and such Participating Broker-Dealer acquired the Notes for
its own account as a result of market-making activities or other trading
activities. IF THIS BOX IS CHECKED, PLEASE SEND A COPY OF THIS LETTER OF
TRANSMITTAL TO WILLIAM L. REMLEY, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF
THE COMPANY, VIA FACSIMILE:
(212) 391-1393.
5
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to Stellex Industries, Inc. (the 'Company') the principal amount
of Notes indicated above.
Subject to and effective upon the acceptance for exchange of the principal
amount of Notes tendered in accordance with this Letter of Transmittal, the
undersigned sells, assigns and transfers to, or upon the order of, the Company
all right, title and interest in and to the Notes tendered hereby. The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent its
agent and attorney-in-fact (with full knowledge that the Exchange Agent also
acts as the agent of the Company) with respect to the tendered Notes with the
full power of substitution to (i) present such Notes and all evidences of
transfer and authenticity to, or transfer ownership of, such Notes on the
account books maintained by the Book-Entry Transfer Facility to, or upon the
order of, the Company, (ii) deliver certificates for such Notes to the Company
and deliver all accompanying evidences of transfer and authenticity to, or upon
the order of, the Company and (iii) present such Notes for transfer on the books
of the Company and receive all benefits and otherwise exercise all rights of
beneficial ownership of such Notes, all in accordance with the terms of the
Exchange Offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Notes tendered
hereby and that the Company will acquire good, valid and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claims, when the same are acquired by the Company.
The undersigned hereby further represents that any Exchange Notes acquired in
exchange for Notes tendered hereby will have been acquired in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is the undersigned, that neither the undersigned nor any other such
person has any arrangement or understanding with any person to participate in
the distribution of such Exchange Notes and that neither the undersigned nor any
such other person is an 'affiliate,' as defined in Rule 405 under the Securities
Act, of the Company. In addition, the undersigned and any such person
acknowledge that (a) any person participating in the Exchange Offer for the
purpose of distributing the Exchange Notes must, in the absence of an exemption
therefrom, comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale of the Exchange Notes
and cannot rely on the position of the Staff of the Securities and Exchange
Commission enunciated in no-action letters and (b) failure to comply with such
requirements in such instance could result in the undersigned or such person
incurring liability under the Securities Act for which the undersigned or such
person is not indemnified by the Company. The undersigned will, upon request,
execute and deliver any additional documents deemed by the Exchange Agent or the
Company to be necessary or desirable to complete the assignment, transfer and
purchase of the Notes tendered hereby. If the undersigned is not a
broker-dealer, the undersigned represents that it is not engaged in, and does
not intend to engage in, a distribution of Exchange Notes. If the undersigned is
a broker-dealer that will receive Exchange Notes for its own account in exchange
for Notes that were acquired as a result of market-making activities or other
trading activities, it acknowledges that it will deliver a Prospectus in
connection with any resale of such Exchange Notes; however, by so acknowledging
and by delivering a Prospectus, the undersigned will not be deemed to admit that
it is an 'underwriter' within the meaning of the Securities Act. Unless
otherwise notified in accordance with the instructions set forth herein in Box 4
under 'Broker-Dealer Status,' the Company will assume that the undersigned is
not a Participating Broker-Dealer.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Notes when, as and if the Company has given oral or
written notice thereof to the Exchange Agent.
If any Notes tendered herewith are not accepted for exchange pursuant to
the Exchange Offer for any reason, certificates for any such unaccepted Notes
will be returned, without expense, to the undersigned at the address shown below
or to a different address as may be indicated herein in Box 3 under 'Special
Delivery Instructions' as promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representative, successors and assigns.
6
<PAGE>
The undersigned understands that tenders of Notes pursuant to the
procedures described under the caption 'The Exchange Offer -- Procedures for
Tendering' in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer, subject only to withdrawal of
such tenders on the terms set forth in the Prospectus under the caption 'The
Exchange Offer -- Withdrawal of Tenders.'
Unless otherwise indicated in Box 2 under 'Special Registration
Instructions,' please issue the certificates (or electronic transfers)
representing the Exchange Notes issued in exchange for the Notes accepted for
exchange and any certificates (or electronic transfers) for Notes not tendered
or not exchanged, in the name(s) of the undersigned. Similarly, unless otherwise
indicated in Box 3 under 'Special Delivery Instructions,' please send the
certificates, if any, representing the Exchange Notes issued in exchange for the
Notes accepted for exchange and any certificates for Notes not tendered or not
exchanged (and accompanying documents, as appropriate) to the undersigned at the
address shown below in the undersigned's signature(s). In the event that both
'Special Registration Instructions' and 'Special Delivery Instructions' are
completed, please issue the certificates representing the Exchange Notes issued
in exchange for the Notes accepted for exchange in the name(s) of, and return
any certificates for Notes not tendered or not exchanged to, the person(s) so
indicated. The undersigned understands that the Company has no obligation
pursuant to the 'Special Registration Instructions' and 'Special Delivery
Instructions' to transfer any Notes from the name of the registered Holder(s)
thereof if the Company does not accept for exchange any of the Notes so
tendered.
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available or (ii) who cannot deliver the Notes, this Letter of
Transmittal or any other documents required hereby to the Exchange Agent prior
to the Expiration Date, may tender their Notes according to the guaranteed
delivery procedures set forth in the Prospectus under the caption 'The Exchange
Offer -- Guaranteed Delivery Procedures.' See Instruction 2 regarding the
completion of this Letter of Transmittal printed below.
7
<PAGE>
The below lines must be signed by the registered holder(s) exactly as their
name(s) appear(s) on the Notes or by a participant in the Book-Entry Transfer
Facility, exactly as such participant's name appears on a security position
listing as the owner of the Notes, or by person(s) authorized to become
registered holder(s) by a properly completed bond power from the registered
holder(s), a copy of which must be transmitted with this Letter of Transmittal.
If Notes to which this Letter of Transmittal relate are held of record by two or
more joint holders, then all such holders must sign this Letter of Transmittal.
PLEASE SIGN HERE WHETHER OR NOT
NOTES ARE BEING PHYSICALLY TENDERED HEREBY
X ______________________________ Date: ________________________________
X ______________________________ Date: ________________________________
Area Code and Telephone Number: ______________________________________
If signature is by a trustee, executor, administrator, guardian, attorney-
in-fact, officer of a corporation or other person acting in a fiduciary or
representative capacity, then such person must (i) set forth his or her full
title below and (ii) submit evidence satisfactory to the Company of such
person's authority so to act. See Instruction 5 regarding the completion of this
Letter of Transmittal printed below.
Name(s): ______________________________________________________________________
(Please Print)
Capacity: _____________________________________________________________________
Address: ______________________________________________________________________
(Include Zip Code)
MEDALLION SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 5)
CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION
Signature(s) Guaranteed by an Eligible Institution: ____________________________
(Authorized Signature)
________________________________________________________________________________
(Title)
________________________________________________________________________________
(Name of Firm)
________________________________________________________________________________
(Address, Include Zip Code)
________________________________________________________________________________
(Area Code and Telephone Number)
Dated: _________________________________________________________________________
8
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES FOR NOTES OR
BOOK-ENTRY CONFIRMATIONS. Certificates representing the tendered Notes (or a
confirmation of book-entry transfer into the Exchange Agent's account with the
Book-Entry Transfer Facility for tendered Notes transferred electronically), as
well as a properly completed and duly executed copy of this Letter of
Transmittal (or facsimile thereof), a Substitute Form W-9 (or facsimile thereof)
and any other documents required by this Letter of Transmittal must be received
by the Exchange Agent at its address set forth herein prior to the Expiration
Date. The method of delivery of certificates for Notes and all other required
documents is at the election and sole risk of the tendering holder and delivery
will be deemed made only when actually received by the Exchange Agent. If
delivery is by mail, registered mail with return receipt requested, properly
insured, is recommended. As an alternative to delivery by mail, the holder may
wish to use an overnight or hand delivery service. In all cases, sufficient time
should be allowed to assure timely delivery. Neither the Company nor the
Exchange Agent is under an obligation to notify any tendering holder of the
Company's acceptance of tendered Notes prior to the completion of the Exchange
Offer.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Notes
but whose Notes are not immediately available and who cannot deliver their
certificates for Notes (or comply with the procedures for book-entry transfer
prior to the Expiration Date), the Letter of Transmittal and any other documents
required by the Letter of Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Notes according to the guaranteed delivery
procedures set forth below. Pursuant to such procedures:
(i) such tender must be made by or through a firm which is a member of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an office
or correspondent in the United States (an 'Eligible Institution');
(ii) prior to the Expiration Date, the Exchange Agent must have received
from the holder and the Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (by facsimile transmission, mail, or hand
delivery) setting forth the name and address of the holder, the certificate
number or numbers of the tendered Notes, and the principal amount of tendered
Notes and stating that the tender is being made thereby and guaranteeing that,
within three New York Stock Exchange trading days after the Expiration Date, the
Letter of Transmittal (or facsimile thereof), together with the tendered Notes
(or a confirmation of book-entry transfer into the Exchange Agent's account with
the Book-Entry Transfer Facility for Notes transferred electronically) and any
other required documents will be deposited by the Eligible Institution with the
Exchange Agent; and
(iii) such properly completed and executed Letter of Transmittal and
certificates representing the tendered Notes in proper form for transfer (or a
confirmation of book-entry transfer into the Exchange Agent's account with the
Book-Entry Transfer Facility for Notes transferred electronically) must be
received by the Exchange Agent within three New York Stock Exchange trading days
after the Expiration Date.
Any holder who wishes to tender Notes pursuant to the guaranteed delivery
procedures described above must ensure that the Exchange Agent receives the
Notice of Guaranteed Delivery relating to such Notes prior to the Expiration
Date. Failure to complete the guaranteed delivery procedures outlined above will
not, of itself, affect the validity or effect a revocation of any Letter of
Transmittal form properly completed and executed by a Holder who attempted to
use the guaranteed delivery person.
3. TENDER BY HOLDER. Only a holder of Notes may tender such Notes in the
Exchange Offer. Any beneficial owner of Notes who is not the registered holder
and who wishes to tender should arrange with such holder to execute and deliver
this Letter of Transmittal on such owner's behalf or must, prior to completing
and executing this Letter of Transmittal and delivering such Notes, either make
appropriate arrangements to register ownership of the Notes in such owner's name
or obtain a properly completed bond power from the registered holder.
4. PARTIAL TENDERS. Tenders of Notes will be accepted only in integral
multiples of $1,000 in principal amount. If less than the entire principal
amount of Notes is tendered, the tendering holder should fill in the principal
amount tendered in the column labeled 'Aggregate Principal Amount Tendered' of
the box entitled 'Description of Notes' (Box 1) above. The entire principal
amount of Notes delivered to the Exchange Agent
9
<PAGE>
will be deemed to have been tendered unless otherwise indicated. If the entire
principal amount of Notes is not tendered, Notes for the principal amount of
Notes not tendered and Exchange Notes exchanged for any Notes tendered will be
sent to the holder at his or her registered address (or transferred to the
account of the Book-Entry Facility designated above), unless a different address
(or account) is provided in the appropriate box on this Letter of Transmittal,
as soon as practicable following the Expiration Date.
5. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
MEDALLION GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by
the registered holder(s) of the Notes tendered herewith, the signatures must
correspond with the name(s) as written on the face of the tendered Notes without
alteration, enlargement, or any change whatsoever. If this Letter of Transmittal
is signed by a participant in the Book-Entry Transfer Facility, the signature
must correspond with the name as it appears on the security position listing as
the owner of the Notes.
If any of the tendered Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal. If any tendered
Notes are held in different names on several Notes, it will be necessary to
complete, sign, and submit as many separate copies of the Letter of Transmittal
documents as there are names in which tendered Notes are held.
If this Letter of Transmittal is signed by the registered holder or
Authorized Holder, and Exchange Notes are to be issued and any untendered or
unaccepted principal amount of Notes are to be reissued or returned to the
registered holder or Authorized Holder, then, the registered holder or
Authorized Holder need not and should not endorse any tendered Notes nor provide
a separate bond power. In any other case, the registered holder or Authorized
Holder must either properly endorse the Notes tendered or transmit a properly
completed separate bond power with this Letter of Transmittal (in either case,
executed exactly as the name(s) of the registered holder(s) appear(s) on such
Notes, and, with respect to a participant in the Book-Entry Transfer Facility
whose name appears on a security position listing as the owner of Notes, exactly
as the name(s) of the participant(s) appear(s) on such security position
listings), with the signature(s) on the endorsement or bond power guaranteed by
an Eligible Institution unless such certificates or bond powers are signed by an
Eligible Institution.
If this Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and evidence satisfactory to the Company
of their authority to so act must be submitted with this Letter of Transmittal.
No medallion signature guarantee is required if (i) this Letter of
Transmittal is signed by the registered holder(s) of the Notes tendered herewith
(or by a participant in the Book-Entry Transfer Facility whose name appears on a
security position listing as the owner of the Tendered Notes) and the issuance
of Exchange Notes (and any Notes not tendered or not accepted) are to be issued
directly to such registered holder(s) (or, if signed by a participant in the
Book-Entry Transfer Facility, any Exchange Notes or Notes not tendered or not
accepted are to be deposited to such participant's account at such Book-Entry
Transfer Facility) and neither the 'Special Delivery Instructions' (Box 3) nor
the 'Special Registration Instructions' (Box 2) has been completed, or (ii) such
Notes are tendered for the account of an Eligible Institution. In all other
cases, all signatures on this Letter of Transmittal must be guaranteed by an
Eligible Institution.
6. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate, in the applicable box, the name and address (or account at the
Book-Entry Transfer Facility) in which the Exchange Notes and/or substitute
Notes for principal amounts not tendered or not accepted for exchange are to be
sent (or deposited), if different from the name and address or account of the
person signing this Letter of Transmittal. In the case of issuance in a
different name, the employer identification number or social security number of
the person named must also be indicated and the indicated and the tendering
holders should complete the applicable box.
If no such instructions are given, the Exchange Notes (and any Notes not
tendered or not accepted) will be issued in the name of and sent to the
Authorized Holder of the Notes or deposited at such Authorized Holders' account
at the Book-Entry Transfer Facility.
7. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the sale and transfer of Notes to it or its order pursuant to the
Exchange Offer. If, however, a transfer tax is imposed for any reason other
10
<PAGE>
than the transfer and sale of Notes to the Company or its order pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or on any other person) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption from
taxes therefrom is not submitted with this Letter of Transmittal, the amount of
transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Notes listed in this Letter of
Transmittal.
8. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a holder
of any Notes which are accepted for exchange must provide the Company (as payor)
with its correct taxpayer identification number ('TIN'), which, in the case of a
holder who is an individual, is his or her social security number. If the
Company is not provided with the correct TIN, the Holder may be subject to a $50
penalty imposed by Internal Revenue Service. (If withholding results in an
over-payment of taxes, a refund may be obtained.) Certain holders (including,
among other, all corporations and certain foreign individuals) are not subject
to these backup withholding and reporting requirements. See the enclosed
'Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9' for additional instructions.
To prevent backup withholding, each tendering holder must provide such
holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN), and that (i) the holder has not been notified by the Internal Revenue
Service that such holder is subject to backup withholding as a result of failure
to report interest or dividends or (ii) the Internal Revenue Service has
notified the holder that such holder is no longer subject to backup withholding.
If the Notes are registered in more than one name or are not in the name of the
actual owner, see the enclosed 'Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9' for information on which TIN to
report.
The Company reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Company's obligation regarding backup
withholding.
9. VALIDITY OF TENDERS. All questions as to the validity, form, eligibility
(including time of receipt), and acceptance of tendered Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Notes not
properly tendered or any Notes the Company's acceptance of which would, in the
opinion of the Company or its counsel, be unlawful. The Company also reserves
the right in its sole discretion to waive any conditions of the Exchange Offer
or defects or irregularities in tenders of Notes as to any ineligibility of any
holder who seeks to tender Notes in the Exchange Offer. The interpretation of
the terms and conditions of the Exchange Offer (including this Letter of
Transmittal and the instructions hereto) by the Company shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Notes must be cured within such time as the Company
shall determine. The Company will use reasonable efforts to give notification of
defects or irregularities with respect to tenders of Notes, but shall not incur
any liability for failure to give such notification. Tenders of Notes will not
be deemed to have been made until such defects or irregularities have been cured
or waived.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend,
waive, or modify specified conditions in the Exchange Offer in the case of any
tendered Notes.
11. NO CONDITIONAL TENDER. No alternative, conditional, irregular, or
contingent tender of Notes on transmittal of this Letter of Transmittal will be
accepted.
12. MUTILATED, LOST, STOLEN, OR DESTROYED NOTES. Any tendering holder whose
Notes have been mutilated, lost, stolen, or destroyed should contact the
Exchange Agent at the address indicated above for further instruction.
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Prospectus may be
directed to the Exchange Agent at the address specified in the Prospectus.
Holders may also contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Exchange Offer.
11
<PAGE>
14. ACCEPTANCE OF TENDERED NOTES AND ISSUANCE OF EXCHANGE NOTES; RETURN OF
NOTES. Subject to the terms and conditions of the Exchange Offer, the Company
will accept for exchange all validly tendered Notes as soon as practicable after
the Expiration Date and will issue Exchange Notes therefor as soon as
practicable thereafter. For purposes of the Exchange Offer, the Company shall be
deemed to have accepted tendered Notes when, as and if the Company has given
written and oral notice thereof to the Exchange Agent. If any tendered Notes are
not exchanged pursuant to the Exchange Offer for any reason, such unexchanged
Notes will be returned, without expense, to the undersigned at the address shown
above (or credited to the undersigned's account at the Book-Entry Transfer
Facility designated above) or at a different address as may be indicated under
'Special Delivery Instructions.'
15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption 'The Exchange
Offer -- Withdrawal of Tenders.'
12
<PAGE>
PAYOR'S NAME: STELLEX INDUSTRIES, INC.
Name (if joint names, list first and circle the name of the person or entity
whose number you enter in Part I below. See instructions if your name has
changed.)
______________________________________________________________________________
Address ______________________________________________________________________
City, State and ZIP Code _____________________________________________________
List account number(s) here (optional) _______________________________________
<TABLE>
<S> <C> <C>
PART 1 -- PLEASE PROVIDE YOUR TAXPAYER
---------------------------
SUBSTITUTE IDENTIFICATION NUMBER ('TIN') IN THE BOX AT RIGHT Social Security Number
FORM W-9 AND CERTIFY BY SIGNING AND DATING BELOW or TIN
DEPARTMENT OF THE TREASURY PART 2 -- Check the box if you are NOT subject to PART 3 --
INTERNAL REVENUE SERVICE backup withholding under the provisions of section Awaiting TIN / /
3408(a)(1)(C) of the Internal Revenue Code because
(1) you have not been notified that you are
subject to backup withholding as a result of
failure to report all interest of dividends or (2)
the Internal Revenue Service has notified you that
you are no longer subject to backup withholding. / /
<CAPTION>
<S> <C>
PAYER'S REQUEST FOR
TAXPAYER IDENTIFICATION CERTIFICATION -- Under the penalties of perjury, I certify that the information
NUMBER (TIN) provided on this form is true, correct and complete.
SIGNATURE ---------------------------- DATE ----------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
13
<PAGE>
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
STELLEX INDUSTRIES, INC.
9 1/2% SENIOR SUBORDINATED NOTES DUE 2007
This form must be used by a holder of 9 1/2% Senior Subordinated Notes due
2007 (the 'Notes') of Stellex Industries, Inc. (the 'Company'), who wishes to
tender Notes to the Exchange Agent pursuant to the guaranteed delivery
procedures described in the 'The Exchange Offer -- Guaranteed Delivery
Procedures' of the Prospectus, dated (the 'Prospectus'),
and in Instruction 2 to the related Letter of Transmittal. Any holder who wishes
to tender Notes pursuant to such guaranteed delivery procedures must ensure that
the Exchange Agent receives this Notice of Guaranteed Delivery prior to the
Expiration Date of the Exchange Offer. Capitalized terms not defined herein have
the meanings ascribed to them in the Prospectus or the Letter of Transmittal.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED (THE 'EXPIRATION DATE').
To: Marine Midland Bank
(the 'Exchange Agent')
By Facsimile: (212) 658-2292
Confirmation by Telephone: (212) 658-5931
By Mail, Overnight Courier or Hand Delivery:
140 Broadway -- Level A
New York, New York 10005-1180
Attn: Corporate Trust Services
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION VIA FACSIMILE,
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal is required to be guaranteed by an 'Eligible Institution'
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
LADIES AND GENTLEMEN:
The undersigned hereby tenders to the Company, upon the terms and subject
to the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Notes set forth below pursuant to the guaranteed delivery procedures set forth
in the Prospectus and in Instruction 2 of the Letter of Transmittal.
The undersigned hereby tenders the Notes listed below:
<TABLE>
<S> <C> <C>
CERTIFICATE NUMBER(S) AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
(IF KNOWN) OF NOTES AMOUNT REPRESENTED AMOUNT TENDERED
OR ACCOUNT NUMBER
AT THE BOOK-ENTRY
FACILITY
--------------------- ------------------- -------------------
<S> <C> <C>
</TABLE>
<PAGE>
PLEASE SIGN AND COMPLETE
Signatures of Registered Holder(s) or
Date: , 1997
Authorized Signatory: __________________________________________________________
Address: _______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
Area Code and Telephone No.: ___________________________________________________
Name of Registered Holder(s): __________________________________________________
This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly
as their name(s) appear on certificates for Notes or on a security position
listing as the owner of Notes, or by person(s) authorized to become Holder(s) by
endorsements and documents transmitted with this Notice of Guaranteed Delivery.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
Please print name(s) and address(es)
Name(s): _______________________________________________________________________
Capacity: ______________________________________________________________________
Address(es): ___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an 'eligible guarantor institution' within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, guarantees deposit with the Exchange Agent of the Letter of Transmittal
(or facsimile thereof), together with the Notes tendered hereby in proper form
for transfer (or confirmation of the book-entry transfer of such Notes into the
Exchange Agent's account at Book-Entry Transfer Facility described in the
Prospectus under the caption 'The Exchange Offer -- Guaranteed Delivery
Procedures' and in the Letter of Transmittal) and any other required documents,
all by 5:00 p.m., New York City time, on the third New York Stock Exchange
trading day following the Expiration Date.
<TABLE>
<S> <C>
Name of Firm: ____________________________________ _____________________________________
Authorized Signature
Address: _________________________________________
Area Code and Telephone No.: _____________________ Name: _______________________________
Title: ______________________________
Date: _________________________, 1998
</TABLE>
DO NOT SEND NOTES WITH THIS FORM. ACTUAL SURRENDER OF NOTES MUST BE MADE
PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL.
<PAGE>
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other documents
required by this Notice of Guaranteed Delivery must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. The method
of delivery of this Notice of Guaranteed Delivery and any other required
documents to the Exchange Agent is at the election and sole risk of the holder,
and the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. As an alternative to delivery by mail, the
holders may wish to consider using an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. For a
description of the guaranteed delivery procedures, see Instruction 2 of the
Letter of Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Notes referred
to herein, the signature must correspond with the name(s) written on the face of
the Notes without alteration, enlargement, or any change whatsoever. If this
Notice of Guaranteed Delivery is signed by a participant of the Book-Entry
Transfer Facility whose name appears on a security position listing as the owner
of Notes, the signature must correspond with the name shown on the security
position listing as the owner of the Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Notes listed or a participant of the Book-Entry
Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by
appropriate bond powers, signed as the name of the registered holder(s) appears
on the Notes or signed as the name of the participant shown on the Book-Entry
Transfer Facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and submit with the Letter of Transmittal evidence
satisfactory to the Company of such person's authority to so act.
3. Requests for Assistance or Additional Copies. Questions and requests for
assistance and requests for additional copies of the Prospectus may be directed
to the Exchange Agent at the address specified in the Prospectus. Holders may
also contact their broker, dealer, commercial bank, trust company, or other
nominee for assistance concerning the Exchange Offer.
<PAGE>
INSTRUCTIONS TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT
FROM BENEFICIAL OWNER OF
STELLEX INDUSTRIES, INC.
9 1/2% SENIOR SUBORDINATED NOTES DUE 2007
To Registered Holder and/or Participant of the Book-Entry Transfer
Facility:
The undersigned hereby acknowledges receipt of the Prospectus, dated
(the 'Prospectus'), of Stellex Industries, Inc. (the
'Company'), and the accompanying Letter of Transmittal (the 'Letter of
Transmittal'), that together constitute the Company's offer (the 'Exchange
Offer'). Capitalized terms used but not defined herein have the meanings
ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the 9 1/2% Senior Subordinated Notes due 2007
(the 'Notes') held by you for the account of the undersigned.
The aggregate face amount of the Notes held by you for the account of the
undersigned is (FILL IN AMOUNT): $ of the 9 1/2% Senior
Subordinated Notes due 2007.
With respect to the Exchange Offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):
/ / TO TENDER the following Notes held by you for the account of the
undersigned (INSERT PRINCIPAL AMOUNT OF NOTES TO BE TENDERED, IF ANY):
$ .
/ / NOT TO TENDER any Notes held by you for the account of the undersigned.
If the undersigned instructs you to tender the Notes held by you for the
account of the undersigned, it is understood that you are authorized (a) to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representations and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations that (i) the
undersigned's principal residence is in the state of (fill in state)
, (ii) the undersigned is acquiring the Exchange Notes in the
ordinary course of business of the undersigned, (iii) the undersigned is not
participating, does not intend to participate, and has no arrangement or
understanding with any person to participate in the distribution of the Exchange
Notes, (iv) the undersigned acknowledges that any person participating in the
Exchange Offer for the purpose of distributing the Exchange Notes must comply
with the registration and prospectus delivery requirements of the Securities Act
of 1933, as amended (the 'Act'), in connection with a secondary resale
transaction of the Exchange Notes acquired by such person and cannot rely on the
position of the Staff of the Securities and Exchange Commission set forth in
no-action letters that are discussed in the section of the Prospectus entitled
'The Exchange Offer -- Resales of the New Notes,' and (v) the undersigned is not
an 'affiliate,' as defined in Rule 405 under the Act, of the Company; (b) to
agree, on behalf of the undersigned, as set forth in the Letter of Transmittal;
and (c) to take such other action as necessary under the Prospectus or the
Letter of Transmittal to effect the valid tender of such Notes.
/ / Check this box if the Beneficial Owner of the Notes is a Participating
Broker-Dealer and such Participating Broker-Dealer acquired the Notes
for its own account as a result of market-making activities or other
trading activities. IF THIS BOX IS CHECKED, PLEASE SEND A COPY OF THESE
INSTRUCTIONS TO WILLIAM L. REMLEY, PRESIDENT AND CHIEF EXECUTIVE
OFFICER OF THE COMPANY, VIA FACSIMILE: (212) 391-1393.
<PAGE>
SIGN HERE
Name of beneficial owner(s): ___________________________________________________
Signature(s): __________________________________________________________________
Name (please print): ___________________________________________________________
Address: _______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
Telephone number: ______________________________________________________________
Taxpayer Identification or Social Security Number: _____________________________
Date: __________________________________________________________________________
2
